The war in Ukraine and its repercussions, compounded by structural problems such as an ageing population and a lack of investment, spell the end of the boom

The change in the geopolitical order, disrupted by the invasion of Ukraine, has exposed the weaknesses of the German economic model. The German model, points out Wolfgang Münchau in one of his analyses for Eurointelligence, hinges on three ingredients: cost competitiveness, technological leadership in its industry and geopolitical stability, and ‘all of them are gone,’ he adds. On the one hand, the cut-off of Russian gas — which accounted for more than 50% of the gas consumed in Germany — has impacted the electro-intensive industry, forcing businesses like the chemical company Lanxess to restructure their business and close plants.

  • UnfortunateShort
    6•1 year ago

    And I claim he is dead wrong. It’s hard to overstate just how much money is in and goes through Germany. Despite its size (in land and people), it’s one of the largest economic and scientific powers in the world. The crises left but scratches so far.

    Power was already expensive before, Germany and the EU are maybe less, but not unstable and there are tons of research and patents originating in Germany.

    With a few course corrections, some of which have taken place, some more being underway and some maybe still necessary, I don’t see why Germany or its economy should collapse any time soon. At least that’s what Münchau seems to imply might happen.

    Please feel free to tell me that I’m an idiot, if a couple years from now he turns out to be right. I really doubt it tho. There are even experts who actually claim we’re in relatively good shape rn and I strongly agree with them. There is quite a bit of room to improve in some areas, but hey, just witnessed two major crises and all

    • @Dead_or_Alive
      1•1 year ago

      You are wrong for many reasons. Germany has been prosperous because of its export driven economy. Your products have become uncompetitive for a number of reasons.

      1. Your demographics are in the toilet and the Eastern European countries Germany has been using for cheap labor are not far behind you. You need cheap labor and cheap capital which will be in ever shorter supply as your population ages.

      2. Your current source of cheap gas energy has vanished. With it a lot of your manufacturing is moving. BASF, Volkswagen, ArcelorMittal are all examples of German companies seeing the writing on the wall and moving production out of the country.

      https://markets.businessinsider.com/news/commodities/europe-natural-gas-prices-energy-crisis-manufacturing-work-shift-us-2022-9

      1. The US is backing away from free trade and is becoming less willing to underwrite the global order that Germany depends upon. The only trade agreements the U.S. has made are for NAFTA.
        The U.S. is decoupling from the global order it built after WW2 and reshoring its industrial plant in N.A. Germany doesn’t have the military to ensure freedom of navigation for its trade goods.

      2. Germanys trading partners are in just as bad of shape and/or becoming competitive. The Economy’s across the Eurozone look just as bad. China itself is going through a major downturn and in many areas are competing directly with Europeans in their own market (EVs).

      To be clear I’m not saying this is the end of Germany. But there are some major structural challenges that cannot be simply papered over.

      • UnfortunateShort
        1•1 year ago

        You have fair points, but I disagree with some conclusions. Demographic change for example hits everyone at some point. Concluding that it will lead to a competitive disadvantage specifically for Germany doesn’t seem plausible to me, at least not in the long run. In the near future it might be, the question is how well we’ll adapt. Japan for example is struggling with demographics as well and they still do OK, albeit not amazing.

        Moreover capital doesn’t necessarily decline becaue of a demography shift. State funding and buying power in Germany might, but the state is trying to reduce its debt, which opens up opportunities for future investments. Fewer people also mean that (hopefully) fewer investments into certain things are necessary. And as you mentioned, businesses are exporting and expanding into other countries. This means they extract capital there which could be directed towards Germany. You “just” need to capture it by making investments atteactive. I think the R&D area is a possible lifeline here. That said, private capital is a completely different story to begin with anyway. It can be used for investments that drive dividends toward Germany. There is no need for that capital to decline at all. It could of course, but I don’t think demographic change will be at fault if it does. Capital tends to attract more capital.

        Finally I highly question the need for military power in order to conduct global trade. The US aren’t an economic superpower because their ships are escorted by destroyers, because pirates are afraid of retaliation or because, in contrast to other countries, they aren’t robbed of their goods. It might have opened some doors and it makes it hard to blockade them, but that’s assuming people want to blockade you to begin with. And Germany doesn’t stand alone. With a strong EU and growing military spending, I’m actually hoping for more independence in every regard, including military, in the future. The cold war is over and the Soviet Union is no more. It’s time to take care of ourselves in Europe and make our own decisions.