Sebastian Matthes is Editor-in-Chief of the Handelsblatt.
Dusseldorf When historians look back at the past decade in a few years, they will perhaps refer to this period as the “golden decade” – despite the financial and euro crises, despite the outbreak of the pandemic. It was a time when Germany was able to increase its prosperity enormously. In which unemployment almost disappeared. And in which the German economic model was admired all over the world.
But the German business model, which was based on trading with countries all over the world, no longer works. It is mired in a crisis that has only been exacerbated by the war in Ukraine. Former strengths are turning into dangerous dependencies at breathtaking speed.
There is foreign trade: no other large industrialized country is as dependent on trade with other economies as Germany, which is a fairly recent phenomenon, by the way. In 1990, the proportion of imports and exports in relation to overall economic output was around 40 percent. Today it’s a good 80 percent, which was just a strength while trade was picking up.
But world trade has been growing more and more slowly in recent years. Economists have long been talking about “slowbalisation”. This applies above all to Germany. Nowhere in the EU was growth weaker in the second quarter. “Mood largely stable at a lousy level,” wrote the economists at Dekabank on Thursday.
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Dependence on China is particularly dangerous. According to the Bundesbank, the German economy invested around ten billion euros in the People’s Republic in the first half of 2022 – more than ever before. The companies not only export machines, cars and chemical products to China. They are also setting up state-of-the-art production facilities there for billions. In some DAX companies there is already a fear that the German locations will be neglected.
German industry is stuck in the China trap
All of this at a time when the conflict over Taiwan is escalating dramatically. In order to achieve “reunification” with the island state, the regime in Beijing recently announced that it would not shy away from using force. Too many corporations are ignoring this unmistakable threat. German industry is stuck in the China trap. After all, the federal government wants to tighten the rules for state guarantees for investments by German companies abroad in order not to finance this dependency.
At the same time, the German economy is caught in an energy price trap. The industrial boom of the past decade was also based on cheap Russian gas supplies, which are now being replaced by more expensive supplies from other parts of the world. In addition, there is an energy turnaround policy that cost a lot of energy, but never really brought about a turnaround. The result: German industrial companies pay nine times more for natural gas than their competitors in the USA. Companies are already shutting down machines and production facilities because they can no longer be operated profitably.
A dangerous development is looming: the creeping deindustrialization of the country. Germany is turning from an economic pillar of the EU into a problem. The stock exchanges have already anticipated this. The share of the market capitalization of German shares has collapsed worldwide in the past 15 years from a good 3.5 percent to 1.8 percent.
Germany’s rescue has a name
There are no easy solutions to any of this. But there are solutions. However, the industry itself must also change for this to happen. Technologies for the automation of factories and processes, for example, are in demand like never before. Companies around the world have to use resources more sparingly and delegate tasks to robots because they are already having trouble finding enough workers.
The next wave of digitization will revolutionize the industry. German companies can play a leading role in this – if they make the leap into the digital world. The greatest hope for Germany, however, is the EU, the second largest market in the world: the first companies are already moving from Asia towards southern Europe. The European economy could be significantly strengthened if the EU finally completed the internal market, from recycling to temporary work to corporate taxes – the bureaucratic hurdles for companies are still immense. At the same time, only a better networked energy market across Europe can solve Germany’s gas problems. This includes cross-border pipelines as well as real Europe-wide power grids that have been planned for years but never built.
Ten years ago, the euro zone had to be rescued with billions, and this money came not least from Germany. Today Germany’s salvation is: Europe.
More: Cold withdrawal of Russian gas – Germany is threatened with an emergency winter