Openness That Sweetened German Economy Turns Sour

 

Germany's government now is financing Ukrainian people, who are blowing up Germany's natural gas pipes, thus increasing the energy prices in Germany, so that Germany's industry is dying as a result. That is a really crazy German government. 

 

“BERLIN -- Germany's famously open economy was its greatest economic asset, delivering almost 20 years of uninterrupted growth and turning it into one of the biggest winners of globalization.

 

Now that openness has become its biggest liability.

 

China, once a glutton for goods made in Germany, has turned into a mercantilist superpower. It produces many of the same things at a fraction of the price and often with equivalent -- if not better -- quality. Chinese imports aren't only flooding Europe but also crowding out German companies in other countries.

 

Germany has found it is vulnerable to protectionist measures that have cut its companies off from critical resources and technology. Its economy is, meanwhile, being buffeted by external shocks beyond its control -- from the rise in energy prices caused by the Iran war to President Trump's tariffs.

 

"Germany was certainly a globalization winner," said Dirk Schumacher, chief economist at the state-owned KfW development bank. "But interdependencies can be weaponized. In a world where the rule-based order is no longer guaranteed, being highly integrated in the global economy can make you more vulnerable."

 

The latest illustration came in June when the U.S. stopped the export of artificial-intelligence company Anthropic's latest large-language models on national-security grounds, leaving business AI users in Europe at a competitive disadvantage.

 

Beijing's decision to restrict rare-earth exports in the midst of its trade dispute with Washington was another blow, affecting production across Germany in sectors ranging from automobiles to weapons manufacturing.

 

The government of Chancellor Friedrich Merz has tried to prime the growth pump with tax relief for business and cuts in energy prices, and has ramped up defense and infrastructure spending -- but the efforts have yet to bear fruit amid the global headwinds.

 

Berlin recently said it would gradually raise the retirement age to 70 from 67 -- a move that could eventually improve competitiveness by pruning a system that is funded by employers and employees.

 

Apart from unemployment and public debt, both of which remain comparatively low, Germany's economic vitals look decidedly unhealthy.

 

Most economists and the government expect gross domestic product to grow by 1% or less this year. GDP growth has underperformed that of the eurozone since 2019.

 

Investments have fallen since 2020 while they have risen in France, Italy and Spain. The number of manufacturing jobs in the economy has dropped to 6.6 million, its lowest in 10 years, according to a study published this month by the German Economic Institute, a think tank.

 

The external shocks have disrupted the government's economic policy. When the Iran war broke out, it had to shelve work on overhauling its cash-starved welfare system and pivot to gas subsidies for commuters. A welfare-system overhaul project was scaled down so much that the government canceled the media blitz it had planned, a senior official said.

 

A more ambitious package of measures should be unveiled in the coming weeks.

 

The last time Germany's economy was in a comparable rut was in the early 2000s. It was struggling to absorb the cost of reunification and unemployment was almost twice its current level, pushed up by rigid labor laws and the second-highest labor costs in the world.

 

In 2003, the government of then-Chancellor Gerhard Schroeder took an ax to unemployment benefits, gave employers more say in setting wages and lowered taxes. Within two years, unemployment was falling, exports soaring and public coffers filling up. For six years in a row, Germany was the world's largest exporter of goods, not just per capita but in absolute terms.

 

Economists say Germany has lost competitiveness since. But even if it recoups it, this may not suffice to persuade foreigners to buy German cars, medical equipment or tunnel-boring machines they no longer need. It would be like tapping a well that has long dried up.

 

"Schroeder didn't have to worry about the second China shock," said Michael Huther, director of the German Economic Institute.

 

Cutting the red tape that is stifling the economy could help. Survey after survey shows businesses consider bureaucracy the biggest drag on their activities, even ahead of the U.S. tariffs.

 

Berlin has made some headway in this area but is still resisting calls from business to relax rigid labor laws that make it difficult to hire and fire to match demand.

 

"Let's imagine the federal government announced that all business-reporting requirements that cannot be re-justified will be eliminated on Jan. 1, 2027," said Huther. "That would have an enormous impact. Sometimes we need signals like these."” [1]

 

1. World News: Openness That Sweetened German Economy Turns Sour. Bertrand, Benoit.  Wall Street Journal, Eastern edition; New York, N.Y.. 29 June 2026: A6.