In less than a year since the new German government came into power, Federal Chancellor Scholz repeatedly mentioned “turning points”, not only in the fields of foreign affairs and defense, but also in the export-oriented economy that entered the golden age of Merkel’s administration. .
In the second quarter of 2022, Germany recorded only 0.1% economic growth. In July, Germany recorded its first foreign trade deficit since 1991. Germany’s Federal Statistics Office has warned that a recession in Germany is inevitable if the energy crisis triggered by the Russian-Ukrainian war continues. The German economic giant, which has long been driven by exports, has begun to enter crisis-ridden “uncharted waters”.
The challenged “German model”
Before the outbreak of the Russian-Ukrainian war, the German “economic engine” began to slow down. According to Wolfgang Streck, a professor at the Max-Planck Institute for Social Research in Cologne, the German economic model contained three elements of success under Merkel: a stable supply chain of parts and raw materials for German manufacturing ; Central and Eastern European countries that joined the EU after the end of the Cold War were included in Germany’s economic track; Asia-Pacific countries such as China provided a broad export market for German-made products.
Today, the “three elements” of the German model are simultaneously problematic.
From Merkel’s inauguration in 2005 to 2021, Germany’s economy has grown by 34 percent, much higher than France (15 percent), the United Kingdom (7 percent), Spain (11 percent) and Italy (2 percent) over the same period. Merkel has enjoyed a long-term support rate of no less than 50% or even as high as 82% in Germany, which is also attributed to Merkel and the CDU behind it having grasped the “golden window period” in the era of globalization, and put this The window period has been extended from 4-5 years to 15 years.
According to the German Institute for Economic Research, Germany is the “most open” economy among the world’s major economies: import and export trade is equivalent to 88% of Germany’s total economy, well above the OECD average56 %.
Entering the end of Merkel’s reign, many countries have raised the banner of protectionism. Since 2018, the protectionist policies implemented by many countries against German products have gradually increased: in 2017, there were 92 protectionist measures against German products in many countries around the world. This is then increased to 222 items.
There are many voters in the American “rust belt” who are dissatisfied with the “invasion” of German auto products in the American market. During the Trump administration, the United States considered imposing a 20% import tariff on European auto products. Among them, the German auto manufacturing industry may face the worst blow. Although the subsequent Biden administration was relatively friendly to Germany, German economic decision-makers have been uneasy since then. After all, if Trump returns to the White House for a second term, German manufacturing will still face a shock.
Against this background, Germany has also taken a contradictory attitude towards the Chinese market: on the one hand, German politics has followed in the footsteps of the United States and has made a tougher voice against China on the grounds that “values guide trade”, and claimed to “get rid of On the other hand, Germany’s dependence on the Chinese market has deepened in the first half of 2022: From January to June, German investment in China reached 10 billion euros, breaking the previous 6.2 billion euros ‘s record.
Since 2018, the protectionist policies implemented by many countries against German products have gradually increased.
The Bavarian Industrial Confederation, which is based in the southern German auto industry, estimates that if Germany and China “decouple economically”, the German economy will be hit six times harder than the impact of Brexit. The organization estimates that if the economic and trade exchanges between Germany and China are completely interrupted, the output value of Germany’s automobile industry will shrink by 8.47% immediately, and the equipment production industry will shrink by 4.34%.
As the “golden period” of the German economic model taking off on the tailwinds of globalization comes to an end, using trade as a geopolitical bargaining chip will cost German manufacturing dearly.
Industrial energy supply disrupted
If it is said that before the outbreak of the Russian-Ukrainian war, the main problem facing Germany’s economic model was market choice, then after February 24, Germany, like Europe, fell into an energy shortage crisis that was difficult to get rid of.
Deutsche Radio believes in a program that the only reason for the current high energy prices in Europe is Russia’s “energy blackmail”. Since the “North Stream 1” natural gas has been intermittent, the price of natural gas in Germany has risen rapidly, driving the inflation rate to 7.9% in August. Russia stopped supplying “Nord Stream 1” natural gas at the end of August, which made the situation worse.
