by Ralph Schoellhammer
Thursday, 7
July 2022
Explainer
14:30

The German economy is on the brink

Putin can't be blamed for the country's economic malaise
by Ralph Schoellhammer
Waiting for Olaf. Credit: Getty

The economist Herbert Stein once wrote that if something cannot go on forever, it will stop. It seems like the German — and with it probably the European — economy is reaching that point. Most of Europe’s 100 largest companies were founded in the 1980s or before, which means that the old continent has entirely slept through the digital revolution of the 1990s and 2000s. There is no European counterpart to American corporations like Facebook, Amazon, E-Bay or China’s Alibaba or WeChat.

This became painfully clear during the Covid pandemic, when the once vaunted German bureaucracy was revealed to rely on paper, pens and fax machines in its health care system due to a complete lack of digitalisation in key areas. Not surprisingly, the German economy shows cracks elsewhere as well. Measured by market capitalisation, only one German company makes it into the top 100 worldwide, and German market capitalisation as a share of global market capitalisation has shrunk to 1.97%, an all-time low. These are devastating numbers for a country that just a few years back was seen as a model for the world with its transition to Green energy and the planned exodus from nuclear power.

In fact, to add insult to injury, one of the largest German producers of rotator blades for wind turbines has announced it will close down production in Germany and move to India. Similarly, Villeroy & Boch, a company that has produced tiles in the German city of Merzig since 1879 will retire its factory and move manufacturing to Turkey, quoting high energy and labour costs as the main reason. One could argue these are just anecdotes, but it is probably no coincidence that for the first time in 30 years Germany posted a trade deficit of over one billion euros, meaning that Germans are importing more than they are exporting.

With consumer confidence at all-time lows and producer prices rising at record speed, the immediate outlook for the German economy is cause for concern, exacerbated by a recent comment from Robert Habeck, the Green minister of minister of economics and climate protection, that “the whole market is in danger of collapsing at some point.” Electricity prices have been surging to an all-time high, with current 1-year forward electricity contracts clocking in at EUR 340 per MWh. Just to put this number into perspective, for the last three decades this value never surpassed €100 per MWh. In other words, the year 2023 will see electricity turning from a utility into a luxury good for many Germans.

With the war in Ukraine and Germany’s dependency on Russia exposed, energy has become a scarce resource for Germans almost overnight, with major cities like Hamburg already preparing for rationing of gas and warm water supply. And this might well be only the first step, given the fact that Moscow is gearing up its resource war with Europe, cutting not only gas deliveries but also oil from Kazakhstan. So far Russia claims that all of this is for technical reasons that can be easily resolved, but it nonetheless demonstrates the ease with which Putin can squeeze Europe’s largest economy. The sudden awareness of a complete lack of alternatives has also put the major German unions in panic mode, warning that without sufficient gas entire industries could collapse.

One thing, however, remains true despite all these problems: they did not cause but reveal the German economy’s malaise. An ideological fixation on renewables, paired with the rejection of nuclear energy and an addiction to Russian gas, led to a focus on everything except the things that matter. From internet technology to electric vehicles, Germany is behind, and the once-revered label “Made in Germany” rings increasingly hollow. One can only hope that this clash with reality will put an end to a cognitive dissonance that could derail the entire European economy and, with it, the European project.

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Matt M
Matt M
1 month ago

If our next PM was clever he would start fracking, open up the Cambo field and as many other North Sea fields as possible and help Germany with its supply problem. In return he could ask for a bit of help on the NI border issue. No cost, win-win.

Richard Bell
Richard Bell
1 month ago
Reply to  Matt M

So true …… there was a time that he might have started Fracking but Green influences in the bedroom poisoned his weak brain. Britains ONLY hope is that any new leader see’s the light !!! ….. Sadly I do not have much hope.

Adam Bacon
Adam Bacon
1 month ago

Not sure that Britain is in much better shape than Germany, just that our fall is more protracted and less dramatic.

At least the Germans (Green government ministers included) seem to be starting to acknowledge that the Green energy revolution is something of a fantasy, and that when the faeces hits the air circulater, it’s fossil fuels that maintain our wealth and health.

Andrew F
Andrew F
1 month ago
Reply to  Adam Bacon

I hope you are right but I doubt it.
The only thing Germany wants is for Ukraine to collapse and usual business with Russia to resume.
Happy days of Ribentrop-Molotov pact are back.

Iris C
Iris C
1 month ago
Reply to  Andrew F

Finding parallels with WW2 is ridiculous. Today is nothing like the situation back then. Technology has taken over. Even the weaponry that was sent to Ukraine, by the West to help, was tracked by satellite and destroyed before it had an effect.
It is time for reality to be faced..

