Wednesday, September 18, 2024, 10:47
Economic crisis and populism do not go well together in Germany. One only has to look back to 1933, when Adolf Hitler was appointed chancellor despite having come second in the presidential elections the previous year, to be terrified of that combination. Because what happened from then on is well known. And feared.
It may seem too bold – even alarmist – to draw parallels between Germany then, burdened by the socio-economic impact of the First World War and the Great Depression, and today. But there are already those who do so, even in Germany, because they see in the growing recession of the country and the rise of the extreme right a dangerous germ that could once again destabilise Europe.
For the moment, the economic difficulties of its leading power are already being felt in the EU. Germany closed 2023 with a 0.3% contraction in GDP, and this year’s data are not encouraging: the first quarter managed to grow a meager 0.2% compared to the last three months of last year, but in the second it fell by 0.1%. And the Purchasing Managers Index, which predicts industrial performance for the near future, is below 50 points, suggesting that the contraction will continue. Without a doubt, this is a situation that could affect the rest of the continent.
As if that were not enough, something unprecedented is looming over the country: Volkswagen is considering closing factories on its territory, something it has never done in its 87-year history. This is not an anecdote, but a reflection of the decline of German industry, which has been losing ground for two years, something that can also be seen in other areas. For example, Lufthansa and Deutsche Bahn – which needs investments of 88 billion euros to function properly – have gone from offering air and rail transport services that made Germans proud to being the object of public ridicule. And the collapse of the Carola bridge in Dresden is being interpreted as an example of the decline of German infrastructure. The German myth is collapsing.
That is why, in our last newsletter before a well-deserved holiday, we focus on Germany’s problems and their possible consequences.
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The European giant is shaking in its boots
Germany faces the feared binomial of crisis and populism
Germany is not doing well. It has reached a point that many would never have considered possible, with Volkswagen proposing to close factories at home, where it employs 300,000 people and needs to save 10 billion euros to remain competitive. “The economic environment is getting tougher and new players are entering Europe,” CEO Oliver Blume said earlier this month. He was referring to Chinese manufacturers, which have beaten it worldwide in the electric vehicle sector.
German brands can be like Kodak or Nokia, who once had a hegemonic position and, in a state of supremacy, turned their backs on technologies that would later put an end to them. When they wanted to get on the bandwagon, it had already left. The Germans – and Europeans in general – no longer have the most cutting-edge technology in the areas that will shape the future. There are exceptions, yes, but they are just that: exceptions.
I’m not the one who’s saying it, Mario Draghi says it in the report that Ursula Von der Leyen commissioned him to write to analyse European competitiveness. “The current situation is very worrying. Growth has been declining in Europe for some time, and we can no longer ignore it,” he said during a presentation in which he was devastating: a more coordinated industrial policy is needed, much faster decision-making, and investments on a superlative scale. “It’s either doing that or facing a slow agony,” he said. Now it’s true that ‘the Chinese are going to eat us’.
This is evident in the automotive industry. Europe may be resisting electric cars, but there is a lot of world outside the Old Continent. Chinese brands are successful – also with combustion models – in developing countries where citizens who buy their first car cannot afford a German one: Asia, Africa, and even Latin America. Meanwhile, Europe and the United States are defending themselves by resorting to what they have always rejected: tariffs.
Incidentally, these levies are rejected by the German manufacturers they are supposed to protect, because they could affect their position in the Chinese market, which remains an important buffer. Not in vain, China is one of the main destinations for their exports. And the Asian giant’s market is not particularly buoyant either. But the problem goes far beyond the government subsidies that the Chinese receive. And beyond cars. In fact, Intel is reconsidering the 30 billion euro investment it was going to make to open a factory in Magdeburg.
All analyses indicate that Germany has not only rested on its laurels in industry, but also in energy: it decided to close its nuclear power plants and rely exclusively on Russian gas, which it believed would always flow and at the bargain price that gave its industry a comparative advantage. Now it has not only stopped doing so in gaseous form, but Germany cannot use the liquid either because it did not even foresee the need to build regasification plants. Curiously, Spain is much better prepared and that is why it receives more Russian liquefied gas than ever. However, the price of gas has returned to reasonable levels and Berlin is still unable to raise its head. According to the International Monetary Fund, between 2018 and 2022 it was the second-to-last country that made the least public investment among the OECD countries, a list that is closed by our country.
Added to all this is an increasingly tense social climate, with growing frustration and resentment towards the immigrant community, especially the Muslim community. Although no one doubts that there are reasons for concern about the difficult integration that this community faces, in times of crisis it is common to look for someone to blame from outside. It is too late to establish the controls that Berlin has imposed on the rest of the countries in the Schengen area and which add to the perfect breeding ground for the rise of parties such as the far-right AfD, which has won the latest regional elections and which, as has happened in other European countries, is expected to substantially increase its presence at a national level.
Finally, Germany suffers from the same demographic problems as the other major advanced economies. What’s more, its working-age population is expected to fall by twice the EU average, a trend that adds to an ageing trend that is driving a shift towards conservatism. So, although the main economic institutions expect the country to recover next year – long-term forecasts are always optimistic and almost never right – no one doubts that Germany has to face systemic problems, and that these problems will spread to the rest of the countries of the Union. No one should be surprised if a new crisis looms around the corner.
That’s all for today. I hope I’ve given you a good idea of what’s happening in the world. If you’re subscribed, you’ll receive this newsletter again every Wednesday starting October 16th in your email.
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