Throughout the summer, the German media frequently reported “natural gas hoarding” – in order to prevent a serious shortage of natural gas needed during winter heating, as of September 1, the German government’s natural gas reserves had reached 75%, and it is estimated to be able to be stored by November. to 80%.
The dead end of Germany’s energy supply chain is that there are few LNG import facilities across the country for natural gas shipping.
While German residents may survive this winter, German companies may not be able to withstand soaring manufacturing costs. Compared with domestic natural gas, Germany’s manufacturing industry is the largest consumer of natural gas. According to the survey data of the German Federation of Small and Medium Enterprises in August, 73% of the German small and medium-sized enterprises surveyed said that their production capacity has been hit by the impact of natural gas prices, and they are considering reducing production.
Among them, 90% of the production of the German chemical industry is inseparable from the participation of natural gas. Before the outbreak of the Russian-Ukrainian war, some chemical plants had planned to build natural gas heating systems in order to make it easier to use cheap Russian natural gas after the opening of the “North Stream 2”; after the outbreak of the Russian-Ukrainian war, these facilities have been using If not, resulting in significant investment losses. Christian Kuhlmann, chairman of the German Chemical Industry Association, said that if it is really “dead”, the German chemical industry and even the entire German economy will suffer “a fatal blow like a heart attack.”
Unlike Italy, which relies on Russia to a similar degree of energy, Germany’s energy supply chain is the culprit in that there are almost no LNG import facilities for natural gas shipping throughout the country. Italy currently has three LNG port facilities and is stepping up the expansion of new LNG facilities, while Germany has had to “start from scratch” to build LNG facilities after years of reliance on Russian natural gas.
In the 1990s, the British media referred to Germany, which had become stagnant in order to digest and merge with East Germany, as a “European patient”. Now, Germany has a new nickname: “European Iceman” – Germany may have had the worst winter this year among EU countries. In contrast, France, another “engine” of the EU, has dealt with it better: France, with 56 nuclear power plants, is the world’s second largest nuclear power generating country after the United States. The company’s EDF has been nationalized, and the state has made greater efforts to regulate energy prices, and the pressure on energy prices to rise is smaller than in Germany.
It is worth noting that in 2021, France’s GDP growth rate (up to 7%) will start to outperform Germany. There is a voice that France, which has loosened labor policies and carried out market reforms, will soon begin to replace Germany as the new economic center in Europe, and that it will become the norm for its economic growth rate to outperform Germany.
Chimney cleaners maintain chimneys on the roof of an apartment building in Berlin, Germany, September 5, 2022. Local residents try coal or wood for heating due to rising gas prices
Green Party support rises instead of falling
The German economic model has encountered a “double attack” from upstream to downstream, people’s livelihood is plagued by inflation, and the government’s approval rate is different from Merkel’s era. Two-thirds of Germans surveyed expressed dissatisfaction with Chancellor Scholz’s administration, and only 25 percent thought he was competent, according to a survey by German research agency INSA. Scholz, known for “inheriting Merkel’s style”, has become a thing of the past in Germany’s new crisis period.
In Germany’s “red, yellow and green” ruling coalition, the Social Democratic Party, which is marked by “red”, is in a slump in public opinion, but the Green Party’s support rate has increased instead of falling. The most popular cabinet member at present is Robert Harbet, one of the co-leaders of the Green Party. As deputy chancellor and economy minister, Habet is the most familiar face the German public will see in the energy crisis, and as Germany is stockpiling gas faster than planned, the “energy commander” appears to be showing more potential than Chancellor Scholz. More communication skills and executive skills.
In fact, the Green Party behind Harbet is partly responsible for today’s energy shortage in Germany. The Greens have been pushing forward with Germany’s plans to abolish nuclear power plants since 1998, when they first formed a coalition government with the Social Democrats. After the accident at the Fukushima nuclear power plant in Japan, Germany’s “denuclearization” process accelerated. From 2011 to 2021, the number of nuclear power plants in Germany dropped from double digits to only six, and three more were shut down by the end of this year as originally planned.
