Self-Imposed Deindustrializaton Stalks Germany

Contradicting the German government’s narrative that “we have everything under control”, virtually all business associations, big and small, have sounded the alarm: the country may well be heading into an unprecedented economic disaster. The same could be said of all other European countries that have voluntarily cut themselves off from Russian gas supplies thought sanctions, coming on top of the suicidal Green Deal.

Thus, a new survey by the Deutsche Bank has forecast a “deep recession” in 2023 for Europe. In a report issued Sept. 21, the bank’s chief economist Mark Wall admits that “the baseline call we made in July for a mild recession this winter is now too benign”. He and his team expect real gross domestic product (GDP) in the euro area to drop roughly 3% between mid-2022 and mid-2023. But they also admit that an “even sharper winter downturn cannot be ruled out”.

Germany’s leading business daily Handelsblatt ran a devastating report Sept. 21 on the growing pressure on industry due to high energy prices, with numerous sectors already responding with production cutbacks to save gas and electricity. Logically, the energy-intensive sectors are most hard-hit and have cut production across the board: the steel industry by around 5% and the chemical industry by 8%. The fertilizer sector has even cut back or shut down 70% (!) of its generation capacity.

Cuts on this scale are certainly one of the reasons why the underground gas storages are now filled to almost 90%, according to the government. Less production by industry means less gas consumption.

“Experts expect that the rapid loss of competitiveness could permanently change the German economy”, wrote Handelsblatt, quoting Oliver Falck, head of the Ifo Center for Industrial Economics, as assessing that if energy prices remain so high over the long-term, some industries could decide to move out of Germany.

That would mainly affect energy-intensive companies in the metal and chemical industries, for example, as well as basic industries such as oil, glass, ceramics and paper. Most of the industries hit had already suffered competitive disadvantages before the Ukraine war, but as Falck points out: “The current crisis is accelerating this process.” As for the burden of inflation on companies, producer prices increased by a huge 45.8% in August compared to July – which is the largest increase since statistics began in 1949.

The problem could easily be alleviated, of course, by changing the failed energy policy. The government could, for example, take the definitive decision to keep the last three nuclear power plants running beyond their scheduled shutdown at the end of the year or next April. It could also reject the NATO war policy, and negotiate the opening up of Nord Stream 2. But that requires, as Lyndon LaRouche always used to say, the courage to break with one’s failed axioms.