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October 12, 2024 - 1:00pm
Strong evidence is mounting that 2024 will be a lost year for the German economy. As reported this week, it is due to contract for the second year in a row, likely the only G7 economy to do so. Except for maybe the most stubborn environmentalists, such as economy minister Robert Habeck, no serious person is denying that the energy transition has failed. As one Bloomberg headline two weeks ago put it: “Germany Is Giving Up Hope of Achieving Any Growth in 2024.” The claims of the current government that its policies would lead to an economic miracle have met with the grim reality of an economic nightmare. Germany is, in fact, deindustrialising via decarbonisation.
Despite all the negative news coming out of Berlin, Germany is still the largest economy in the EU and the continent’s most important industrial zone. Industrial production is more than that of Italy and France combined, and the Germans are the most generous contributors to the shared funds of the EU. Additionally, Germany is the most important trading partner of almost all Central and Eastern European countries, the region furthest behind economically.
Sometimes, it appears as if countries like Poland could become the new powerhouse of Europe, but a closer look at the numbers reveals that Warsaw is nowhere near replacing Berlin economically. Germany’s GDP is more than four times larger (€4 trillion vs. €700 billion), and Poland is still a net receiver of EU funds while Germany is a net contributor.
Claims of replacing Germany also ignore the interwovenness of the German and Polish economies: if the former falls into a prolonged recession, the latter will lose its most important trading partner. It is equally unlikely that France or Italy can step up, for they also depend on the German financial backbone of the EU. If Berlin is no longer perceived as a formidable and stable central pillar of the EU, markets will most likely begin to treat all EU member states differently, for the silent expectation has always been that the Germans would bail out their fellow Europeans if necessary. As Germany’s ability to do this diminishes, so too will trust in the EU as a whole.
But Germany’s success is a hangover from the past, and it is diminishing quickly. After Ireland, the country has the lowest public investment ratio as a share of GDP — which explains the crumbling infrastructure. What’s more, the much-vaunted German Tüchtigkeit (industriousness) is becoming more a nostalgic myth than reality. The average annual hours worked are fewer than in supposedly “lazy” Southern European countries such as Italy or Greece, and still Berlin pushes for a four-day working week. Add to this Germany’s sky-high energy prices and record labour costs — all of which is toxic for its businesses and industry. Productivity has been stagnating since 2007, and is currently declining even further. The McKinsey Global Institute published a study showing that productivity growth in Germany was 1.6% between 1997 and 2007, and halved to 0.8% between 2012 and 2019.
Really, the German problem is a European problem — and the current mismanagement of the economy by Chancellor Olaf Scholz and his Vice Chancellor Habeck are increasingly becoming a problem for the viability of the EU as a whole. A weakened Germany that turns inward and becomes poorer is in nobody’s interest, and it remains a mystery why Berlin is not being called out for its failing economic policies.
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SubscribeThe mismanagement is not just Germany’s – the EU Commission under von der Leyen is a motor of mismanagement in its own right, and is enforcing best mismanagement practice on all members.
BTW, von der Leyen has form in destroying functioning institutions – she did it to the Bundeswehr during her tenure as German defence minister.
Germany is a democracy, so change is likely to be slow. The EU on the other hand isn’t, so change can come rapidly, once EU member governments realise that von der Leyen is killing the geese that lay the EU’s golden eggs and they need to stop her before she kills the whole gaggle or they themselves are sunk.
But Jurg as you point out, von der Leyen first damaged the Bundeswehr, then she was appointed to the EU Commission
The people running the EU are mainly the same as von der Leyen, someone sane like Victor Orban is hated by the EU. I see little chance of serious change in the EU
I agree that change will not come from this Commission, which consists of hand-picked ideologues and war-mongers.
But the Commission serves at the pleasure of the member governments. If the member governments pull the plug on it, it’s gone.
Orbán is a danger to the EU Commission, hence their hounding him, including the disgraceful performance of the EU Parliament, which ultimately has no power. The EU Commission has a lot of power over the smaller countries, so the smaller countries will not flip until they’re sure they can topple the Commission. But once that threshold is crossed, it can happen fast.
