How the pillars of German economic power fell

The A42 highway is illuminated as white smoke rises from the Schwelgern blast furnace at the factory of German industrial conglomerate ThyssenKrupp in Duisburg, western Germany, February 4, 2021.

Atlantico: What is the success of the German economy still based on today?

Don Diego de la Vega: Germany is the story of a man with one eye in the land of the blind. His success is mainly based on the failure of others. The Germans are the monetary anchor of the eurozone and the European monetary system. The country pretended to make concessions in Frankfurt, but in the end they kept the money. Thanks to the headquarters of the ECB in Frankfurt, they have a kind of power to veto the money of the judges in Karlsruhe, in Berlin and the Bundesbank. Their concessions and sacrifices are a strategy to further sanctify their domain.

This skill has been Germany’s trump card for 25 years. During the crisis of 2008, this allowed them to give lessons to the whole of Europe while acting in the opposite way. We can give the example of 450 billion euros in doubtful debts that disappeared from the Landesbanken. You should know that Germany has a poor system of regional banks. In this case, claims are lost in an ad hoc claims system controlled by the Ministry of Finance and the Bundesbank. A sleight of hand that they outlawed the next year by the Greeks or the Italians. In Europe, Germany always “do as I say, but not as I do”. Note that this position is only possible if one is the monetary anchor of the euro zone.

Germany has a kind of off-scale discretion. It is monetary sovereignty while the European partners are not. It is allowed to have the lowest interest rates in the galaxy and it is not interesting if you want to get a loan at a low price. The country continues in other areas such as energy, immigration or geopolitics because Germany acts as a stowaway vis-à-vis NATO or the United States and Russia for energy.

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Out of breath: the German economic model formulated by Gerhard Schröder has reached its limits

This impunity is related to the fact that Germany is the center and because of the lack of life of the Franco-German couple.

The German economy’s big bet for this turn of the century seems to be based on free and open world trade, growing demand from China, an efficient national workforce and cheap Russian energy. Are these pillars collapsing?

The system the Germans relied on was a one-off. The monetary anchor is only valid if the euro holds. Free riding is possible only if the situation in Russia is not tense and if the Americans keep writing checks.

Germany’s interesting foundation is its top-of-the-range industrial position as an exporter to China, consisting of quality family businesses. It has not collapsed, but the Chinese have little need for machine tools because they are no longer in the logic of equipment, but of services. They can no longer sell overpriced sedans to the Spaniards and soon they won’t be able to do so to the Chinese who equip themselves with Tesla cars. German industry is in danger of being dissolved and this disruption is reflected in Volkswagen, which decides to fire Herbert Diess. They choose continuity because they don’t want to change. Thus, the threat of a real collapse is materializing, its economy can be cut by Elon Musk in one part and the general evolution of the world. German industry will be downsizer and no longer in the current perimeter.

Let’s see if the Germans can continue to be a monetary anchor, a free rider and a lesson provider as the heart of their manufacturing dominance crumbles.

If Germany survived the outsourcing of factory jobs like France, did it happen to them?

Yes and no. Currently, they are maintaining the industry well in terms of value addition and employment. The heart of their manufacturing advantage comes from thermal cars, but this area is at the end of its course. Due to the evolution of the sector, they have to change, but it is difficult to ask them in a few years to build software on wheels with batteries because they fell behind it. For them, this is very problematic because it represents a large part of their GDP and it commands a whole set of third sectors related to that.

The financial markets give us clues about the future of Germany and there are almost no German high-tech companies. If there is, it is the only equivalent of half caps in the United States. Porsche was worthless, Volkswagen began to lose ground and with the departure of Herbert Diess, there was a real break.

They failed to produce new actors. The actors are almost all historical, which is effective in a clear world where there is a 1% productivity gain every year. When it came to rest, the Germans were not there.

One of their problems comes from their financing because the German banks are struggling. If we look at the balance sheet of Deutsch Bank we have reason to be afraid. The German financial sector is small, corrupt and sponsored by the Bundesbank out of hand. They never recovered from the 2008 crisis.

Can Germany react?

It seems difficult… Their political class is not at the level and it is worse than what we have in France. Across the Rhine, we have reached a true level of moderation. This type is structured by institutions that do not want a leader to emerge. It may be a good idea to avoid the appearance of personalities as we know in France, but if you need to make a rebound it is problematic.

There was a deep anesthesia during the 16 years of Angela Merkel’s reign because she prevented all possible reforms and Germany collapsed under the weight of the blank checks she signed such as the migration file and energy. They told themselves that France will pay, NATO or that an operation of the Holy Spirit will come to save them.

Has the model he built become ineffective when things go wrong?

It is a system of complacency and non-reform. It aims to make the children of France, which is already a little juvenile itself, to dominate the peripheries through the use of monetary blackmail, but which gradually begins to collapse. The German model has at all points reached its limit. In a relatively old country, one wonders if there is still capacity for a rebound.

Is this an opportunity not to be missed for France?

We can take advantage of this if we have a real alliance strategy. If we had not made a treaty of annexation with Germany, we would have made a treaty with the English. Nevertheless, our elites have a kind of respect for Germany and are not anglophiles for Gaullist or communist reasons, or for ideological models. There is, however, an opportunity for France if we examine our alliances. We should stick with the Italians and get close to the English. Except we’re not…

We try to separate ourselves as much as possible from the English by trying to stay as much as possible in Germany if they bring us their misery. There is no longer a Franco-German couple and it appears in the files.

We can take advantage of Germany’s difficulties if there is a redistribution of ECB powers. Christine Lagarde needs to change the ECB, which is now a kind of Germanic superego. We need to regain control of monetary affairs, but that is not what the Macron government thinks.

Geopolitically, Germany can make an agreement with Russia. We must do this by showing that in armaments we can ally the English because it is impossible to build an airplane with the Germans. We should at least bring competition to the game, but unfortunately in Paris this is not the state of mind… We have a political class that makes German its first language.

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