Last week, Germany suffered a few days of intense fog, without sun and wind, which made the production of electricity from renewable sources almost non-existent. Gas power plants and electricity imports from France had to compensate for the lack of electricity from renewable sources. This specific event highlights the serious energy problems Germany suffers from.
Germany is traditionally considered the locomotive of the euro zone due to its strong economy, based mainly on a leading, competitive and exporting industry. NOW, The German engine appears to be stalled, largely due to the late effects of its own decisions and the implementation of green policies for an accelerated energy transition. Its economy is in recession and the problems expressed by some of its main companies do not bode well for the future unless a substantial change of direction is undertaken.
Under Angela Merkel’s mandate (2005-2021), Germany made decisions regarding energy policy, the consequences of which are currently being felt:
- His government approved the Climate Protection Act, which requires CO2 emissions to be reduced by 65% in 2030 compared to 1990 levels.
- He based the supply of cheap energy on energy imports from Russia, by developing two major infrastructure projects: the Nord Stream 1 gas pipelines, inaugurated in 2012, and Nord Stream 2 completed in 2021 and sabotaged by a mysterious attack without responsibility declared in 2022.
- After the accident at the Fukushima nuclear power plant in Japan in 2011, Merkel decided to do without nuclear energy, gradually closing the plants then in operation. The last German nuclear power plant was closed in 2023. Germany has decided to end its nuclear power without having a reliable replacement alternative.
- The pursuit of accelerated energy transition policies has led to the closure of coal-fired power plants and a large deployment of renewable energies. Renewable energies are intermittent and do not guarantee supply. They need to have an alternative when they are unavailable, as happened last week.
With the start of the war in Ukraine and sanctions against Russia, the cost of energy for German industry skyrocketed, leading to the disappearance of cheap energy supplies from Russia. The Union of German Industrial Employers (BDI) has repeatedly spoken out very critically about the energy policy developed by the German government.
The effect on German industry of all the measures mentioned is palpable: Industrial production, excluding construction, is down 17% from 2017 levels; automobile production fell by 28%, from 5.7 million vehicles in 2016 to 4.1 million in 2023; companies like BASF, flagship of the German chemical industry with 400 factories worldwide and 200 in Germany, are closing factories on German soil and while announcing investments of 10 billion euros in China; Volkswagen has announced plans to close three factories in Germany for the first time in its long history.
Representatives of German industry complain about their government’s energy policy. They consider that neither medium-term energy supply nor future energy prices are guaranteed. They claim that this places them in inferior competitive conditions compared to other developed markets. In this environment, it is difficult to make investment decisionsSo, in practice, they make large investments outside their own borders, such as building a Volkswagen battery factory in the United States or the BASF factory in China. Having the guarantee of an energy supply at a reasonable price is essential to maintain industrial competitiveness at the global level.
Self-imposed EU regulations banning the sale of combustion vehicles from 2035, assuming the winning technology is the electric vehicle, were a kick in the foot to Germany’s other powerful auto industry. Additionally, competition from Chinese electric vehicles is a serious problem, and not just in the European market itself.but also on the Chinese market, destination of a high percentage of German automobile exports.
China has gone from being a destination for many German industrial products to becoming a competitor in the Chinese and global markets. The electric car is just one example.
Trump’s victory exacerbates Germany’s problems: it will have to increase its defense spending; the tariff war will harm their exports; The greater laxity with regard to environmental standards on the part of Asian, and now American, competitors is further reducing the competitiveness of German and European products.
New elections will take place in Germany on February 23. In the current state of the polls, it is difficult to see a strong government emerge. Barring any major surprises, the new government will necessarily have to be made up of two or three parties, which will make a clear change of course difficult.
Germany’s problem is Europe’s problem. Germany remains the largest net contributor to the EU. Europe cannot succeed if Germany does badly.
In short, the measures adopted by Germany and the EU are causing deindustrialization, without this implying an overall reduction in emissions. What is not made in Europe will be made in other parts of the world with much less environmental considerations. It remains to be seen whether the new German government will change course, which is unlikely, but not impossible.