Ursula von der Leyen was just elected to a second term as president of the Commission. How can the Commission be toppled with her firmly at the helm?
The most powerful body in the EU is the Council of Ministers. The Commission can only exercise the power the Council allows it. The problem in the EU has routinely been that the Council of Ministers allows the Commission – and Flinten-Uschi – to run rampant. If the Council were to put its foot down, the Commission’s fearsome antics would evaporate.
If you’re questioning how she can be removed, remember how she got there. Merkel simply shoved her into the position, she did not go through the process that had been devised to give it the veneer of a “race” or “selection”.
Alternatively, her various corruption investigations could catch up with her.
Future generations will look at articles and attitudes such as this with bewildered disgust and marvel at how humanity was so fixated with growth, productivity and profit. No doubt people will have evolved by then to treasure quality of life over working hours and measure success in terms of health, well being, happiness and protection of the environment.
I think I see your point RK, but on the other hand, I don’t see how rising unemployment and industrial decline can result in much good
That’s certainly valid. There can however be prosperity without growth. As long as an economy is stable then a shrinking population can be sustainable without the need for high immigration, which is after all undesirable.
I agree, we need different metrics for growth/success/progress.
Japan proves your point.
If you can equate quality of life with being poor I can only assume you have never been poor.
The Germans aren’t poor. But having been there it does provide one with a strong sense of gratitude and satisfaction for what I have without craving for more.
This is part romantic nostalgia for a distorted interpretation of the past and utopian hope for the future. Reality is that people living in the developed world today are the richest, healthiest, most leisured people in the history of the world.
Cheap, abundant energy has made people incredibly more productive than they were even 50 years ago, and has freed up more time and money for people to eat well and enjoy life. This can all disappear in a generation – and it will as long as decision makers continue to embrace luxury beliefs like unlimited power from wind and solar.
Mother Nature is brutal and unforgiving. Be careful of what you wish for.
Hard times create strong men
Strong men create good times
Good times create weak men
Weak men create hard times
Far from being nostalgic it is a realistic vision of a healthy future society. The wealth and leisure you refer to has delivered a shrinking birth rate across the world. There are two choices to deal with that – high immigration or well managed and sustainable recession. That is of course a dirty word, so maybe one of the many quangos can come up with a way to put positive spin on it.
I agree Jim, and since we’re so rich I’d like to propose a 4 day working week, this can be done slowly by adding an extra bank holiday every year
That is not entirely correct for the leisure. Historians and anthropologists generally believe that people in, for example, the middle ages actually had more time on their hands than we do even today in the West. Most people worked on the land which mostly involved very hard work around the harvest but that is only a small period. Of course the quality of life was low, people lived under pretty bad conditions. Even hunter-gatherers are estimated to have been active for approximately 15 hours a week by some researchers. The rest of the time they were idle. It’s really since industrialization that people (well, the working class) started working extremely long days. It’s also from this time that you see the puritan work ethic appear. And don’t forget that rights like an 8 hour work day were mostly earned through struggle.
Good luck with that utopian thinking, I hate to tell you that human nature is greedy, self centered, opportunistic, competitive, destructive, and ego centric. And the world is run by capitalism. The EU will probably collapse under its own weight of unsustainable debt and it’s massive bureaucracy, declining competitiveness and innovation, demographic decline and political ineptitude. Take away the endless deficits and it will collapse. And it’s not just the EU.
Why would they look back in disgust?
Your comment is very all inclusive. Not all of humanity is fixated on growth, productivity and profit. Those things are actually quite important though.
‘No doubt people will have evolved by then to treasure quality of life over working hours and measure success in terms of health, well being, happiness and protection of the environment’
This assumes that people don’t already do that. And why do we need to evolve to do that? Just because you think they are important things to ‘treasure’ doesn’t mean everybody does.
