How the pillars of German economic power fell
The A42 motorway is illuminated as white smoke rises from the Schwelgern blast furnace at the plant of German industrial group ThyssenKrupp in Duisburg, western Germany, February 4, 2021.
Atlantico: What is the success of the German economy based on to date?
Don Diego de la Vega: Germany is the story of the one-eyed man in the land of the blind. His success rests primarily on the failures of others. The Germans are the monetary anchor of the euro zone and the European currency system. The country pretends to make concessions to Frankfurt, but they end up holding the currency. Thanks to the seat of the ECB in Frankfurt, they have a kind of right of veto over the currency through the judges in Karlsruhe, through Berlin and through the Bundesbank. Their concessions and sacrifices are a strategy to better sanctify their domain.
This championship has been Germany’s trump card for 25 years. During the 2008 crisis, this enabled them to educate all of Europe while acting in reverse. We can cite the example of the 450 billion euros in bad debts that have disappeared from the Landesbanken. You should know that Germany has a very bad system of regional banks. In this case, the claims disappeared in an ad hoc claims system controlled by the Treasury and the Bundesbank. A sleight of hand they banned Greeks or Italians the following year. In Europe, Germany has always been “do what I say, but not what I do”. Note that this position is only possible if one is the monetary anchor of the Eurozone.
Germany has a kind of off-scale discretion. It is monetary sovereign while its European partners are not. As a result, it has the lowest interest rates in the galaxy, and that’s not unattractive if you want to borrow at low rates. The country has regained momentum in other areas such as energy, immigration or geopolitics because Germany acts as a stowaway towards NATO or the United States and towards Russia in the energy sector.
Breathless: The German economic model shaped by Gerhard Schröder is reaching its limits
This impunity is linked to the fact that Germany is central and to the non-existence of the Franco-German couple.
The German economy’s big bet for this early part of the century appeared to be based on free and open world trade, growing demand from China, an efficient national workforce, and cheap Russian energy. Have these pillars collapsed?
The system that the Germans relied on has only one time. The monetary anchor only applies if the euro holds. Free riding can only happen if the situation with Russia is not tense and the Americans continue to write checks.
Germany’s interesting underpinning is its industrial leadership as an exporter to China, made up of high quality family businesses. It does not collapse, but the Chinese need fewer machine tools because they are no longer in a logic of equipment, but of services. They can no longer sell overpriced sedans to the Spaniards, and soon to the Chinese, who will be outfitting themselves with Tesla cars. German industry is in danger of being dissolved, and this upheaval can be seen at Volkswagen, which made the decision to sack Herbert Diess. They chose continuity because they don’t want to reform. Thus, the danger of a real downfall materializes, its economy could be torn to pieces by Elon Musk on the one hand and by the general development of the world. German industry will reducer and will never be at the current limit.
Then we shall see if the Germans can continue to be a monetary anchor, a free rider and a teacher while the heart of their manufacturing dominance crumbles.
If Germany, like France, has been spared from outsourcing factory jobs, will this happen to them?
Yes and no. So far they have held up the industry quite well in terms of value added and employment. The core of their manufacturing advantage comes from thermal automobiles, but this area is at the end of its development. Given the development of the sector, they will have to change, but it is difficult to ask them to build software on wheels with batteries in a few years, because they are far behind in this regard. It is very problematic for them because it accounts for a large part of their GDP and thus dominates a number of third-party sectors.
The financial markets give us clues about Germany’s future and there are hardly any German high-tech companies. If so, then only what equates to mid caps in the United States. Porsche is worth next to nothing, Volkswagen is starting to lose ground and the departure of Herbert Diess will be a real turning point.
They failed to produce new actors. The actors are almost all historical, which is effective in a clear world where there is a 1% productivity gain every year. When it comes to taking a break, the Germans aren’t there.
One of their other problems is their financing because the German banks are in trouble. When we look at Deutsche Bank’s balance sheet, we have every reason to be scared. The German financial sector is undersized, corrupt and underhandedly sponsored by the Bundesbank. They never really recovered from the 2008 crisis.
Could Germany react?
It seems difficult… Their political class is not at the same level and it is even worse than what we have in France. On the other side of the Rhine we reach a real mediocrity. This class is structured by institutions that do not want a leader to emerge. This can be a good idea to avoid the appearance of personalities like we know them in France, but when it comes to creating a rebound it’s problematic.
During the 16-year reign of Angela Merkel, a deep narcosis prevailed because she prevented all possible reforms and Germany was crushed under the weight of the blank checks she signed on the migration and energy files. They told themselves that France would pay, NATO, or that a Holy Spirit move would come to save them.
Has the model you built become ineffective in the event of faults?
It was a system of complacency and non-reform. It aimed to infantilize France, which is already quite infantilizing to dominate the peripheries through monetary blackmail, but which is gradually beginning to crumble. The German model is reaching its limits in every respect. In a relatively old country, one wonders whether there is still catching up to do.
Is this an opportunity not to be missed for France?
We could benefit if we had a real alliance strategy. If we hadn’t made a pact of submission to Germany, we could make a pact with the English. Despite this, our elites have a kind of respect for Germany and are not anglophile for Gaullist or communist reasons, nor for ideological reasons. However, there is a chance for France provided we review our alliances. We have to stick with the Italians and get closer to the English. Unless we don’t…
We are trying to separate ourselves from the English as much as possible, trying to cling to Germany as much as possible when they are about to plunge us into their misfortunes. There is no longer a German-French couple and that can be seen in the files.
We can only use Germany’s difficulties if there is a reallocation of powers at the ECB. Christine Lagarde must change the ECB, which today is a kind of Germanic superego. We need to regain control of money matters, but that is not what the Macron government has in mind at all.
Geopolitically, Germany is in a position to make pacts with Russia. We must then be able to do so by showing that we can ally ourselves with the English in armaments because it is impossible to build an airplane with the Germans. We have to at least bring competition into play, but unfortunately that’s not the state of mind in Paris… We have a political class that has made German their mother tongue.