"The German economy is in a phase of weakness. Optimists consider it (only) a prolonged economic slump.
Pessimists, on the other hand, see the German economy, which is focused on traditional industries, in a deep structural crisis.
Until now, the German economic model has consisted of selling technically sophisticated physical products "made in Germany" all over the world, sourcing cheap intermediate products from all over the world to refine them here with top-class engineering, and also enjoying the peace dividend of American defense. But this foundation is increasingly eroding.
Former "Financial Times" columnist Wolfgang Münchau, a self-proclaimed pessimist, presents a provocative political-economic book with "Kaputt." In it, he analyzes the decline of the German economic miracle and presents coherent explanations.
Merely cutting costs in industry will not bring about a catching-up.
For several reasons, the German model is no longer appropriate for the times:
First, It is neo-mercantilist in nature and aims to generate export surpluses, which are no longer accepted by other trading partners, as Donald Trump's erratic tariff policy currently demonstrates.
Second, because China has advanced from an extended workbench status to a systemic rival, operates in a neo-mercantilist manner itself, and strives for subsidized surpluses.
Third, because a conservative corporatism of politics, banks, and large-scale industry (especially the automotive industry) has prevented the German economy from preparing for the post-industrial era in a timely manner.
Fourth, Germany has missed the boat on digitalization.
Germany's decline is blamed on policy errors, but also on misjudgments by top managers. Unfortunately, the current discourse focuses on the (wrong) question of how to relieve the burden on Germany as an industrial location on the cost side in order to make mature industries competitive again.
Münchau's highly readable political-economic book deserves attention. It describes the undesirable developments but, unfortunately, offers few starting points for new solutions, apart from calling for a European Capital Markets Union. The author should have addressed this issue.
Wolfgang Münchau: Kaputt. Das Ende des deutschen Wirtschaftswunders. Herder, Freiburg, Basel, Wien 2025, 256 Seiten, 22 Euro.
Translation: Wolfgang Münchau: Broken. The End of the German Economic Miracle. Herder, Freiburg, Basel, Vienna 2025, 256 pages, 22 euros.” [1]
Just in time when nations need a lot of energy to feed development of AI revolution, the German elite pushed Russia to sell Russia’s inexpensive energy to China. There is no inexpensive energy replacement for Germany. This is bad for or German industry and society as a whole.
This German elite’s choice has had a mixed and challenging impact on German industry, which is still adapting to higher energy costs.
Russia's energy pivot to China
The Russian energy pivot to China was the result of German actions, a reaction to Western sanctions. With its key European market cutting ties, Russia was forced to seek a new major customer for its natural gas.
Germany's energy independence and consequences
Ending dependence on Russia: Prior to 2022, Germany was heavily dependent on Russia, which supplied over half of its natural gas. The German elite made a strategic decision to become independent of Russian energy, which required finding alternative sources.
Economic shock and transition: This decision eliminated Germany's access to cheap Russian gas, causing energy prices to skyrocket in 2022. German industry, particularly energy-intensive sectors like chemicals and steel, was severely impacted. The country experienced a significant economic shock and the long-term effects of higher energy costs are still being addressed.
New energy mix: To compensate, Germany has rapidly built LNG terminals and increased imports from other countries, such as Norway, the Netherlands, and the U.S.. It has also accelerated its transition to renewables, though this process has faced bureaucratic and infrastructural challenges.
Impact on German industry
Increased costs: The loss of inexpensive Russian gas has resulted in persistently higher energy costs for German companies, eroding their competitive advantage.
Diversification and adaptation: German industry has been forced to adapt by increasing energy efficiency, shifting production, and investing in new energy infrastructure. The transition has been costly, but it has spurred innovation and diversification.
Not a "good" outcome: While the long-term goal is energy security and resilience, the immediate and ongoing effects have been disruptive and expensive.
AI's role in energy demand
Exacerbating global demand: The AI revolution is rapidly increasing electricity demand, particularly from energy-intensive data centers.
Increased competition: This rising global demand for energy could increase competition for energy resources, potentially driving up prices and highlighting the strategic importance of energy supply for all nations.
The German elite is left holding the bag.
1. Risse im Fundament: Der Niedergang des deutschen Wirtschaftswunders. Frankfurter Allgemeine Zeitung; Frankfurt. 01 Sep 2025: 16. ROBERT FIETEN
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