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November 12, 2024 - 10:00am
German Chancellor Olaf Scholz has expressed that he is open to holding a confidence vote in his government as early as December, while a federal snap election has just been announced for 23 February next year. Scholz’s latest commitment comes a week after the partial collapse of his ruling coalition, which was kickstarted by his decision to fire Finance Minister Christian Lindner of the Free Democratic Party (FDP). The FDP, of course, is one of the parties in Scholz’s coalition which then retracted its support for the government.
To understand what is happening in Germany, it is instructive to look closely at the causes of the dispute between the former Finance Minister and the Chancellor. Reports suggest that Scholz instructed Lindner to send €3 billion in aid to Ukraine. Lindner refused, stating that Germany’s public finances were in no fit state to continue financially propping up Ukraine, and suggested sending the country long-range Taurus missiles instead.
The proposal for Taurus missiles was not a serious one. Lindner knew that the Americans had ruled them out and that Scholz had accepted this. Lindner’s entire stunt was to force the Chancellor’s hand and break the coalition, thereby preparing the ground for new elections. Further, Lindner’s refusal to send more money to Ukraine signals clearly what the move was all about: Germany can no longer afford to provide more weapons and the ruling, Left-leaning party should step aside now that Donald Trump has been elected US President with a strong mandate to stop the war.
Lindner’s manoeuvre may have been political, but the message he sent is undoubtedly true: Germany’s economy is suffering enormously. Two weeks ago, news reports suggested that Volkswagen would be moving to shut down three plants, lay off tens of thousands of workers, and cut the pay of remaining employees. The decline of Germany’s automotive industry has been driven primarily by high energy costs, which are in turn the result of the Ukraine war and ensuing sanctions. When insiders in the European automotive industry were surveyed a few months ago, the majority said that energy costs were the largest challenge the industry faced.
Macroeconomic measures show an economy in dire straits, too. German manufacturing PMI surveys show that the sector has been in contraction since June 2022, while industrial production has been in contraction since March 2023. Once again, energy prices seem to be the key driver. Since the start of the Ukraine war, German industrial production has contracted by just under 10% — but production in energy-intensive industries has contracted more than 20%.
It remains controversial to discuss these developments publicly in Germany. But treating discussion of such obvious realities as streng verboten cannot last forever. Scholz’s ruling Social Democratic Party (SPD) is now polling at around 15%, behind the controversial AfD on 19%. Notably, the AfD and Sahra Wagenknecht’s BSW have been the only parties in the country to highlight the impact of the war on the German economy. The centre-right CDU is ahead of both at 32%, but its leaders are well-aware that the AfD is eating into their voter base, and recognise that its brand of populism has much in common with the incoming Trump administration. Amid economic turmoil, the German status quo has only a few weeks left before it collapses entirely.
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SubscribeThe author is undoubtedly correct about the impact of Russian sanctions on German industry but it is also worth considering that the German economy was running on fumes pre-Covid, barely managing 1% growth in 2018 and 2019. I think even if Trump gets a ceasefire, the sanctions are lifted and German resumes its energy imports from Russia, things may still be less than rosy.
Presumably their earlier woes were because of Brexit?
The longer term question is: where will future investment go: high cost, over-regulated, energy-starved European economies or a cheap energy US economy turbo-charged by AI.
I wonder …
If only they had some sort of enormous hose, through which they could resume those imports
Yeah, one that doesn’t mysteriously blow up all the time.
The Germans would have to be completely insane to buy energy from Russia again.
“… high energy costs, which are in turn the result of the Ukraine war and ensuing sanctions.”
No doubt the war caused a spike in natural gas prices earlier, but this isn’t why Germany and Britain have the highest energy prices in the world.
I don’t suppose shutting down Nuclear power and going green had much impact on power costs?
Merkel’s lunacy in 2022 ..
Yeah, thought it was interesting that the author neglected that in their explanation for increasing costs…
Every article Pilkington writes tries to blame the economic woes of the West entirely on the sanctions, despite many of them long predating Putins invasion
It looks good on them.
They were warned at length by Obama and Trump not to rely on Putin for energy. Then they focused on China for their export market and taught them how to manufacture. That’s coming back to bite them, and to top it off they shut down nuclear plants and are now using more coal. The vast majority of their issues are self inflicted. And don’t forget their lack of IT skills with SAP being the extent of it
Not a mention of Germany’s catastrophic energy policies.
Here is a great article on Germany’s downfall that explains it well
https://www.newstatesman.com/international-politics/2024/11/how-did-it-go-so-wrong-germany
High energy prices are more the consequence of misguided green fantasies than sanctions on Russian imports. Net zero refers to the economic situation.
Germany needs a reset: economically, psychologically, socially, and pretty-much-everything-else-ally.
The lowest of the low-hanging fruit here is to cut right back on the layers of bureaucracy which attach to anything you try to do there.
Obviously the infrastructure (including digital infrastructure) needs a complete overhaul – but where is the money to do that? Or to fund defence expenditure?
This is all scary enough, before you get to the realisation that the people running the country haven’t realised the solutions they’ve been applying in the postwar period just aren’t going to cut it anymore and they aren’t showing any signs of coming up with new ones.
Imagine the ripple effect on the rest of Europe at your leisure. I’m glad I went to Austria rather than Germany in 2004 when I had the choice and that I stayed put even though Germany looked so much more exciting.
“driven primarily by high energy costs, which are in turn the result of the Ukraine war and ensuing sanctions.” Bzzzzt! Wrong answer. Germany’s high energy costs are the result of their idiotic energy policies (Energiewende) and net zero attempts (which have, deliciously, led to them burning coal when wind and solar fail).
It was the highest level of lunacy to get rid of nuclear and coal and depend on wind, solar and Russia energy sources to make climate hysterics happy. Here is how one single white woman with cats reacts to Trump’s “drill, baby, drill” energy policy. https://x.com/stephenhilton23/status/1854320812272034154?
German population is about to decrease in the years to come even with net migration. Low fertility rates are definitely the elephant in the room. The effects on the economy will get worse. Migrants cannot replace Germans. German values start to become a myth. Merkel saw it coming but did nothing.
Where has all the wealth flown to in the years of abundance? Not on infrastructures , education or the military. The next government if lead by the CDU will not be innocent to the situation.
I fear it is not only the German government that will collapse.
It’s net zero, not the Ukraine war that is responsible for the high energy bills.
The worst aspect of Net Zero is the western delusion that “the World” was united in its pursuit. In reality, most of the world isn’t interested. It’s the EU and the anglosphere that has engaged in this economically disastrous unicorn hunt.
Trump will remove any green programs and policies that interfere with economic growth and job creation. Everyone else’s Net Zero fantasies will be in serious trouble.
It is worth saying, as if it should need saying, that, as here in the UK, high energy costs in Germany are a political choice.
Borderline insane, climate zealots are ruining the economies of both countries. Germany and the UK have huge amounts of gas available, and rather than use it, force sky high electricity prices on individuals and industry.
It is a scandal of immense proportions, and the only hope is that, when Trump returns the US to sanity, at least some of the common sense he proposes on energy might permeate into the half wits who compose and enact policy here.
The “Taurus missiles” suggestion wasn’t that silly. After all, Germany got them so they could be used to kill Russians at some point. If they are given to Ukraine now, they can fulfil that purpose. I know Biden said “no”, but who knows what Trump will do?