German economy falters, EU rides on coattails

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Germany has been the spearhead of the EU's economy, pulling from Europe from one crisis after another. However, the German economy recently appears to be breaking down, according to a report by Bloomberg. 

The energy crisis in Germany, following decades of flawed energy policy, the ill fate of combustion engine cars, and the stifled transition toward modernized technology, poses a fundamental threat to the North European country and by extension to the EU at large. 

"We've been naïve as a society because everything seems fine, these problems we have in Germany are accumulating. We have a period of change ahead of us; I don't know if everyone realizes this," the Chief Executive of BASF, the largest chemical company in Germany told Bloomberg.

In addition to the energy crisis, bureaucratic inefficiency further exacerbates the crisis. Chancellor Olaf Scholz's loose coalition proved to be ineffective with a recurrent gridlock because of intra-coalition discord over a variety of issues ranging from debt to speed limits. 

The German economy seems to be contracting since October after Russian gas exports were largely reduced. Germany's economy is projected to lag behind the rest of Europe in the years to come, according to the studies of economists. The IMF also estimates Germany will be the worst-performing G7 economy this year. 

However, the chancellor has maintained his optimism for German economic protests. "The prospects for the German economy are very good, we are solving the challenges that face us," Scholz told reporters in Berlin.

At the foundation of the German economic crisis is the discrepancy between Germany's aspiration for economic competitiveness and its energy transition track.

Read more: German gas giant begging for state funding

Back in March, the European Union and Germany struck a deal over the planned phaseout by 2035 of the sale of cars using fossil fuels after a heated row.

For the bloc's 2035 plan to become a "climate neutral" economy by 2025 with net-zero greenhouse gas emissions, it was critical to prohibit new sales of fossil fuel cars. 

Berlin asked Brussels to provide assurances that the law would allow the selling of new cars with combustion engines that run on synthetic fuels. This was the focus of the breakthrough announced. 

Weeks-long negotiations between the European Commission and Germany finally took a turn based on Berlin's desire for a stronger commitment to synthetic fuels.

Read more: German inflation to remain high until end of 2024

Germany is still developing the synthetic fuels it wishes to use while producing low-carbon electricity. German manufacturers hope that this will lead to the extended use of combustion engines.

Industry experts expressed their doubts over whether synthetic fuels-powered vehicles will be able to compete in the market against electric cars, whose prices are to become cheaper.