THE “great patient of Europe” as a term coined by Tsar of Russia Nicholas A‘, who is said to have mentioned it for the first time in the mid-19th century, during a conversation with its then ambassador Hamilton Seymour of England. Since then it has been used a lot – in all languages – to denote a country – and especially an economy – in decline.
After him war in Ukrainethe radical geopolitical and economic changes it brought about, combined with fateful strategic decisions by the leadership, the term now accompanies a once mighty economic power. Germany, the world’s fourth largest economy and Europe’s largest, is now “Europe’s big patient”.
OR economic crisis combined with structural problemsbut also the choices that overturned a decades-old doctrine in foreign policy, particularly in relations with Russia and the closure of the Nord Stream pipelineshave led the Germany in troubled waters, signaling it end of prosperity for the economic superpower of the Old Epirus.
The IMF reports that it will be the only developed economy that will experience no growth this year. Economic output has contracted, stagflation has set in, and all major economic indicators are on a downward trend.
The business world evaluates the prospects negatively and as the head of the economic institute Clemens Fuest underlines, “the situation of the German economy seems to be getting gloomier”. Economists underline that now Germany has turned from an “economic superstar” into a “wheelbase” for the European economic train. And one would have to go back to the early 2000s to find the last time the country’s economy was painted in such bleak colors.
The then downward spiral of the German economy ended with the radical reforms of Chancellor Gerhard Schröder (1998 – 2005), which aimed at increasing employment and external demand from the then developing economies, including China.
Germany’s competitiveness was greatly enhanced by cooperation with Russia and cheap Russian gas. But Berlin failed to prevent war in Ukraine, the pipelines were closed, and German power began to fade, economically and diplomatically.
In fact, the invasion of Ukraine, which disrupted the geopolitical order, also exposed the weaknesses of the German economic model and its dependence on Russia. Russian natural gas accounted for more than 50% of domestic consumption.
The closing the cannula, but also canceling the NordStream IIfor which Berlin and Moscow had invested a great deal of financial and political capital and were planning the opening shortly after the start of the war in Ukraine, dealt a crushing blow to the German economy and primarily to industry. Added to this was the change in strategy with China, on which a large percentage of German exports were based.
THE Wolfgang Minhauin his analysis in Eurointelligence, briefly but very aptly describes the three components on which the German model is based: Cost competitiveness, technological leadership and geopolitical stability. All that has passed.
“The world around Germany has changed and what is happening now is an energy price crisis, new geopolitical divisions and technological shocks, which pose existential questions for the very future of the German model.” Indicative of the climate, is Berlin’s historic decision, overturning decades of doctrine, to approve a mammoth 100 billion euro armaments program.
Economists agree that the big challenge for the German economy is structural. The business model (importing cheap Russian energy and cheap products, processing and exporting them as high value at a high price) has collapsed and medium entrepreneurship, “the backbone of the German economy”, is being suffocated by high energy prices, shrinking skilled personnel combined with an aging population, anemic private consumption and a range of structural problems such as inefficient administration, bureaucracy and limited digitisation.
It is worth noting that Germany is among the developing countries in terms of digitization, ranking fourth from the bottom among the 38 OECD countries in the expansion of the fiber optic network. There are also many companies in the country that seem to have been characteristically late in this field.
As a way out of the problems, many support Germany’s shift to modern sectors of development and the abandonment of energy-intensive industries. It is a fact that the government has promoted investments worth billions of euros, having even set the goal of becoming carbon neutral by 2045.
This is an extremely ambitious plan and in any case the energy transition takes time. Estimates indicate that German industries will have to wait at least until 2027 for a significant reduction in energy prices.
This is also the reason why many companies are leaving German territory for more attractive investment locations. The feud that has erupted with the USA is typical, which with a relevant law of the Biden administration offer significant tax incentives to companies that are transferred to the country. The Berlin is now running to reverse the climate, but many are not so optimistic about the success of the venture, at least at this stage.
Additional competition from booming Chinese tech companies is steadily intensifying, causing a double whammy in Germany: And a decrease in exports and a loss of part of the “pie” of the market. Not only does China no longer buy so many German products, it has also become a major competitor.
In conclusion, according to newsbeast, the Germany it is facing a double problem, the negative course due to circumstances, but also the negative prospects due to structural problems. As many economic analysts point out, curing the “sick of Europe” is far from easy and it certainly won’t be cheap.
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