As Desmond Lachman writes on Capital Matters today, Germany runs a clear risk of reclaiming the title — “the sick man of Europe” — by which it was known the during a period of economic malaise in the 1990s. There were other candidates for that title, but Germany, Europe’s industrial powerhouse, was the sick man that mattered, and if it relapses, the consequences won’t be pretty.
Lachman:
Germany’s economic stumbling comes at a bad time for the euro zone economy as it struggles with record-high interest rates and higher public debt levels in its periphery than at the time of the 2010 euro zone sovereign-debt crisis. It also comes at an inopportune time for the global economy. Both Japan and the United Kingdom are already in recession, and China’s own version of post-war West Germany’s Wirtschaftswunder has ground to a halt. The last thing the global economy needs now is to have Germany, the world’s third-largest economy, go through a prolonged period of economic stagnation.
As Lachman mentions, many of Germany’s problems stem from the misjudgments made during the Merkel years, from the reliance on “cheap” Russian gas to a growing economic dependence on China, which is now Germany’s largest export market.
On Merkel’s departure from office, a writer for the China Daily (a newspaper owned by the Chinese Communist party) had this to say:
German Chancellor Angela Merkel, who is set to step down after 16 years in office when Germany’s new government is formed, has left a legacy of pragmatic and win-win cooperation with China, an approach that is worth inheriting, analysts said.
“Win-win” was a term that Merkel liked to use. Xi, who knows a win-winner when he sees one, said that Merkel was “an old friend of the Chinese people,” who was welcome in China “at any time.”
China Daily:
Merkel has also co-chaired in the past decade all the six rounds of intergovernmental consultation between the two countries, which was initiated in 2011 and has been called a “super engine” driving bilateral cooperation.
Merkel, we are told, visited China twelve times as chancellor, trips that were “always conducted in a down-to-earth manner”:
On her trip to Chengdu in July 2014, for example, Merkel visited a food market and learned from a chef how to make kung pao chicken, a famous local delicacy.
Good times.
Another key Merkel policy was the (supposed) greening of Germany’s energy supply — the Energiewende — renewables and all the rest. This has contributed to the decisions by some energy-intensive German companies to shift production (or locate new production) outside of Germany, triggering worries about the country’s deindustrialization.
German climate and China policies came together with Berlin’s support for the electrification of the auto sector within the EU (after securing a concession that might permit the sale of new internal combustion cars using e-fuels), something that may result in disaster for what is, arguably, both the brain and the spine of Germany’s industrial sector. The car industry employs around 700,000 people and accounts for around 5 percent of GDP.
Germany’s leading position in car manufacturing is the product of its long-honed expertise in this area. But the arrival of electric vehicles (EVs) means that many of the benefits of incumbency that Germany built up in the era of the internal combustion engine will be heavily diluted. That will be bad news for German automakers as Chinese EV-makers, well ahead in the rigged EV game, start taking market share. Making matters worse, China is not only a vital export market for German carmakers, but they also have a substantial presence there.
And if Germany’s automakers get into difficulty, political trouble won’t be far behind. As Lachman notes, the two-and-a-bit parties (the center-left SPD and the center-right CDU/CSU) that have traditionally dominated the center in Germany are losing their grip, and the ideologically incoherent governing coalition (SPD, the Greens, and the, by German standards, free market FDP) is “at loggerheads.” The biggest winner from this so far has been the increasingly radical right-populist AfD, which has been polling in second place for some time, although it has lost a little ground of late. It is not a fan of the EV transition, and now the CDU/CSU has moved the same way, in response in part to the threat posed to them by the AfD. In their manifesto for the upcoming elections to the EU parliament, the center-right duo states:
We want to abolish the ban on combustion engines and preserve Germany’s cutting-edge combustion engine technology and develop it further in a technology-neutral way.
Intriguingly, Germany’s finance minister, who is from the FDP, appears to be at odds with his coalition partners, as Politico reports:
Instead of banning the sale of combustion engine cars in 2035, the EU should let the market decide between EVs and vehicles powered by biofuels or synthetic fuels, said German Finance Minister Christian Lindner.
It’s a start.
Meanwhile on the hard Left, the old extremists of the Left Party (Die Linke) have been overtaken by new ones gathering in the BSW (Reason and Justice Party) formed by Sahra Wagenknecht, a veteran not only of Die Linke, but of East Germany’s governing SED Party. So far as the latter is concerned, she, age 20, signed up less than a year before the Wall came down as, it seems, a true believer rather than the opportunists more typical of the later years of Soviet control. When the SED was succeeded by the cheekily named PDS (Party of Democratic Socialism), she went along, but also signed up for its communist faction, where she was known for her nostalgia for the grim regime under which grew up.
Her “journey” has been an interesting one (in writing about her last year in the Daily Telegraph, Daniel Johnson referred to her, uh, “socialist nationalism”), and worth looking at in detail on another occasion. But one of the places where she has arrived is a certain — how to put this — lack of enthusiasm for the scrapping of the internal combustion engine.
[Wagenknecht] has also taken issue with what she describes as “blind, haphazard eco-activism, which makes people’s lives even more expensive but actually does nothing at all for the climate”. The new party stands for a “return of reason” in politics, Wagenknecht said, quoted by the Süddeutsche Zeitung. Pointing to fight against climate change, Wagenknecht said it was completely nonsensical to ban combustion cars, which did little for the climate and undermines German automakers, which could have had an export hit with low-consumption engines had they been given the opportunity to further develop combustion engine technology.
Much as it pains me to agree with Wagenknecht, she is quite right about that. She may even believe it. (Today’s environmentalism is at odds with the Prometheanism that once played an important part in the ideology of the hard left.) Either way, she clearly believes it’s a vote-winner.
And the way things may go she may well be proved right about that too.