Global Econ-Insights #1: Germany on the Brink

We have always known the nation of Germany for its sausages, its soccer team, and the wonderful celebration of Oktoberfest, but what about something more substantial? While Germany has played an essential role in several social areas over time, perhaps the most relevant right now is its economy. 

Germany used to be the China of current times. Whereas now, the vast majority of products across the globe are manufactured in China, the previous home base for such activity was Germany. Why so? Germany’s transportation sector in particular has always been a thriving one. Cars and railroads are a staple of the German economy and a testament to the nation’s strong prosperity. They have served as Germany’s key assets in several international transactions and given it a significant leg up when facilitating trade agreements. 

However, recent economic missteps are gradually beginning to toss this previously colorful nation into a state of great economic turmoil. There are a few primary factors contributing towards this disruption the most. First, Russia’s recent invasion of Ukraine has precluded Germany from accessing cheap Russian gasoline. We see right now that the United States suffers from severe gas price inflation, but in Germany, even obtaining the gas and bringing it within national boundaries is a lofty task. Second, simply within the last year, Germany has suffered from a substantial loss of political hegemony, especially due to its post-covid response to social issues. As a result, with far less political influence over other nations, countries like the United States and China have begun to significantly outcompete Germany to the extent that the so-called ‘secret sauce’ of German production is slowly evaporating. The United States and China have used their covid-ridden economic crises as fuel for adding to their developmental fires, while Germany has been given no such recent incentive to continue to advance itself. Even promising foreign investments, such as Intel’s agreement to inject 30 billion dollars into the German economy and create 30,000 new jobs, have never left the realm of hypothetical rumination. Finally, the German population is much more rapidly aging than average, lowering worker productivity significantly and contributing to rising unemployment rates. Because there are way more people emigrating from Germany than immigrating to it, the size of the workforce has been even further reduced, hindering economic growth. 

Despite all the recent stagnation, I do wholeheartedly believe that Germany has a way out. While it may have shot itself in the foot a little, there is most definitely a light waiting for the nation at the end of the tunnel. In my opinion, because the most bustling sector of the German economy historically has been transportation, it only makes sense for those seeking to boost German economic development to focus their solutions on that area first. The most recent foreign development which indicates some sort of promise for German rejuvenation is the German Minister Habeck’s vocal desire to, ‘get the [German] market going again.’ Minister Habeck has started to become vocal about the idea of financial aid to German carmakers, a move that certainly would inject new life and purpose into the German economy. Specifically, the Minister has expressed a desire to assist the company of famous car brand Volkswagen with cutting costs without an unnecessary closure. For a sense of scale, Intel had previously entertained the prospect of generating 30,000 new jobs in the German economy. By comparison, Minister Habeck plans to keep Volkswagen, a firm that employs over 300,000, financially afloat. While on the part of the Minister, a politician driven by his own motives, this may only be a clever chess move made to advance an independent agenda, one cannot deny the supposed mass economic benefits of such aid to German carmakers, especially Volkswagen. With the automobile sector up and much better running than before, Germany could return to its form as one of the world’s largest economic hegemonic powers.