The Corner


Germany: About that Legacy, Angela

Euro Intelligence:

The substantive issue is not whether diesel is doomed in the long run – even the German car industry accepts that – but how this should happen, and the time frame. The German car industry is not ready to supply the market with hybrid engines, let alone electric engines…If your car industry operates like a cartel, the development of alternative technologies get suppressed. This works exceedingly well so long as you keep technological leadership. And it breaks down when the underlying technology changes or when there is a sudden shift in the structure of demand….

[T]he car of the future will have an electric engine, and lots of smart artificial intelligence. We don’t know yet whether Tesla is the new iPhone of the car industry… What we do know is that the German car industry is not at the forefront of either development… It is up against the likes of Google, and possibly Apple, whose market capitalisation is far too large.

The new competitors are not part of the cartel…The developers have a different background than do the mechanical engineers of today’s car industry today. So, there is no reason to believe that the German car industry will retain its fat profit margins. It will decline just like newspapers declined. It won’t disappear, but wither slowly. Diesel sales are falling fast, even in Germany. Salaries will eventually come under pressure, and the most talented engineers and scientists will seek alternatives. What we do know is that Germany is absolutely unprepared for this development.

In this context, we noted a comment by Marcel Fratzscher, who argues that Germany is preaching free trade at G20 summits, but is practicing protectionism at home when it blocks foreign takeovers of companies that own certain key technologies. He says the veto right is ill-defined, and thus particularly potent because politicians use it at their discretion. Germany, and the EU as a whole, are prioritising protection over innovation.

And there was I, thinking that Merkel was a champion of liberal (in the good sense of that much misused word) values…..

The longer term problem that electrification and self-driving cars might represent for Germany’s auto sector also rates a mention in a new piece in The Economist on some of the challenges facing the country, including (somewhat cheekily given that magazine’s own greenery) the effect of Germany’s high energy costs (much of them arising out of Merkel’s policies) on its competitiveness.


That trend is compounded by a conservative attitude to certain kinds of new technologies. Germans are even more hostile than the French to a free-trade treaty with America and to big-data giants like Google. In another backwards-looking move, Mrs Merkel’s government decided to cut the retirement age.

For now, however, Germany’s economy is in good shape and Merkel appears to be coasting to an easy re-election later this year, but I was struck by this in The Economist’s article:

All told, says Stephan Richter, a pundit, Germany’s “anaesthetic” political class has not used the country’s golden decade to equip it for the future: “past performance is no indication of future success.”

Indeed, but the sins have been of commission as well as omission. The decisions that Merkel has made on issue after issue after issue (the economy, immigration, energy, the EU—and there are plenty of other blunders to pick from) have already been damaging, and the final bill is not yet in.

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