Energy, industry, trade… why the German model no longer works

With worried eyes, the European Union sees its first economy falter. Germany, cited earlier as an example, had one of the worst results within the eurozone in the first quarter of 2022. The country’s growth remained unchanged from 0.8% in the first three months of the year, weighed down by the acceleration in inflation, which reached almost 10%. Very unsatisfactory results compared to those of some European neighbors, raising the specter of recession. Hard to imagine that the German industrial giant would collapse half a year ago. However, the challenges the country is facing are not new and it is now forced to review its strategy based on low-cost energy imports and dynamic exports of high value-added products, thanks in particular to its close trade ties with Russia and China. Back to the reasons for the decline of the German model.

Russian gas dependency

This is the country’s main weakness, which has long benefited from cheap energy imports without diversifying its supply. Since the outbreak of war in Ukraine and the West’s economic sanctions against Russia, the Russian gas giant Gazprom has further reduced its gas supplies to the 27 to the great displeasure of Germany, which was more than 50% imported from Russia, both for its industry, the 30% of the gas burned in Germany, as well as for its population, which uses gas mainly for heating. ” In 2005 this dependence on Russian gas was only 40%, but Germany has accentuated it over the years, notes Jacques-Pierre Gougeon, university professor specializing in Germany and research director at the Institute for International Relations and Strategies (Iris). This is currently the subject of a major political debate in Germany, too, because it is seen as a big mistake by previous governments. ». Beyond the economic argument, Germany a ” political strategy » since 1969 “Ostpolitik” based on close ties with Moscow. ” There is has always had a privileged relationship with Russia since reunification and even before. Germany saw itself as the European power that could dialogue with it », remembers Jacques-Pierre Gougeon.

to Eventually, through the forced march, Germany managed to reduce its imports of Russian gas to 35%. But this effort now increases the risk of a shortage next winter. In late June, Berlin activated Stage 2, dubbed “Alert,” of its gas supply contingency plan, the final stage before the country organized rationing. As the population rushes to electric heating, the government is exploring new sources of supply, even if it means a return to more polluting energies. ” In order to reduce gas consumption, less gas has to be used to generate electricity. Instead, more coal-fired power plants must be used »so announced Robert Habeck, Minister forEEconomy and Climate, co-leader of the Greens, despite his party’s pledge to expect a coal phase-out by 2030. A decision ” bitter » but ” significant », according to the minister.

Other avenues studied are nuclear, solar or wind energy, but also gas from Norway, the Netherlands or even liquefied natural gas (LNG) from the United States or Qatar. But it will cost him more. Because apart from the instruction to the Germans to take shorter and colder showers, the greatest effort will be made when paying the bill. The Energy Crisis ” is still ahead of the economy »Robert Habeck recently warned in anticipation ” a difficult winter ». Energy suppliers are struggling with great difficulty in coping with the rising costs. So much so that the government was forced to take a 30 percent stake in their largest, Uniper, to avoid its bankruptcy. From October 1st, the company will be able to pass on the prizes to its customers.

A close economic connection with China

There is another country with which Germany has developed a strong trading relationship. After Germany made foreign trade one of the pillars of its economy – according to the World Bank, trade in goods accounted for 72.2% of Germany’s GDP in 2020 – Germany turned to Asia and beyond, particularly China, in the 1980s. The latter offered German companies significant trading opportunities and the ability to relocate some of their production there at a lower cost. Germany has become its most important economic partner. In 2021, more than 245 billion euros were exchanged between the two countries.

But the health crisis and disruptions in supply chains, as well as repeated restrictions in China, have gripped the wheels of German trade. Especially since the Western sanctions against Russia after the invasion of Ukraine have led to Germany questioning its dependence on Beijing in view of democratic deficits, especially towards the Uyghurs. ” We need to diversify our international relations, also for our exports »said Federal Finance Minister Christian Lindner in an interview with the newspaper The time, on April 6, 2022 and added ” Perhaps now is the time to give priority to doing business with those who are not only business partners, but also want to be value partners ».

A change of course compared to the German policy pursued up to then, which consisted of it ” separate politics from economics »explains Paul Maurice, research associate at the Study Committee for Franco-German Relations (Cerfa) and at theFrench Institute of International Relations (Ifri). Demonstrate in relation to China, ” a kind of blindness »he explains : ” For the last two or three years there has been a very strong political hardening in China, which Germany did not take into account because it was necessary to further develop ties to this country. And that until they are faced with a fait accompli and have to look for new partners ».

An industry struggling to innovate

This anticipation is also reflected in his industry, especially in the automotive industry, where Germany is the world export champion. However, the country has fallen behind in the transition from the internal combustion engine to electric propulsion, which it is still trying to catch up to compete against other players such as Tesla. This development is all the more necessary as the European Parliament voted on June 8, 2022 to ban the sale of new petrol or diesel vehicles from 2035. ” The issue of the Stromwende was expected by German industrialists rather than politicians, urging the government to reconsider its position on the issue. », explains Paul Maurice. According to the researcher at Ifri, ” In the course of the energy transition, a change will also have to take place for the chemical industry and for the technologies used in solar and wind energy, in which Germany will play a pioneering role. However, the country has remained in a traditional industry that runs the risk of slowing down its development because we cannot quickly catch up ten or twenty years behind »he adds.

As a result, the picture for what may be the leading European economy seems to have clouded over significantly ” the sick man » among the twenty-seven. And if the crisis that Germany is going through cannot make us forget the economic solidity that it has shown in recent years, it was built on a model that it must now completely rethink.