Analysis: “Nobody is perfect”: the German economy, the engine of Europe, is racing
- Germany breaks 30-game winning streak as export champion
- Europe’s economic icon faces a turnaround
- Divisions could hamper German action
FRANKFURT, July 8 (Reuters) – Long one of the world’s economic stars, Germany is on the brink of a reversal of fortunes that some fear could jeopardize the prosperity built by its post-war generation .
While on the surface Germany’s economic engine hums, a recent turnaround in exports and a sharp drop in stock prices betray deep-rooted problems in the continent’s most populous and industrious country, a central pillar of the European Union. .
In May, Europe’s biggest economy imported more than it exported for the first time in three decades, snapping a string of victories as “Exportweltmeister” or “world export champion” since the reunification of the country.
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Finance Minister Christian Lindner likened it to a “profit warning” – a red alert issue for companies if profits are about to disappoint. Selling more than it buys has been a central tenet of Germany’s rise to the global economic elite. (Chart)
A few weeks earlier, on the same day Berlin was heading for energy rationing, shares of Deutsche Bank (DBKGn.DE) and Commerzbank (CBKG.DE), the country’s flagship lenders and indicators of its economy, fell about 12%.
German regulators attributed the collapse to fears for the country’s economy over restrictions on Russian gas supplies that underpin the industry, a person with knowledge of the matter said.
“It could really be the start of a weaker period for Germany,” said Achim Truger, one of the government’s top economic experts who advises the chancellery.
“If anyone ever looked up to Germany as a role model, maybe it’s time to get a realistic view of strengths and weaknesses. No one is perfect.”
After World War II, Germany, supported by American aid, built its economy on cars, machinery and chemicals, controlled by banks such as Deutsche Bank with stakes in industrial enterprises – a system known as Deutschland AG, or Germany Inc.
The country’s Bundesbank kept its currency stable, Russia’s industry fueled by cheap gas, and unions were tied to corporate boards to control wages. The result: an icon of industrialism reluctantly admired around the world.
All of this fueled jumps in exports during the 1980s, 1990s and 2000s, by which time the Deutsche Mark had been replaced by the Euro at a rate that made German exports attractive.
Germany, thanks to labor market reforms, overcame a spell as the “sick man of Europe” at the turn of the millennium, but its success in selling more to its European neighbors than it has bought, upset many countries who borrowed to buy German products.
Then, Berlin’s insistence in the debt crisis that countries like Greece accept tough terms for emergency loans fueled more resentment. But many Germans dismissed such criticism, attributing their effectiveness to the nation’s success.
Seeking to rekindle the spirit of collaboration that led to this success, German Chancellor Olaf Scholz met union and business leaders this week to discuss what he called a “historic” cost of living crisis.
Scholz, a social democrat, said he was reviving a model of cooperation established in 1967 when Germany fell into recession for the first time since its post-war boom.
But it will be harder now to appease the unions, following a nationwide campaign to keep wages low through tax-free ‘mini jobs’ that capped the hourly earnings of many low-skilled workers at around 10 euros – just enough to buy 20 McDonald’s Chicken McNuggets.
Reforms to cut unemployment benefits, introduced by Social Democratic Chancellor Gerhard Schroeder, who forged close ties with Russian President Vladimir Putin and later worked for a Russian oil giant, have further soured relations with unions. .
Although Germany appears more stable than Britain, which is dealing with government upheaval, or France, where people in yellow vests demonstrated against soaring living costs, tensions are simmering.
Growing worker discontent can be seen in the rise of strikes. These peaked as recently as 2015, with around 28 strike days per 1,000 workers, up from almost none in 2000, and more recently unions have warned of more strikes to lobby for wage increases.
“I saw this risk (…) when there was talk of a gas embargo,” said Monika Schnitzer, another government economic adviser. “I would be seriously worried about the stability.”
Economists now believe that Germany could open a dark chapter.
Although it has held up better than the eurozone as a whole during the pandemic in 2020, its economy has not rebounded as strongly as the bloc in 2021 and is expected to lag this year.
The European Commission forecasts growth of 1.6% for Germany this year against 3.1% for France and 4% for Spain.
“Globalization, just-in-time supply chains and cheap energy from Russia – these are things that are changing and they are changing for good,” said Carsten Brzeski, economist at Dutch bank ING. .
These advantages have contributed to the success of the German industry, from giants to hundreds of medium-sized champions.
“It’s a real turning point for Germany,” he said.
Germany’s critical engineering and machinery sector, which powers factories across China and around the world, is on edge.
Ralph Wiechers, board member of industry trade body VDMA, described the trade balance swinging into the red as a “warning”.
“The question now is how much will customers around the world scale back their projects,” he said.
Fielmann (FIEG.DE), the German eyewear manufacturer present in 16 countries, is pessimistic. Its shares have fallen by a third this year.
“We are feeling the huge increase in transport and energy costs and the pressure in supply chains,” said its managing director Marc Fielmann.
Gunther Schnabl, an economist at the University of Leipzig, blames the German penny for the country’s difficult situation.
For years, Germany saved money on defense and infrastructure while helping exporters by keeping wages low and importing cheap gas from Russia, he said.
“But he wasn’t investing the money. Instead, he was using it to mask an erosion of prosperity. It won’t work much longer. Divisions and discontent are growing.”
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Written by John O’Donnell Editing by Tomasz Janowski
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