German reliability has been in limbo for some time. The German locomotive slowly emerged from its lethargy of the Great Pandemic, caught fire with the outbreak of war in Ukraine and was definitively derailed due to the high cost of its energy. Highly dependent on Russian gas, they bankrupted companies and homes, paralyzing entire industries and converting their traditional economic muscle into episodes of recession and their historical price control into inflationary spirals.
Faced with this crossroads, caused by two exceptional events, the health crisis with its social confinements and productive hibernations and the war started by its energy supplier on the very borders of the EU, Olaf Scholz has thrown in the towel. After the chancellor addressed complicated conjunctural scenarios such as disruptions in value chains or escalations in inflation and rate increases unknown since the turn of the millennium.
The social democratic leader opened the thunderstorm by cutting off the liberal head of his tripartite – that of the head of Finance, Christian Lindner – black sheep of the traffic light coalition that the Greens completed. Scholz decided, together with the leader of the opposition, Friedrich Merz, to call in December a motion of confidence doomed to lose, although essential to carry out urgent social initiatives with consensus. In exchange, he gave an 11-month electoral advance, with a fixed date: February 23rd.
Merz, leader of the eternal CDU/CSU alliance that leads the polls with 30% and who supported the Christian Democrats Helmut Kohl (1982-98) and Angela Merkel (2005-21) in the chancellery for 16 years, did not take long to shift the blame onto his rival from the SPD, which begins the pre-campaign third, two points away from the 18% that the polls give to the neo-Nazis of the AfD, with the Greens fourth (11%) and the Sahra Wagenknecht Alliance (8%), the most recent split of dissidents from The Left, as the last party with representation in the Bundestag.
“I will be the guarantee of a new leadership in Europe and for Europe” in which Germany “will cease to be a lethargic middle power and become an active global power,” Merz said.
In line with the German collective subconscious that values the appointment with the polls as an exam to remove the label of European economic sickness and revive its once lustrous industry. He heir Merkel’s position in the CDU proclaimed himself as the only candidate capable of mitigating the collateral damage that the new Trump 2.0 version will cause to global geopolitics, European and German productive structures and their businesses, and their competitive burden with the two global superpowers.
Wuthering Heights about the great European power
Scholz’s boldness in calling the elections does not hide the certainty of part of this diagnosis. The chancellor, who appealed for unity and rejection of the political tension that has reigned in the US in the last decade, assured that the breakup of the government “was unavoidable” due to Lindner’s rejection of new financial support for Ukraine from the federal debt.
A few weeks ago, he avoided the affront with his minister for his refusal to accept the Eurobonds that Mario Draghi advised launching as guarantees for “geostrategic projects” that would return lost competitiveness to the European internal market. In principle – said the former president of the ECB in his report commissioned by the German Christian Democrat Ursula von der Leyen -, to boost the arms industry, build an anti-missile shield in the community’s open skies and create a European Army, a scenario that becomes more plausible. with the return of Trump.
The German social democratic leader will have a difficult time dealing with his future American counterpart. Scholz effusively congratulated Joe Biden when he withdrew from the presidential race – “he has achieved a lot for his country, for Europe, for the world” – one of those phrases that Trump identifies as lapidary to attack his enemies, internal or external. Merkel, the president whom the Republican leader criticized the most in her first term, has already suffered it.
But now, Elon Musk has joined the crusade against the chancellor: “He is crazy,” wrote the largest fortune on the planet and Trump’s economic guru about Scholz on his X network, a post that was viewed more than 42 million times. , four times the electoral support of the SPD in the last federal elections.
With or without Scholz, will Germany be in a position to outline the transatlantic response that a new, more aggressive Trump Government will demand from Europe? With the reissue of another Grand Coalition between the CDU and the SPD like the one that placed it in 2021 as number two of Merkel? Although on this occasion, led by Merz, and in case he keeps his promise to rule out any government pact with the AfD.
