{"id":111753,"date":"2025-05-18T13:11:11","date_gmt":"2025-05-18T13:11:11","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/111753\/"},"modified":"2025-05-18T13:11:11","modified_gmt":"2025-05-18T13:11:11","slug":"why-the-german-economy-has-gone-from-europes-engine-to-its-anchor-the-irish-times","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/111753\/","title":{"rendered":"Why the German economy has gone from Europe\u2019s engine to its anchor \u2013 The Irish Times"},"content":{"rendered":"

The short explanation for Germany<\/a>\u2018s current economic malaise is that it outsourced its security requirements to the US, its exports to China and its energy security to Russia, and now finds itself at the centre of a perfect storm.<\/p>\n

That\u2019s perhaps an oversimplification. In his book \u201cKaput: The End of the German Miracle\u201d, Wolfgang Munchau claims country\u2019s recent reversal has been brewing for decades and stems from several faulty assumptions about the global economy, corporate complacency and a chronic underinvestment in digital. <\/p>\n

In Munchau\u2019s view, crisis-stricken Volkswagen<\/a> \u2013 which is laying off staff to cut costs having lost its way in the switch to electric motoring and whose corporate image remains tarnished by the 2015 dieselgate scandal \u2013 is emblematic. <\/p>\n

But the security, exports, energy explanation for Germany\u2019s stuttering economic performance (the economy hasn\u2019t grown in nearly three years) remains a reasonable starting point.<\/p>\n

Germany was uniquely exposed to the higher cost of gas on global markets triggered by Russia\u2019s invasion of Ukraine in 2022 because of its overreliance on Russian energy.<\/p>\n

[\u00a0Kaput. The End of the German Miracle: Acerbic chronicle of a country\u2019s fall from graceOpens in new window<\/a>\u00a0]<\/p>\n

This stems back to former German chancellor Gerhard Schr\u00f6der who drove the Nord Stream 2 pipeline project, effectively deepening Germany\u2019s dependence on Russian gas. <\/p>\n

After exiting office, he controversially became chairman of Russian state-owned energy giant Rosneft. The New York Times recently ran an article about Schr\u00f6der under the headline, \u201cThe former chancellor who became Putin\u2019s man in Germany\u201d. <\/p>\n

His successor Angela Merkel, in response to the Fukushima nuclear accident in Japan, further cemented Germany\u2019s reliance on Russian energy by phasing out the county\u2019s nuclear energy industry. The last nuclear power plants went offline in 2023. <\/p>\n

Both Schr\u00f6der and Merkel, like many others in the West, made what now looks like a colossal error of judgment in believing greater trading ties would move Moscow in a more liberal direction.<\/p>\n

The high cost of energy (combined with the lack of an alternative) has crippled Germany\u2019s energy-intensive manufacturing base, pushing the country into a recession from which it has yet to emerge.<\/p>\n

At an earlier point in the globalisation process, Germany also bet the country\u2019s export future on China. Initially this paid off. Order books were filled twice over as German industry supplied cars, machine tools, and engineering expertise to the fast-growing Chinese economy. Strong export demand from China cushioned the German economy during the financial crisis when the rest of Europe stagnated.<\/p>\n

But now German car manufacturers find themselves outstripped by Chinese competitors like BYD<\/a> while German companies complain about Chinese market access restrictions and policies that favour home-grown firms.<\/p>\n

Germany is the main reason why the EU runs a large trade surplus (in goods) with the US (the source of so much ire in Washington) but conversely it has a large trade deficit (\u20ac59 billion in 2023) with China and now finds itself caught in the middle of a tense geopolitical standoff between the US and China.<\/p>\n

The third leg of this increasingly faulty economic stool comes courtesy of the current White House incumbent and his attempt to rewire the postwar global order. Donald Trump\u2019s cosying up to Moscow, his laying the blame for Russia\u2019s invasion of Ukraine on Kyiv itself and his condemnation of federalist institutions like the EU (he claims the bloc was set up to screw the US) have challenged the liberal orthodoxy and the assumption that Washington will underwrite Europe\u2019s security.<\/p>\n

Even if a future US administration rows back on this, the fact that a US president of any hue could arrive at this point has sent shock waves through European capitals.<\/p>\n

Newly-installed German chancellor Friedrich Merz<\/a> said last week his government\u2019s top priority was to transform the nation\u2019s armed forces into Europe\u2019s strongest conventional army to help counter the rising threat from Russia.<\/p>\n

[\u00a0Merz vows to build the strongest army in Europe and revitalise Germany\u2019s fortunesOpens in new window<\/a>\u00a0]<\/p>\n

\u201cOur friends and partners also expect this from us, indeed, they practically demand it,\u201d he said in his inaugural address to parliament in Berlin.<\/p>\n

Merz pledged that his government \u201cwill provide all the financial resources the Bundeswehr [Germany\u2019s armed forces] needs,\u201d which he said was \u201cappropriate for Europe\u2019s most populous and economically strongest country.\u201d<\/p>\n

Even before taking office, he moved to ensure that Germany can reverse years of underinvestment, passing legislation to remove the so-called debt brake, allowing for additional defence spending and for a \u20ac500 billion infrastructure package, powering through Germany\u2019s long-standing cultural aversion to deficit spending. <\/p>\n

He vowed to revamp Germany\u2019s struggling economy by reforming the country\u2019s outmoded bureaucracy while incentivising investment and entrepreneurship.<\/p>\n

Like Ireland, trade is key element of the German economy and the current uncertainty surrounding Trump\u2019s on-off tariff policies weighs heavily on the outlook.<\/p>\n

The flagging German economy also appears to be driving a historic shift in the political landscape. Last year the Alternative for Germany (AfD) party became the first far-right party to win a state election in the country since 1949. The party went on to double its vote share in this year\u2019s general election.<\/p>\n

Whether Germany\u2019s current downturn is indicative of a long-term trend is now a central question. M\u00fcnchau believes it is. \u201cThe German supercycle is ending; that of the US is still going strong,\u201d he says.<\/p>\n","protected":false},"excerpt":{"rendered":"The short explanation for Germany\u2018s current economic malaise is that it outsourced its security requirements to the US,…\n","protected":false},"author":2,"featured_media":92982,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5310],"tags":[1550,32,2000,299,1945,1824,50704],"class_list":{"0":"post-111753","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-germany","8":"tag-byd","9":"tag-donald-trump","10":"tag-eu","11":"tag-europe","12":"tag-friedrich-merz","13":"tag-germany","14":"tag-volkswagen-vw"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/114529008560514459","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/111753","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=111753"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/111753\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/92982"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=111753"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=111753"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=111753"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}