A Tired German Economy
In a period of world wide turmoil, both economically and politically, this article examines the implications of what a weakening Germany means both domestically and internationally.
What’s going on?
Though one of the most industrialized countries in both Europe and the world, factors such as a shrinking economy, angry farmers, falling output, and a conflicted government means that Germany is facing internal turmoil. With a contraction rate of 0.3% in 2023, Europe’s largest economy has been the slowest growing one among Euro-using nations.
Why now?
Germany’s sputtering economy is spearheaded by an inability to compete, losing a rivalry with cheap Chinese electric cars and an American ability to attract tech giants. Though German constituents may hope for a brighter future, a current inability to cover a $17 billion euro spending gap and scholarly consensus that Germany’s economy will not grow in the 2024 fiscal year signal a gloomy future for the nation.
The economy has been able to bear short-term shocks of losing sanctioned Russian energy, however, the future entails higher gas prices to compensate, guaranteeing a burst of unanticipated inflation.
It may seem like it can’t get worse for the American ally, but structural issues such as an inability to fill skilled jobs and a targeted slowdown in manufacturing allude to long term issues as well.
With Germany not being able to repurpose valuable euros to modernize the country, a dying lack of investment in infrastructure is taking a larger toll day by day. A lack of infrastructural investment can also be attributed to higher inflation rates from the European Central Bank which have especially taken a toll on the German economy.
Socio-political woes…
Though the economy seems like it can’t get worse, Germany faces domestic socio-political problems as well.
After passenger train drivers started a strike on January 24th over working conditions and pay, long-distance rail travel is expected to be halted for the foreseeable future. Not only does this strike suggest dissatisfaction with Chancellor Olaf Scholz’s administration, it will take away billions of euros from the economy as well.
Alongside qualms with the working class, Germany’s federal government is dealing with a return of fascism and neo-Nazism. The top court has stripped funding rights of a growing neo-Nazi party, showing inklings of progress and hope among a sea of disaster.
A solution?
Though structural issues will always remain, there are things that Germany can do currently to mitigate the current impacts of an economic downfall.
The first is to diversify. Germany is more than dependent on its main trading partner, China, as trade has been reaching record levels in recent years. With growing geopolitical tensions between China and western countries, Germany must diversify before it’s too late to prevent a total financial crisis.
The second is implementing a “borrow to invest” ideology. With Constitutional barriers preventing domestic repurposing of money, Germany must lean into taking debt in order to ensure global competitiveness. Investing money into infrastructure, research and development, and efficiency at the state level is of utmost importance in a stagnating economy.
Thirdly, and finally, Germany must attract foreign investment. With foreign direct investment falling over $30 billion euros in just a year, Germany is at a record low. Long-term subsidies and investments into their own infrastructure, such as a model China and the US are implementing right now, ensures greater foreign attraction, crucial for German innovation and its economy.
All in all, it is evident that Germany needs a change. The broader question remains: When will it come, and how will it happen?
Bibliography:
https://www.nytimes.com/2024/01/18/world/europe/german-economy-standstill.html
https://www.cnbc.com/2024/01/15/germanys-economy-shrinks-by-0point3percent-in-2023.html
https://www.nytimes.com/2024/01/23/world/europe/germany-neo-nazi-npd.html