What does ‘protecting the environment’ mean, you really want all your cake and to eat it. If you want quality of life that means being productive, might mean some long hours being productive depending on what ‘quality of life’ means to you, if you want to protect the environment you’re going to have to put some hours into that too.
Also below you say ‘Far from being nostalgic it is a realistic vision of a healthy future society.’ – Why the need to create a vision for ‘future healthy society’. What a healthy society looks like to one person may not be the same as what the next persons view of a healthy society is.
What about instead of people envisioning future healthy societies based on utopian bullsh*t so they can make bossy utopian luxary belief government policy to ram down your throat – they just let people be free?
Within the rule of law obviously.
Agreed. Especially the obsession with growth. It’s such an obvious trap; and one that we created for ourselves.
When the paymaster runs out of money, the EU fantasy can’t be sustained…who’d have thunk?
Unfortunately, it is more tragic and insidious. The European Project was based on drowning centuries-old nationalism and regionalisms in prosperity. That prosperity was delivered by a team of European countries, not just Germany, but Germany anchored the system.
Instead of sticking to the prosperity programme, the EU has turned itself into an ideological project attached to NATO. That is costing us the prosperity programme. If it goes, when it’s gone, expect internecine strife to resurface.
What our “leaders” have done is more than stupid, it is a crime.
The EU was an ideological project from the start. Underwritten by NATO and impossible without it, although too arrogant to admit as much. The prosperity programme is again being destroyed by ideology – ‘green’, mindlessly pro-migration and globalist.
I agree that the concept of a European union was an ideological project from the start, I disagree with with your overall assessment. The identification of the EU with NATO is a very recent, and shocking development. Several members of the EU are committed to neutrality, and actually believe in it (though intense efforts are under way to subvert those commitments).
It bears remembering that the origins of the EU lie in France’s failure to win the Saarland referendum. The Saarland – crucial to France’s heavy industry ambitions – chose to remain with Germany, despite Germany’s desperate economic situation after WW II. So to secure French access to German coal, France and Germany (with additional hangers-on) formed the Montanunion, the nucleus of the later EU.
NATO initially saw the EU as a threat – when the Euro was introduced, the US moved to destroy the Euro, and only reversed policy when the destruction was set to succeed beyond its intended scope.
So a European union as an ideological project to unite Europe in peace has been out there for a while – for over a century (though few of the idea’s proponents, in the past or today, have been or are acting in good faith).
A united Europe has been a project for over a millennium. We have to keep on trying.
No we don’t. A “united Europe” cannot happen without coercion, as the EU has effectively proved. So thanks, but no thanks.. Co operate where that is beneficial to each party, otherwise leave each other alone.
I should have been more precise – the “unified Europe” as an entity under one government, a project that I said has been pursued in earnest by various actors over the past century, is both undesirable, as you say, malign, and doomed to failure.
The (desirable) unified Europe is more akin to the ramshackle Holy Roman Empire: A centre too weak to impose uniformity, but offering especially the smaller members an organisational and governance infrastructure that a small country cannot afford to maintain just for its own purposes. Something midway between the UN and the EU.
The fundamental error the EU committed is its “one size fits all” approach, brought into the EU by bureaucrats raised in aggressively centralist states like France and the UK. In an HRE-style empire, the centre preserves its power and relevance by granting everyone their own special deal. The members then have an incentive to uphold the centre in order to preserve their special deal.
Britain had a “special deal” from the EU, and they still left.
I would suggest Britain isn’t far behind Germany.
At least Britain is out of the EU.
It’s quite a stretch to take those statistics on “average hours worked” as evidence for more or less productivity. First we should question how they included labor participation, the employment rate and percentage of women working in these figures. This is often a lot higher in Western Europe. Moreover, this usually means there is more part-time work going on, which may reduce the average per person a lot. These are also known reasons for the discrepancy.
Most importantly, even if people in Western Europe work less, these economies are still a lot more productive on paper. That is probably because labor is simply not the biggest source of value in an advanced economy anymore. Innovation and machines are! Deep down I feel we keep believing in the labor theory of value but that does no longer apply really. At the same economists keep underestimating or even ignoring the impact of energy and low demand. And that is probably a bigger part of the problem in Germany right now.
