Die Wende Means die Ende: Germany as We Know It Will No Longer Exist Since Sanctions on Russia Killed It

"No one can deny the creeping de-industrialization in Germany anymore. It must be clear to us: we will no longer be the country that uses cheap fossil fuels to supply the world with mass products from its steel, car or chemical industries.

 

Germany's economy is weakening. After last year's contraction, 2024 promises only minor improvement. The Kiel Institute for the World Economy forecasts economic growth of 0.1 percent. German industry is particularly affected.

 

No one can now seriously deny the creeping de-industrialization. In January 2024, German industrial production output was 5.5 percent below the previous year's level. Heavyweights in German industry are cutting jobs.

 

Is this a temporary downturn? Or are structural weaknesses in our country revealed here? And how can we stop this worrying development?

 

Once you leave, you often don't come back

 

A cyclical decline in industrial production is not uncommon in highly developed economies. But Germany is in a particularly bad situation at the moment. The growth figures are well below the OECD average, and industrial production is literally collapsing.

 

The preferred investment destination for many German companies is currently abroad, especially the USA. They invested $15.7 billion there last year, almost twice as much as the year before. The USA has made itself attractive to German companies through a mixture of pragmatic industrial policy and the huge subsidies of the Inflation Reduction Act.

 

According to a survey by the German Chamber of Commerce and Industry, German companies want to further increase their investments abroad, but reduce them in Germany. Energy-intensive industries in particular are looking for cheaper electricity prices abroad. A real relocation is taking place here to our disadvantage. And once you leave, you usually don't come back.

 

Germany lacks strong tech innovations

 

At the same time, foreign direct investment in Germany fell by 18 percent in 2023. Foreign investors primarily complain about the excessive bureaucracy and inadequate digitalization in Germany.

 

The mood in German industry is suffering from this impression. German companies give the general conditions of Germany an industrial location a poor rating, particularly because of bureaucratic requirements, high energy costs and lengthy planning and approval procedures.

 

There is also an innovation problem. We lack strong tech innovations. The number of patent applications in the AI area in the USA or China exceeds that in Germany by more than ten times. These mostly come from young companies like OpenAI, which is not yet 10 years old.

 

But setting up a company is particularly difficult in Germany; entrepreneurs have to fight their way through a jungle of bureaucracy. And if they are successful, sooner or later they will migrate to the USA because the capital markets there are deeper and investors are more willing to take risks.

 

At the same time, in Germany, the population's rejection of new technologies is particularly high, as the Edelman Trust Barometer recently revealed. This is especially true for AI. In doing so, we are harming ourselves, because investments in AI have already shown considerable increases in sales and productivity effects in various industries - and the trend is rising rapidly.

 

We should also recognize positive developments

 

Despite all the worries, there are also positive things. Germany still has fundamental strengths, and some things appear more advanced at second glance.

 

The expansion of renewable energies is making steady progress. Their share of German electricity generation has never been higher than in 2023. This is also because the approval procedures for the installation of new systems have been simplified. The expansion of renewable energies in particular will determine whether Germany as an industrial nation can succeed in the green transformation.

 

The new skilled worker immigration law is a step in the right direction. Politicians are finally recognizing the problem of skills shortages and the importance of facilitating the immigration of well-trained workers.

 

The extent of deindustrialization is also not quite as clear as the production index and voices from business suggest. Because while the production index by numbers According to the Federal Statistical Office, GDP has fallen by 8 percent since 2015, but gross value added has risen by at least 7 percent in the same period. This divergence is unusual. At least one reason could be that although fewer products are manufactured in Germany overall, they have higher margins.

 

Energy-intensive industries will be difficult to save – subsidies or not

 

This probably provides an answer to the question of how we have to position ourselves for the future:

 

We will not be successful if we respond to the challenges of the 1920s and 1930s with the recipes of the past. We will no longer be the country that uses cheap fossil fuels to supply the world with mass-produced steel, car or chemical products.

 

Some companies have already reinvented themselves, and others will have to follow suit. And some, such as particularly energy-intensive industries, will be difficult to save – subsidies or not.

 

Instead, we need to focus on our fundamental strengths. These lie in an attractive, free social model that rewards creativity and the assumption of responsibility by each and every individual. In a reliable constitutional state with strong democratic institutions. In a well-educated population with lower social inequality compared to global standards and in a still very strong German middle class.

 

It's no use mourning the world of yesterday

 

On this basis we can set a new course. Digitalization must finally be pushed forward more quickly and bureaucracy and approval processes must be simplified in the right places. We need more targeted investment in digital education for people of all ages. This is the only way we can become a society of learners again that does not fear new technologies but actively uses and shapes them.

 

We may not be among the world leaders in AI innovation. But we have everything we need to be at the forefront of using artificial intelligence in industrial processes and many other areas of our economy and administration.

 

It's no use mourning the world of yesterday. But if we make the right decisions quickly now and implement them consistently, we can lay the foundations for sustainable business that will ensure our social prosperity in the future.

 

About Anahita Thoms

 

Anahita Thoms (42) is a top lawyer and partner at the major law firm Baker McKenzie. She heads the firm's German foreign trade practice and works at the interface between public law, corporate governance and compliance. A.Thoms is also a board member of the Atlantic Bridge and Young Global Leader of the World Economic Forum.

 

In her column, A.Thoms writes about ways we balance sustainability, competitiveness and social justice."

 

Very interesting. Enthusiastically welcoming sanctions against Russia (die Wende), German Chancellor Scholz personally destroyed the German car industry, which Chancellor Merkel used to cover with her female bosom (die Ende). Stay in sweet memories, VW Golfs of Lithuanian roads...