Liam F
Liam F
1 month ago
Reply to  Iris C

would be interested if you could point to your data source for that assertion

Last edited 1 month ago by Liam F
Gunner Myrtle
Gunner Myrtle
1 month ago

The only cheerful bit of news here for Germany is that they are behind in EV’s. Forcing EV’s on people as some kind of improved technology and solution to global warming is another progressive delusion. Maybe Germany can let some other country dig itself into that hole.

Chris Milburn
Chris Milburn
1 month ago

If you do an internet archaeological dig you can find a decade of gushing by MSM over Germany’s “Solar Panel Success”, and how they were leading the world into the new green energy future. Vox and NYT and the usual suspects gushed about how they were getting off coal and evil nuclear, and how many solar panels they had installed.
As usual, the scientifically-illiterate and ideologically-possessed media failed to actual understand the issue. Things like latitude, seasonal fluctuation in solar output, intermittency, lack of storage, and need for a base-load backup system (ie: nuclear) escaped them totally.
And then here we are. How are those solar panels working for you now, Helga? Good luck in January!

Andrew F
Andrew F
1 month ago
Reply to  Chris Milburn

How true.
Obviously our lefty Remoaners in uk went a bit quiet on amazing achievements of obese Fressian cow.
Sorry Angela Merkel.
It looks more and more like she was Russian agent.
If not that her policies were clearly stupid?

Andrew Fisher
Andrew Fisher
29 days ago
Reply to  Chris Milburn

Reasonable points except that nuclear energy, whatever its own merits, is not a suitable backup for renewables; gas is far better as it can be switched in and out quickly in response to weather fluctuations.

Richard Bell
Richard Bell
1 month ago

I was only just yesterday talking about when I was a kid and stuff “Made in Germany” …… What is the most outstanding thing in recent years is that they abandoned Nuclear Energy. If the Greens were truly worried about the supposed Co2 problem then that is more of less the only way to produce energy with no Co2. The rest of the world should look to Germany as the first classic case that Renewable Energy has no hope of replacing fossil fuels. I have just read the new book by Alex Epstein called FOSSIL FUTURE and it is a terrific read which points out the direction we should all be taking, especially in the context of helping the Third World Countries catch up with the West …… Worth a read if you have any interest in ENERGY .

Last edited 1 month ago by Richard Bell
Keith Mcmaugh
Keith Mcmaugh
1 month ago
Reply to  Richard Bell

Germany is blessed with not having these advance digital corporate entities.
America lost almost all of their middle class when big businesses departed to cheaper places. But Germany kept old fashioned factories and a booming and content middle class.
Trump was elected on hopes of revival of factories and return of the American middle class. We have a tremendous top half of population who works in the digital, software and knowledge industries, but a struggling bottom half. The
German economy is solid and stable but will be under great stress this winter without enough energy. The economic pain, high unemployment, inflation, and shortages of food and everything will force Diplomacy to end the war in Ukraine.

Jeff Andrews
Jeff Andrews
1 month ago
Reply to  Keith Mcmaugh

As long as your state dept wants war or insurgency in Ukraine, it’ll happen. Germany and its President must be getting blackmailed or be incredibly feeble/stupid to sanction the cheapest, always reliable source of energy and close its nuclear plants. It’s mind blowing really. Just take a look at Scholz, he doesn’t give anybody confidence.
Anyway, as long as you don’t mind paying more to sell the Euros enough at sky high prices to keep the lights on, sometimes.

Keith Mcmaugh
Keith Mcmaugh
1 month ago
Reply to  Jeff Andrews

Jeff,
Not only State dept. But all of America lusts for war. I am not smart enough to figure it out but USA is always at some sort of war. We always need an enemy and many thanks to China for being rich and powerful to fulfill our desires, lusts, greed, and gluttony for wars.

I am hoping that ordinary people in Germany and France will force or overthrow their governments. Italy, Spain, Portugal and others are on the verge of major recession and ordinary people maybe, might, perhaps go on strikes, protests, demonstrations, riots to use diplomacy to end the war.
If they blindly follow their leader’s blind/deaf support of Ukraine, they could be in another 20 yearlong conflict.

Albert Harvey
Albert Harvey
1 month ago

Gives the remoaners something to think about.

William Reynolds
William Reynolds
1 month ago

OK but they can still make those yoghurts with the separate compartment of fruit conserve.

Albert Harvey
Albert Harvey
1 month ago

In Market Drayton, Shropshire?

M. Gatt
M. Gatt
1 month ago

Scheduled pipeline maintenance is actually ‘a thing’. Nordstream had sent equip to Canada. It was not returned on schedule. Shutdowns are inevitable. Russia isnt cutting gas to Germany because it doesnt want euros for gas. In fact it is more than happy to take the money. Obviously