I concur with the points you are making, but I think that you should distinguish between individual productivity and national productivity. What you say is true of individual productivity, but national productivity is defined as GDP divided by hours worked, so it takes into account part-time employment, innovation and machines. In addition the points that you mention, I would add that, like the UK elite, the German elite are bringing in about a million immigrants per year, so each year the workforce is changing for the worse as highly-skilled German workers are retiring and low-skill and unskilled workers are entering the workforce. This, combined with the green agenda, means ever decreasing productivity and a never-ending skills shortage.
Aggregate labour productivity is usually something like GDP per worker. On the input side hours per worker can indeed be a factor, just like unit of energy used. But all these measures remain a bit fuzzy. In any case, if one looks at the EU “labour productivity” stats we indeed find that Northern Europe is much more productive than southern Europe. It’s almost inversely proportional to the average hours worked statistics. There were also experiments with, for example, a 4 days work week were labour productivity was not reduced or even increased. I think this can be explained for the reasons that I mentioned. Moreover, in advanced economies most people simply don’t do something where double the time means double the output. And for much of the work where that is the case automation is plausible. Conversely, ask a top scientists how much they work, they probably don’t really know and will tell you they sort of always think about their projects. The obsession with time is a leftover from the industrial revolution I think.
The article uses productivity data from a McKinsey Global Institute report. That report defines national productivity as “how much GDP, is generated for every hour of work”. That is the same as my definition. You are defining per capita GDP, which does not measure productivity.
Thanks for clarifying. However, I think that is similar to how “labour productivity” is often (but not always) defined. GDP per capita is something else. I don’t think that is how I defined it, since not every person is a worker.
30,000 ‘fonctionnaires’ in Brussels with nothing on their hands other than wining and dining with 92,000 lobbyist do not care about Germany’s economy. Money can be printed and degrowth is virtuous. Germans are wallowing in guilt, bureaucracy and increasing autocratic statemanship. They will march happily into the abyss for a third time. Guess why the Russians are nervous.
‘The claims of the current government that its policies would lead to an economic miracle have met with the grim reality of an economic nightmare.’
That’s what happens when the government does economics, that is why governments shouldn’t do economics and leave the economy and everybodies trade alone.
Just leave people alone to trade and do business and stop bossing them with sanctions and regulations and endless paperwork until they are drowned in it and the economy implodes.
That is what the west is doing to itself right now. Shooting itself in the head with sanctions, and red tape and bossy government people bossing everyone around and lots of people blowing things up without thinking about what they are doing.
Are we going to have some free trade, let Germany have their gas pipes back and lift the sanctions yet?
Germany can have gas pipes, provided those gas pipes don’t lead to Russia. It is in nobody’s interest for Germany to trade with the “orcs of Mordor”.
I believe the orcs in mordor do really cheap natural gas though. I believe lng is more expensive and it has to be transported by ship. The orcs had some big pipes under the sea that did a good, reliable job before.
If those pipes hadn’t got blown up Europe could have used orc gas to make weapons to attack mordor with.
Nevermind.
Yes, but the Russians will betray their trading partners at the drop of a hat, and will invade their neighbors without provocation when it suits them. It is simply in their nature as a people. These are not types anyone should be trading with.
Well I think they were getting on quite well with the nord stream, they weren’t exactly given the opportunity to demonstrate whether they could be trusted with the gas supply or not.
I’m not sure ‘it is in their nature as a people’ is a very good argument. Sounds likes stereotyping to me.
delete
It is not being called out because most people don’t understand economics plus most people instinctively believe that things, good and bad, will always be as they are today. Most people believe that Germany will always be an economic powerhouse although there is no reason to believe that.
Not really surprised. China is undermining industry worldwide, when they’ve wiped out enough production from international markets they only need to raise prices and hold us hostage.!!