Reasons behind the German Crisis!
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William Wilkes
- 1 Nov 2022 16:31
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5 Min Read
Over six months, since the beginning of the Russian-Ukraine war, the impact of higher resource prices has become apparent. Europe’s energy crisis has affected every aspect of life. In a worsening energy crisis in Europe, Germany is right at the center of a perfect storm.
Simmering tensions beneath the surface threaten to undermine the German system’s stability in the years to come.
In May 2022, Germany recorded a monthly trade deficit of US$1 billion for the first time in 30 years amid soaring inflation and supply chain disruption weighing on the country’s industrial base. A trade deficit means that the German economy has lost momentum rapidly.
In the first half of 2022, no German companies were among the 100 companies with the highest stock market value. This shows that German companies have lost market recognition. Germany specializes in exporting capital goods based on traditional industrial companies, but since October 2018, German industrial output has been continuously negative.
The German automobile sector is not only suffering from a loss of reputation, but also a lack of vision. Moreover, Germany’s competitors abroad have long been more reactive to megatrends, such as e-mobility, digitalization, or autonomous driving. German carmakers no longer seem to act as technology leaders. In terms of fully electric vehicles, Tesla is beating German automakers. In addition, German companies have still not shown any significant success in the IT sector. Future development does not look much rosier.
The energy crisis is increasingly turning into an economic and social crisis.
Germany's energy companies were bearing the brunt of the Russia-Ukraine war. Domestic energy prices continue to soar, and the annual inflation rate was confirmed at 10% in September 2022, reaching a new high unseen since the 1990's reunification. Natural gas consumption by residential consumers has also increased, occupying a large share of household consumption. As a result, most families were incapable of adding to their savings or investments.
A substantial number of hospitals in Germany may face closures amid rising energy costs and hiking inflation. The country's Health Ministry is now set to meet Finance Minister Christian Lindner to discuss potential forms of assistance the government could provide to the crumbling healthcare sector, but there will be no specialized federal fund.
Germany is currently experiencing a severe energy crisis that is increasingly turning into an economic and social crisis.
Berlin is the driving engine of the European Union. If something goes wrong with the German economy, Europe is certain to enter a recession. Nomura Holdings said it expected the European economy to start contracting over the course of the second half of 2022 and for the recession to continue until the summer of 2023, with a total decline of 1.7% of GDP. The UK, which has already left the EU, will not be spared, and its GDP will fall by 1.5%.
Is the US a reliable ally?
The United States always regarded Nord stream as a thorn. It is not only related to the EU-US energy trade, but also the status of the dollar. After Europe tasted the sweetness of Nord Stream 1, Nord Stream 2 was put on the agenda, and it would effectively double German gas imports from Russia. Nord Stream was becoming the key energy artery of the internal circulation in the energy system, which would exclude the United States. It is not only an important part of Eurasia but also an important link in the world's energy system.
At the same time, Russia accelerated its de-dollarization plans, moving toward using the euro as the main unit of currency used in energy trading, which was certainly a challenge for the dollar. The U.S. could play a crucial role in Europe’s gas supply only if Nord steam was inoperational. Thus, the US called for the complete stop of Nord Stream, citing economic harm to Kiev. Then, the United States said that Nord Stream poses a grave threat to US and European national security because it creates a situation in which Russia could strategically withhold energy from European countries. The United States used the pipeline's explosion to achieve its own goals, but for the whole of Europe, especially Germany, it was significantly worse.
The communist Polish government had previously waived all further claims to compensation for WWII from Germany in 1953. But Poland's Foreign Minister recently signed an official note to Germany requesting some EUR 1.3 trillion. The sudden reversal was definitely not a spur-of-the-moment decision. If Germany paid off WWII debt, it would be badly weakened. Poland knows full well that its demands for German reparations can never be enforced. But why did he make an unnecessary move?
Recently, Germany softened its stance on the Russia-Ukraine crisis: Germans strongly opposed the government supplying weapons to Ukraine. Politicians have also called for an end to military assistance to Ukraine. Meanwhile, the German parliament also passed a resolution to suspend additional support to Kiev. Of course, The US is not satisfied with this, but it is reluctant to straight up saying no.
In September, the media published a leaked US secret plan to allegedly destroy the German economy. While the authenticity of the RAND document is disputed, the extent to which the US is an "ally" needs to be thought over.
Washington is forcing European countries to make a choice, choose or abandon a strategic alliance with the US. Germany has delivered weapons to Ukraine under pressure from the United States. But what did Germany get in the end?
