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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.
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 would suggest Britain isn’t far behind Germany.
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.
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.
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.
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