Renowned for her prudence, even her indecision when she was in power, Angela Merkel should undoubtedly have rushed to write her Memoirs. The 700 pages of Freedom (Albin Michel), who are trying to defend the record of a former chancellor who led Germany for sixteen years, appear at the worst of times. His country is realizing that its torments are far from being limited to the war in Ukraine alone, or the breakup of Olaf Scholz’s coalition, causing early legislative elections in February 2025. For five years, the GDP of the world’s third largest economy grew by only 0.1%. Volkswagen, the largest industrial employer and symbol of German prosperity, is considering the closure of three factories in Germany, a first. In 2023, the share of coal in electricity production still represented more than 25%.
Former columnist of Financial Times and founder of Eurointelligence, Wolfgang Münchau was lucid about the woman who has long been portrayed as “leader of the free world”. In 2021, at the time of farewell to Angela Merkel still crowned with 80% positive opinions, he already described her as “the most overrated political leader of our time”. In Kaput (Swift Press), which has just been published in English, Wolfgang Münchau analyzes the “end of the German miracle”. For the journalist, beyond the Merkel case, it is a whole system, which he describes as “neo-mercantilist”, which is today running out of steam. What made the German model strong – industry and the export of material goods – is now its main weakness, due to lack of diversification and investment in digital technologies as well as in services. “The German elite’s disdain for services, and their lack of understanding of what they are, is very telling. For them, the service industry is the bankers and the prostitutes. They call it the sector tertiary”, says Münchau ironically.
Obsolete infrastructure
For several years, Germany recorded a current account surplus of more than 8% of its GDP. But this surplus was invested abroad, or in sectors currently in crisis, such as automobiles, rather than in new technologies or infrastructure. The recent collapse of a bridge in Dresden highlighted the dilapidated state of bridges and the motorway network. The rail system is also in a deplorable state, with more than 30% of mainline trains failing to arrive on time.
In France, we are used to saluting the courage of the Hartz reforms, under the mandate of Gerhard Schröder, which in the early 2000s made the labor market more flexible. For Wolfgang Münchau, this German obsession with competitiveness has certainly succeeded in prolonging an obsolete model for a few years, but without leading to any questioning. Germany was the champion of industrial exports during the era of hyper-globalization, from the 1990s until 2020. “The United States, the United Kingdom and France gave it free rein. And China was not yet there”, summarizes the journalist. The country has long benefited from a favorable context: cheap energy thanks to Russian gas, strong growth in China and other Asian countries fueling demand for machines, the liberalization of maritime transport by containers… But since Covid-19 pandemic, Germany’s rivals have changed their mindset, with a return to protectionism embodied by Donald Trump and support for their own industry, like the Inflation Reduction Act (IRA ) by Joe Biden.
Blindness to Russia and China
The war in Ukraine showed to what extent Germany’s necessarily energy-intensive industrial model, as well as its East-oriented policy of “Wandel durch Handel” (change through trade), has caused a dependence on gas. Russian, even though environmentalists have pushed the country to abandon nuclear power. After a family visit to Vladimir Putin during Christmas 2001, Gerhard Schröder maintained a real bromance with the Russian autocrat. The powerful Ost-Ausschuss der Deutschen Wirtschaft association also called for easing sanctions against Russia after the annexation of Crimea in 2014. Intoxicated by this cheap energy as well as the commercial opportunities in the East, the German elites are are blinded to the ideological evolution of the Russian regime: “When a country lives on its exports, it does not see Vladimir Putin for this that he is, but like the guy who speaks fluent German, with old-school manners, and who dances with the Austrian foreign minister at her wedding.” More lucid, the Russian-speaking Angela Merkel has nevertheless done nothing to limit this energy and economic dependence. It took the sabotage of the Nord Stream gas pipelines in 2022 to definitively cut the umbilical cord between Germany and Russia.
Dependent on its exports to China, Germany has been equally myopic regarding the hardening of the Chinese regime. Angela Merkel’s last major foreign policy initiative was to impose the comprehensive investment agreement between the European Union and China at the end of 2020, even though the majority of Europeans had long realized that Beijing was now more of a strategic rival than a commercial partner.
