High Time to Reverse the De-Industrialization of Germany!

The IMF’s most recent placing of Germany at the tail end of leading industrial nations, with a minus 0.3% GDP growth in 2023, is just one spectacular indicator of the deepening depression in the country. The assessment of the Munich-based research institute Ifo, a member of the government’s chief economic advisory council, is that “the situation of the German economy is darkening”, as companies are receiving fewer and fewer new orders. The sectors of steel production, automotive, chemical production, and construction are the hardest hit by the downward trend.

Crude steel was down by 5.3% in the first six months of 2023, and rolled steel by 5.7% year-on-year. And the decline is accelerating: in June alone, crude steel production fell by 8.4% compared to the same month one year ago.

As for the automobile sector, Germany’s leading business daily Handelsblatt reports that the four leading car makers (VW, Audi, BMW, Mercedes) together produced around half a million fewer cars between January and May as in the same period in 2019, which would correspond to a decline of around 20%. Incoming new orders are up to 50% below the level of past year. The situation is becoming so dramatic that Thomas Schäfer, head of the VW brand, recently warned in an internal video chat that “the future of the VW brand is at stake”. Since the auto makers are a stronghold of German manufacturing, all industry is affected by the decline.

It is mainly the effect of the government’s obsession with “decarbonization” and with relying solely on solar and wind power, as opposed to nuclear, coal and natural gas, which is to blame for this disastrous development. While the trend goes back 10 to 20 years, it has accelerated since the sanctions on Russia capped the natural gas imports. The immediate effect on German industry, which already had the highest electricity prices of all leading industrial nations before the Ukraine war, is that electricity is becoming unaffordable: “The steel industry in Germany is under pressure – and this is mainly due to the still too high cost of electricity in Germany,” says Kerstin Maria Rippel, Chief Executive of the German Steel Federation. The low level of investment lowers operating costs, so that energy costs, which are particularly high in Germany compared with other countries, can be offset to a certain extent, but as Wolfgang Große Entrup, CEO of the German Chemical Industry Association (VCI), points out, new investments are rare. This business strategy fails as soon as the investment costs saved are no longer sufficient to compensate for the higher energy costs. And that is where many industrial sectors are now.

The scope and speed of the downward spiral resembles what was on the agenda for Germany under the infamous postwar Morgenthau Plan of the Anglo-American allies. Fortunately, that plan was scrapped in 1947 and replaced by the Marshall Plan which created an environment propitious for the German “Economic Miracle” between 1948 and 1960.

Former German Economics Minister Sigmar Gabriel warned that Germany would fall back into this dark immediate post-war period in a commentary published in the Aug. 7 Frankfurter Allgemeine Zeitung: The loss of “key value-creation chains in industry” as a result of a too rapid green transformation, he wrote, threatens “a perfect storm”, which could challenge German democracy more than in the past 80 years.