Germany’s “denuclearization” shift to Russia’s cheap energy supplies is today considered Germany’s worst strategic mistake since World War II. The leader of the Social Democratic Party, Schroeder, who formed a governing coalition with the Green Party for the first time, is the biggest promoter of “North Stream 2”.
Faced with the problem of energy shortages, Harbet has reversed his stance in the past, supporting the restart of coal power generation and extending the working life of the remaining six nuclear power plants. The Green Party, which has been playing the banner of “de-nuclearization”, has not fallen but increased its public opinion support rate, and even eaten up some of the center-left vote sources that originally belonged to the Social Democratic Party. According to a survey by the website Politico, the Green Party has overtaken the Social Democrats since May and has become the second-highest party in Germany (the opposition CDU has the highest).
From a historical perspective, although Germany’s manufacturing industry is developed, its domestic infrastructure has been seriously lacking in investment for a long time. Due to the CDU’s implementation of the “zero debt” policy, the weak links in public infrastructure and outdated equipment were frequently reported in the newspapers during Merkel’s reign. In the early days of the outbreak of the new crown epidemic, German hospitals used fax machines to send patient information, which once became a joke. Repeated delays in construction of Berlin’s new airport and Hamburg’s new concert hall on the Elbe have shattered Germany’s reputation for “on-time” and “efficient” construction.
In the eyes of younger voters, the Green Party uses the packaging of environmentalism to strengthen and update Germany’s increasingly outdated energy, transportation and communication systems, and to increase support for Germany’s digital and artificial intelligence industries that lag behind China and the United States. The so-called “green infrastructure construction” plan under the so-called German version of the “Green New Deal” has a certain appeal.
The British “Economist” believes that the serious defeat of the CDU during the 2021 parliamentary elections reflects young people’s dissatisfaction with the CDU’s past infrastructure policies. In fact, a considerable part of the 0.1% economic growth in the second quarter of 2022 is the effect of infrastructure investment.
Robert Harbet, co-leader of the Green Party
Although Germany has a developed manufacturing industry, its domestic infrastructure has been severely underinvested for a long time.
However, some experts question the effectiveness of Germany’s shift to green infrastructure. In a lecture, Peter Zaan, an American geopolitical expert, ridiculed that German environmentalists were “too naive” in imitating California’s solar power generation plan: California’s worst power shortage is during the summer when residents need to turn on air conditioners, and The peak electricity consumption in Germany is during the winter heating season, which happens to be the season with the least sunshine in Germany and even Europe. The wishful imitation of environmentalists has always been greatly constrained by the geographical conditions of Germany.
The golden age is gone forever
The German economic model is out of the “golden period” under Merkel, forcing new German policymakers to change measures that were taken for granted in the past. In addition to a surge in defense budgets, Germany may be looking for new areas of export.
In addition to non-military products such as automobiles, chemicals and mechanical equipment, the world has entered a turbulent cycle, making weapons and equipment a new export growth point. Germany is currently the world’s fifth-largest arms exporter, and the three-party coalition government released a draft plan in June to ease export standards for German weapons to “democracies.”
Interestingly, Green Party MPs, who have always advocated “pacifism”, also participated in the draft that can increase arms exports this time. In 2021, the output value of German arms exports will reach 9.35 billion euros, and the main buyers are Egypt, Qatar and Saudi Arabia. After the war between Russia and Ukraine, Ukraine surpassed these Middle Eastern countries and became the main export destination of German weapons.
In addition to this, Germany is also looking for new markets in the Asia-Pacific region. A new target has started to be mentioned repeatedly, and that is India. The bilateral trade volume between Germany and India will double in 2021, and Germany’s share of exports to India will reach 14.7 billion euros. Of course, compared with the 123.47 billion euro share of exports to China, there is still a long way to go.
German economist Professor Wolfgang Streck once mocked that Britain called Germany the “European patient” every ten years, and every time Germany used a slow and gradual approach to reverse the symptoms of the “patient” . However, just like last time, this time it will take several years to improve.