Investors seem to aspire to this due to the 1.7% rise in the DAX Index as soon as the electoral call was announced and the climate of industrial and economic distrust. At least, in the short term. Volkswagen, one of its automotive icons, is moving forward with the closure of three of its headquarters in the country, something unprecedented. Energy rates remain abnormally expensive. The tough agenda of structural reforms continues without taking flight and the manufacturing anemia predicts a second year of consecutive recession. Nothing new in a production model that needs to reinvent itself and that has entered a vicious circle, with GDP falls in W since the beginning of the post-Covid business cycle.
German investment sentiment once again set off the alarm bells of its ZEW Institute indicator, which worsened drastically in November, falling from the level 13.1 to 7.4, when the analyst consensus predicted an increase of one tenth. While the German bund, a symbol of the stability of the euro, “has lost its shine,” warns Marcus Ashworth in his column Bloomberg. Given the poor prospects for increases in their debts, which still stand at a creditable 62% of GDP, and a systemic reevaluation of their payment obligations derived from a “confluence of factors.”
Among others, Ashworth cites the persistently expensive energy bill, the declines in exports to China in its manufacturing sector, key to its international business model and, above all, the threat of tariff increases on European products by the Trump Administration. The Economist leaves no room for doubt about this last risk: “Bad news is coming from the US for German businessmen” who have not raised their heads since the invasion of Ukraine almost three years ago in which, in addition to having to establish commercial and energy resilience mechanisms , have suffered internal productive shocks. In this period, German assets have barely increased 3%, compared to the 16% average growth of the shares of the industrialized powers.
German reconversion in an uncompetitive internal market
German corporate strategies have begun to explore a transatlantic horizon with hurricane-force winds. The US is Berlin’s first partner, whose coffers received 160,000 million dollars from sales to its main client, from which it imported goods worth 77,000 million. Only China, Mexico and Vietnam present larger bilateral surpluses. In the imminent future, the tariff impact, whether 10% or 20% – a level yet to be specified by Trump’s Trade team – “could force Germany [y la UE] to apply social and business shields,” warns Martin Ademmer, an analyst at Bloomberg Economics, who says he trusts “Germany’s ability to respond to unforeseen events.”
The IFO Institute estimates the decline in German exports to the US at 15% with tariffs of 20%. Although the data provider firm fDI Intelligence also affects the significant investor decline. Biden’s IRA law boosted German capital to $16 billion in 2023, almost double that of the previous year, and far from the $6 billion that German companies deployed to China. Inertia that will be difficult to maintain, judging by Trump’s message: “I want the German automobile brands to become American firms and for them to be the ones to build their plants in the US.” Last year, 900,000 vehicles made in Germany They entered the American market, half of their total sales abroad.
For Aslak Berg, analyst at the Center for European Reform (CER), Germany is essential in the articulation of any European replica of the tsunami new Trump era commercial; despite its urgent reconversion, similar, although behind closed doors, to the recommendations of Draghi and Enrico Letta to restore the productivity and competitiveness of the EU. For example, to make Washington understand that Europe does not want decoupling -fragmentation- with China, like the US, but only a controlled de-escalation of risks (de-risking) in “the necessary relocation to ensure supplies of manufacturing and raw materials.” Or to try to keep the pulse of the Trade and Technology Council (TTC) on digital security and AI that has been achieved under the Biden Administration.
Carsten Brzeski, chief economist at ING, affirms that the elections in the US and Germany will mark “superlative changes” that will have repercussions in Europe, with geostrategic shifts that, at times, “will be experimental, despite their significance, and at times, structural” Therefore, Brussels needs a Germany that “safeguards it.” In the face of “Washington’s attempts to weaken and fragment” the EU, as Hal Brands, professor of the Henry Kissinger Chair of Global Affairs, warns, for whom Berlin “must defend the liberal and democratic order” of Europe, portray to Trump “its threatening transatlantic tension” and prevent the EU from transforming with its version 2.0, writes in Foreign Policy.
And it can persuade him of, at least, some of the risks that “his aggressive and isolationist agenda” entails in the monetary, economic and technological sphere or in the climate battle or global security, emphasizes Peter Walkenhorst, analyst at Bertelsmann Stiftung.
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