The failed digital shift
Champion of analog products, Germany has completely missed the digital shift. In 2013, Angela Merkel, during a press conference with Barack Obama, described the Internet as “Neuland”, or “unknown land”, even though the iPhone was already 6 years old… “The Germans invented the engine gasoline, the electron microscope and the Bunsen burner But they did not invent the computer, the smartphone and the electronic car. Over the years, this has become a problem,” notes Wolfgang Münchau. This failure has historical explanations. While German physicists (Max Planck, Erwin Schrödinger, Werner Heisenberg, etc.) were winning Nobel Prizes and were pioneers of quantum physics, Nazism caused a brain drain to the United States. Although the country continued to shine in mechanics and chemistry after the Second World War, it did not participate in the semiconductor revolution. At the beginning of the 1970s, Chancellor Willy Brandt certainly wanted to develop optical fiber in anticipation of the advent of the computer age. But his successors have made many bad choices in this area. In the 1980s, Helmut Kohl, for example, pushed high-definition television, an analog technology project abandoned in 1993. Today, fiber only represents 10% of internet connections in Germany, compared to 35% on average in the OECD, and more than 50% in France. Nearly four out of five companies were still using fax in 2023. When this year a parliamentary committee decided to put an end to the fax machine in the Bundestag, the motion was tabled by… fax.
Digital innovation relies on start-ups, and needs a capital-intensive ecosystem that is not encumbered by bureaucracy. However, the venture capital market in Germany was non-existent for a long time. “The grants are intended for large companies with legal departments, not for entrepreneurs who focus on their business. The problem with bureaucrats is that large companies find ways to manage them. This is not the case for small businesses”, emphasizes Wolfgang Münchau. In Germany, the large universities, around which start-ups thrive, are also lagging behind Oxford, Cambridge, London or even Paris.
The car, this national symbol
In a country where Volkswagen, Mercedes and BMW rule the roost, the most stinging symbol of the setbacks of the German economy remains the inevitable decline of thermal cars. The automobile industry represents nearly 20% of added value in the entire industrial sector, and directly employs nearly 800,000 people. However, these companies were unable to anticipate the rise of electric cars, leaving China and the United States at the forefront. Ferdinand Piëch, grandson of Ferdinand Porsche and former boss of Volkswagen, proudly declared that there was no room for an electric car in his garage. In 2013, one of his successors, Martin Winterkorn assured that electric cars had no future for long journeys.
For Wolfgang Münchau, corporatism and inbreeding between political, economic and financial elites have fueled German conservatism. Christian Lindner, leader of the liberal FDP party, is for example a close friend of Oliver Blume, boss of Porsche and Volkswagen. Minister of Finance from 2021 to 2024 (until his dismissal by Olaf Scholz), Christian Lindner lobbied for the thermal car. These elites were thus unable to see that Germany’s industrial flagship was affected by a paradigm shift. German cars excel in mechanics, speed and acceleration. On the other hand, they have missed the shift towards AI, automatic driving and on-board entertainment systems: “A Tesla is an IPad with wheels – in reality, it is easier to use than an IPad”, underlines Wolfgang Munchau. Whereas on a car “made in Germany”, you often have to consult the manual to understand in which menu to change the time…
Already a “sick man” in 1999…
All economic journalists know it: it is perilous to bet against Germany. The country bounced back quickly after the Second World War, or following the difficulties caused by reunification. In 1999, The Economist called the country “the sick man of Europe”, while the unemployment rate there reached double digits. The 2000s largely contradicted this diagnosis. But today, for many observers, the decline seems lasting, even as the German population faces mass aging, and this fear of downgrading is accompanied by a rise of the far right.
For Wolfgang Münchau, it is the growing gap between a France addicted to public debt and a Germany having made the “debt brake” a constitutionalized totem which undoubtedly represents the greatest risk for the European Union. In 2012, following the sovereign debt crisis, and while Angela Merkel refused to help Greece, ECB President Mario Draghi prevented the breakup of the euro zone with his “whatever it takes”. But in the event of France’s financial crisis, an increasingly realistic scenario, it is difficult to imagine that its neighbor will come to its aid. “It is impossible for Germany, which has imposed a rigorous reduction in its deficit by sacrificing its net investments, to bail out a country which has not done so,” predicts Wolfgang Münchau. In the meantime, the crisis of the German model is already a reality. Globalization, energy, geopolitical context, China… Everything that enabled Germany’s success ended up turning against it. The world has changed, but German elites are only beginning to realize it.
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