Germany is once again at the top of economic news, but not for exactly the same reasons as 15 years ago. Fifteen years ago, the great crisis hit European economies like Spain hard, while Germany demonstrated enviable resilience thanks to its industry, its export capacity and a much more controlled public debt. From the south, people turned to Berlin for help. Back to the present, sensations have changed diametrically: while the economies of the European periphery are gaining ground after the pandemic, that of the traditional European “locomotive” presents a flat encephalogram since covid, its main companies appear in the media due to massive layoffs or due to the possible closure of factories on national territory and the hitherto “boring” German policy, based on institutional agreement, it has broken into a thousand pieces with unusual polarization and political fragmentation . A situation that is worrying in all corners of the Old Continent, beyond the power currently demonstrated by economies like Spain.
Many factors explain this situation: the end of cheap gas from Russia due to the war in Ukraine, a China which has changed its priorities (sells more and buys less from its “German friend”), aggressive increases in interest rates, a certain wear and tear of “materials” which has accelerated the existential crisis of an industry which has always been a reference… But the fact is that the financial press has once again described Germany as a “sick man of Europe”, ignominious title that at the beginning of 2000 The economist devoted to a notoriously weak and exhausted German economy at that time, turning point in a series of reforms that paved the way for the Germany we all “knew” during the Great Depression and the “Merkel era”. Beyond the cyclical part of this slump, the outlook is not very promising and risks such as an aggressive trade war unleashed by Donald Trump upon his return to the US presidency leave Germany particularly exposed.
“Germany, the eurozone’s largest economy, is going through difficult times and faces weak growth prospects. For many years, the good performance of its economy was due to the success of policies aimed at promoting SMEs , their capacity to produce high quality (especially automobiles), a cheap energy supply and an economy strongly oriented towards exports. This model is, however, threatened by the slowdown in world trade, tariff wars, and changes in the economy. energy model and the emergence of the global economy. new rivals. In fact, Germany was the only G7 economy to enter recession in 2023 and, given the weakness it showed throughout the year, it cannot be ruled out that it will also decline in 2024 “, sums up the report very clearly. the latest report from CaixaBank’s research department on Germany.
Very aware of all these concerns, Achim Wambachpresident of the prestigious Leibniz Center for European Economic Research (ZEW for its acronym in German), known in particular for the confidence indicator of German businesses that all of Europe looks askance at each month to detect possible tremors in the basement of activity. A professor of economics at the University of Mannheim and an expert in market design and competition policy, a field in which he has held institutional positions, Wambach took a few minutes out of his busy schedule to analyze for elEconomista.es the “perfect storm” that threatens Germany and hits all the sticks: risks for Europe, horizon for businesses, Trump, domestic politics and relations with China. His conclusion is clear: the rest of Europe, including Spain, needs the German engine to work again.
In a few words. What happened so that, 20 years later, Germany is once again the sick man of Europe in the financial newspapers? Ten years ago, he was an example to follow while part of Europe succumbed. Today, Europe’s largest economy and its companies make only negative headlines.
German businesses are facing a perfect storm: energy costs in Germany have risen, globalization is slowing and the transition to climate neutrality is becoming increasingly costly. Added to this are local problems: high bureaucratic costs and high corporate tax rates.
As a competitiveness expert, how serious is this current scenario for large German companies, known for years for their efficiency? I’m not just asking you about the high-profile case of the automakers.
I am not excluding German companies for the moment. They are quite competitive and the German stock index is at an all-time high. The problem is that these companies make their profits abroad and not so much in Germany. Germany must therefore work on its own attractiveness. However, the automotive industry in particular is experiencing specific problems that go beyond Germany: Chinese and American car manufacturers are moving more quickly towards electric vehicles and digital cars.
Speaking of the United States… Donald Trump. Its universal tariff could hit Germany hard. Another additional tariff on cars would be fatal. How far can Trump’s threat go and what damage will it cause Germany? How should the European Union negotiate this?
The damage would be significant, but it must be taken into account that many German companies produce in the United States, Canada or Mexico. And if Trump strengthens the American market, it will be good news for these companies. The European Commission has the mandate to negotiate trade agreements. I hope he imposes counter-tariffs, like he did the last time Trump raised tariffs.
Ambach (ZEW): “Germany is Spain’s second exporting country. And with the energy transition, Spain can become even more important for Germany, for example through the sale of green hydrogen »
What are at stake for Germany and Europe in the next federal elections in your country? You have argued for a single market that protects us from being crushed by the United States and China. Do you think that German parties are really committed to European integration?
European countries are by far Germany’s main trading partners. German companies benefit greatly from the European single market. German parties should therefore be interested in strengthening the single market.
How can this affect countries like Spain if the German economy continues to suffer and does not find solutions?
Germany is Spain’s second largest exporting country. And with the energy transition, Spain can become even more important for Germany, for example through the sale of green hydrogen. Spain therefore wants to see the German economy grow again.
You chair a key economic institution in Germany and your opinion is widely heard. Here we are primarily talking about investments. What path should the country follow in tax matters? I am referring to the debt brake, a mechanism which makes a certain impression in other countries.
The debt brake has served Germany well in the past, providing the German government with fiscal flexibility in times of crisis. A flexibility that other countries were not able to offer. The German debt brake has also indirectly contributed to the stability of the euro. But in the current situation, the debt brake is, in my opinion, too restrictive. It does not take into account the transformation. I hope the debt brake will be changed after the election and an infrastructure fund will be created.
There is a lot of talk about relations between Germany and China. On the one hand, we want to reduce dependence (reduce risks) and on the other hand continue to strengthen ties. What is better: break up completely and rebuild despite the initial pain, or pursue closer cooperation?
There are several paths to reduce risks. Small businesses tend to leave China. Large companies tend to produce in China for China, so supply chain disruptions will hurt them less. Governments could enable everyone to better diversify their supply chains by signing more trade agreements. With this in mind, it would be good for the recovery capacity to conclude an EU-Mercosur pact with Latin American countries.
