What's Behind Decline of Germany?
© Sputnik / Alexey Vitvitsky
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Germany has turned from Europe's one-time leader into a straggler, as deindustrialization and inflation sting one of the major Western economies. What's behind the slump?
Germany is projected to be the only G7 economy to contract in 2023: the country's gross domestic product (GDP) will slide by 0.3%, as per the International Monetary Fund's (IMF) forecast. The IMF attributes the trend to weak production output as well as economic contraction in two consecutive quarters (Q4 in 2022 and Q1 in 2023). The latter factor prompted international economists to conclude in mid-July that the country had fallen into a technical recession.
"The end point after which the German economy began to shiver was the conflict in Ukraine and related [anti-Russia] sanctions," Eugen Schmidt, member of the Bundestag, told Sputnik. "All these had a tremendous effect on the German economy. Now we are witnessing inflation which is unprecedented over the past decade, and which the government, despite numerous measures to support the economy, has not been able to reverse. We also see this in the form of high energy prices, including for utilities for ordinary consumers and industrial enterprises."
"As a result, German industry (and we know that the wellbeing of the German economy and German citizens was based precisely on German industry) is feverish precisely because energy prices make the products of German enterprises unprofitable, that is, uncompetitive. Therefore, there is now a trend seeing energy-intensive enterprises in Germany either radically reducing production in the country, or even transferring production to those countries where energy prices are much lower," the German parliamentarian continued.
Despite the nation having fallen into a recession, the German government is doing virtually nothing to smooth the situation, according to Schmidt. He argued that Berlin was guided by purely ideological ideas when it closed its nuclear plants, which had worked quite normally, covering the energy needs for the nation's industry.
"Now we buy expensive liquefied natural gas (LNG) from the US and Qatar," he said. "We import electricity from neighbors, from nuclear power plants that are located in France or Belgium. That is a completely absurd and harmful policy toward German industries."
Why German Economy Faces Continuous Slowdown
Germany's inflation stood at 6.5% in July, down from 6.8% in June, but still much higher than the desired 2% threshold. According to the European mainstream press, the European Central Bank's (ECB) aggressive rate hikes have started to hurt Germany's manufacturing sector, but not as much as energy uncertainty. Even though energy costs are not as shocking as they were last year, gas futures suggest that prices will remain around double their pre-pandemic level in the coming years.
The energy issue is particularly sensitive for Germany, which had thrived for decades due to relatively cheap energy supplies from Russia. The destruction of the Nord Stream natural gas pipelines – which, according to Pulitzer Prize-winning journalist Seymour Hersh, was orchestrated by the US and Norway – as well as Berlin's decision to follow in Washington's footsteps and slap energy sanctions on Russia, backfired on German manufacturers. In response to energy hurdles, some big German enterprises, including BASF and Lanxess, closed facilities and relocated their businesses, opening the door to the deindustrialization trend.
11 February 2023, 15:39 GMT
However, it's not only the Nord Stream blast and anti-Russia sanctions that has placed Germany's industries between a rock and a hard place: the government's unbalanced "green" policies have played a substantial role as well, per international observers. Prior to rejecting Russia's gas, crude, and coal, Berlin also excluded clean nuclear power from its future energy mix, while not having enough renewables to fill the gap.
"It will still be a tall (and expensive) order to produce the green energy required" for Germany in the foreseeable future, according to The Economist. Even if the nation manages to quickly build a network of hydrogen plants, the gas will only cover 30-50% of domestic demand by 2030. When it comes to wind energy, it's unlikely that Berlin will create the necessary amount of wind mills by 2030 amid local resistance and lack of grid connections, per the magazine.
The IMF is not optimistic about Germany's economic prospects: the former EU flagship's economy will grow by only 8% between 2019 and 2028, lagging behind France (10%), the Netherlands (15%), and the US (17%).
26 February 2023, 04:15 GMT
Undesired Effect of Sanctions: Russia Outperforms Germany
Severing ties with Russia was to the detriment of Germany in many respects, as per Schmidt.
"Germany was one of the leading countries that exported a lot of its products to the Russian Federation, receiving cheap energy resources in return through pipelines, through the Nord Streams, through the Druzhba oil pipeline, and so on. In this regard, the German economy profited the most from economic ties with the Russian Federation," he said.
Berlin's anti-Russian sanctions, slapped on Moscow after the beginning of Russia's special operation in Ukraine in February 2022, harmed German businesses and industries in the first place, argued the parliamentarian. In general, Germany has suffered from the sanctions much more than its Western peers and Russia, he noted.
"Now we see that, in comparison with Germany, the Russian economy is growing, while the German one is stagnating," Schmidt said.
Schmidt's stance is confirmed by official figures: per the World Bank, Russia has outpaced Germany in terms of the size of its economy adjusted for purchasing power parity (PPP).
Last week, the international entity announced that by the end of 2022, Russia's wealth in PPP terms had exceeded $5 trillion for the first time — placing it ahead of Europe's three biggest economies: France, the UK, and Germany.
Addressing the Council on Strategic Development and National Projects earlier this week, Russian President Vladimir Putin touched upon the trend, stressing that Russia's growth rates are steady, including in industry, while the current budget situation is stable and risk-free.
Why Does German Government Act Against Nation's Interests?
Per Schmidt, Germany apparently shot itself in the foot because its government is not independent in its decision-making. He lamented the fact that Berlin's decisions sometimes clearly contradict the country's national interests.
"[The ruling German coalition] could not foresee the completely obvious consequences of their steps," the German parliamentarian said. "Most likely, and this is indicated by many different indirect facts, Germany is under strict control and management. That is, in terms of some foreign policy steps, it is not independent, not sovereign, that is, it operates within the framework of Euro-Atlantic interests."
How Could German Economy Get Back on Track?
To get out of the vicious cycle of self-harm, Germany needs to lift sanctions on Russia, restore the Nord Stream infrastructure, and mend fences with Moscow, according to Schmidt.
"Cheap Russian gas is what will allow Germany, German business, German production to stay afloat, while the newfangled globalist trends in the form of saving the climate need to be reconsidered," he said. "It is necessary to reconsider in-depth those ideological messages that come from the side of the left-green forces in the country and abandon confrontation with the Russian Federation and build good-neighborly relations with China and the Russian Federation, including economic relations."
He believes that Germany needs to abandon the unbalanced "green ideology" which is strangling German industry and introduce a healthy energy mix, which would include some fossil fuels and nuclear power as well.
On top of this, the German government needs to start pursuing policies which correlate with the country's national interests while resisting the diktat of the transatlantic elites, according to Schmidt. He referred to Hungary, an EU and NATO member state, which is successfully protecting its national interests despite growing pressure from Brussels and Washington.
"[Hungary's] example shows that such a policy is possible," said the Bundestag member. "Therefore, I wish that healthy political forces come to power in Germany, which would act exclusively in the interests of the people of Germany. And these interests include reaching a consensus on security in Europe, which includes Russia's interests, and to conduct economic work with the Global East and the Global South, without subjecting them to ideological pressure. That is, there should be healthy competition and healthy good neighborly relations."
9 August 2023, 10:56 GMT
