Germany in crisis, inflation and decline in industrial production

Germany is losing its leading role in Europe as bastion of the USA and NATOin favor of Poland (we explained it here). Although its status as economic engine of the Old Continent is still widely shared, at least in terms of status, the German machine is starting to give clear signs of flooding.

Economic crisis which is a symptom of a larger one profound identity crisisin which Berlin’s word no longer settles issues and disputes between member states as it did in the days of Angela Merkel. The energy crisis, the cut in huge supplies of Russian gasthe fact of being the final landing place of China’s New Silk Roads (with implementation stopped by the hegemonic United States) and for not having committed itself as much as it could in support for Ukraine: There are several factors to consider. Starting from the industrial and specialized labor sectors, which plummeted to unprecedented lows.

What’s happening to the German economy

Germany is in crisis and perceives itself as being in crisis. According to theGerman Institute for Economic Studies (Ifo)the country’s companies believe they are paying in conditions equal if not worse than those experienced during the Covid pandemic. An investigation by Die Zeit, perhaps the most authoritative German political analysis weekly, reveals the dark aspects of this negative trend which risks overwhelming Germany’s entire economic sphere of influence, including Italy. The Center for European Economic Research (Zew) instead it defined the country the “big loser” of the global economy. Forbes he comes down even harder, using the historically nefarious epithet of “sick man of Europe”. L’Credit Institute for Reconstruction (KfW) predicts “an era of declining prosperity.”

The result is that the fourth largest economy in the world was one step away from technical recession, with theinflation And energy costs which have reached record levels. Stagnation hits you right in the face well being, casting long shadows on the hitherto unbeatable German welfare state. In addition to its classic purpose, welfare also carries out another fundamental task on German soil: it keeps the various Lands that compose it on the same socio-economic level, ironing out differences. And things, at this point, could get worse in this sense. L’Eurostat For his part, he paints a scenario beyond all perception, stating that in Germany fewer and fewer people are consuming at least one complete meal a day.

He also noticed it International Monetary Fundwhich updated the growth forecasts for 2023. Result: the main economies of the world all recorded positive changes in GDP, with percentages ranging from 5.2% of China to 1.8% of USA and 1.5% of the Russia. Germany follows at a great distance, in last position, with just one 0.3%. Even worse than the United Kingdom in the midst of the post-Brexit crisis (0.4%). The sense of tragedy is heightened by an unprecedented phenomenon for Germany: the decline in industrial productivity.

Germany is also in the export network that involves Russia in “backdoor ways”: this is how it manages to get around Western sanctions.

Germany’s public debt

The draft budget, presented by the Finance Minister to the Lower House of the German Parliament (Bundestag) on September 5, it’s about a new net debt of 16.6 billion euros for 2024. Compared to a spending of 445.7 billion eurosdown compared to the 476.3 billion estimated for 2023. Hence the decision to reactivate the debt brake (the so-called Schuldenbremse) or, better yet, long-term sustainable public finances, enshrined in the Constitution and suspended in the two-year period 2020-2022.

The measure allows the German government to take on only a small amount of new debt each yearin order to maintain the debt/GDP ratio below the fateful threshold of 60% desired by the EU. Germany is discovered perhaps for the first time in Maastricht nostalgic for the strength of the mark German. There German Audit Court (Bundesrechnungshof) openly accused Olaf Scholz’s chancellery of having hidden the real financial conditions of the country, in contravention of European rules.

Meanwhile Chinese banks “eat” Russia: the move that changes everything.

Companies in difficulty

After the upheaval caused by the Ukrainian war, the German government must decide on the great turning point of the country after the so far unsurpassed Wende from the Fall of the Berlin Wall. But there is no common vision and no shared decision can be reached. In this chaos, German companies are trying to save themselves as best they can danger of deindustrialization and from change in globalization in a West that wants to isolate Russia. Colossi of the caliber of Mercedes-Benz And Volkswagen they are too tied to China to change their model on the fly and therefore continue on the “old path”. So tied and in difficulty as to induce the second to ask Beijing for help, with the result that Chinese XPeng will contribute to the construction of the cars Volkswagen with electric motor directly in the People’s Republic. Another giant, Basfthe largest chemical group in the world, has instead seen turnover dropped by 25% and profits by 76%.

Foreign companies no longer choose to invest in Germany, which until now was a privileged destination due to the heavy subsidies (paid by taxpayers). The situation is inextricably complicated by theexcessive bureaucracy, both German and European Community. The large German groups denounced that the EU is constantly working on new regulations crippling key sectors such as that of the steel and chemical industries. All seasoned with a strengthened tax pressure (33rd place out of 35 according to the Center for European Economic Research in Mannheim) and from shortage of skilled workersattracted by better conditions across the border (particularly in China, Arabia and the Emirates).

Germany’s economic and geopolitical parable

An unvarnished truth, to begin with: Germany is not entirely in control of developing its own national strategy. It is not completely available, obviously, because it has 38,500 American soldiers on its soil to remind us who the hegemon is, after the defeat in the Second World War and indefinite employment during and after Cold War. A banality, which however needs to be reiterated every now and then.

How should the fact be reiterated that, on a purely strategic level, Germany doesn’t want to kick any country out of the euro, unlike the now traditional vulgate – especially in Italy – on the subject. Berlin wants us in the Eurozone because lives on exports and commercial networks through which to distribute his enormous productive surplus. Revenue is vital, because it guarantees the maintenance of a welfare system among the first in the world, and now in crisis. In this sense, the disposal of the mark to “punish and weaken” the country and the consequent adoption of the euro were transformed into a strong point.

At a certain point, however, something in the mechanism got stuck. Berlin has begun to raise its head and its voice with Washingtongiving two clear signals of non-alignment or, worse, openness to strategic adversaries Russia and China:

  • support for the construction of Nord Stream 1 and 2 pipeline (sabotaged in a decisive way, as we reported here) which would have linked her even more to Moscow;
  • the agreement with Beijing on Belt & Road Initiativethe New Silk Road that unites East and West by ferrying flows of goods from the heart of China to Hamburg.

On the first point the USA intervened with the stick: in January 2019 the American ambassador to Germany, Richard Grenell, sent letters to companies involved in the construction of Nord Stream 2 urging them to stop working on the project and threatening them with sanctions. Parallel sanctions on the Russian giant followed Gazprom and, after February 2022, the abandonment of the project announced by the chancellor Olaf Scholz. If the dependence on Russia seems to have been trained, albeit at a high cost, the dependence on China is instead increasingly tighter. Consider, for example, that almost 70% of the rare earth needs essential for the energy and IT industries comes from the Asian giant. Not to mention the import-export volume and direct investments, which have never been so high.

The consequences of Germany’s rearmament

There is also another German move to add to the list: rearmament. The decision to reinforce an army that has effectively not existed since the end of the Cold War, allocating to Defense 2% of GDP (over 100 billion euros through a special fund for Bundeswehr), was triggered by the Russian invasion of Ukraine. With the declared aim of preparing to defend free trade in Europe also militarily, given the failure of politics Wandel durch Handelaccording to which Russian-German economic interdependence would somehow “democratized” the Kremlin.

There safety and the prosperity guaranteed by the USA no longer seemed so obvious. On the other hand, the Germans know well that they are not up to the standard of “the best equipped army in Europe” so popular in propaganda. As he demonstrated for example the NATO exercise of December 2022, in which the much vaunted German Puma tanks almost all stopped due to technical failures. Even the federal offices that must divert funds to the Armed Forces are Short-staffed. The result? Of the 102 billion euros announced by the German government for defense, only 30 billion have been allocated. With the soldiers still waiting to be paid.

The consequences for Italy

We always have to ask ourselves: what are the consequences of all this for Italy? Our country lives and acts totally within the German economic system (in turn included in the US sphere of influence), as Germany’s first trading partner in the EU. A large part of the German trade surplus is destined south of the Alps and, on the other hand, Italian companies produce components necessary for German industries. It is therefore easy to understand how the disease of the crisis is transmitted or can be transmitted to the Italian industries most integrated into global value chains and to the most dynamic regions, especially in Northern Italy. Italian exports appear destined to slow down unless there is a decisive improvement in the international scenario.

The crisis of the German model also hits us hard for another reason: Germany guaranteed the Italian debt with the European institutions. And, when our conditions showed themselves to be in rapid decline, the appointment of the authoritative Mario Draghi at the helm of Palazzo Chigi. Guarantee and at the same time justification for the arrival of German money in Rome. A sign of how much our manufacturing, the second in Europe, is indispensable to the German industrial galaxy. The same Recovery Fund was born with an exclusive German economic guarantee. And now? Now even rich Germany has discovered itself and is in debt, a hidden deficit that has pushed the EU Commission to prevent German use of special funds to cut the deficit. With Italy consequently condemned to ask for resources or time once again.