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Germany is descending into chaos – and it will take eurozone down with it

It is now little more than a “developing country”. Its stock market is a “junk shop” selling old tat. And its reputation as a place to do business has “never been so bad’. In the middle of the UK’s dismal election campaign, it would be easy to imagine that Britain was the country under discussion.

But Theodor Weimer, the head of the once mighty Deutsche Börse, was describing his native Germany. And he was absolutely right. After a series of catastrophic policy mistakes by centrist leaders, there is no way back for Germany – and its decline is only going to accelerate from here.

In a speech to Bavarian business leaders delivered back in April, but only made public when it was posted on YouTube this week, Weimer certainly didn’t mince his words. A country that prided itself on its efficiency, that saw itself as the engine of Europe and boasted of its formidable export machine was, as he put it, slipping to third world status.

The coalition government led by Chancellor Olaf Scholz was, he argued, a “catastrophe”, Germany was “economically on the way to becoming a developing country” and “one thing is clear: our reputation in the world has never been so bad”.

Predictably, his language was dismissed as inflammatory. According to Verena Hubertz, of the Social Democrats’ parliamentary group, the “bizarre speech is more beer tent than Dax-listed company executive”, while Sandra Detzer, for the Greens, said bashing politicians would “damage our political culture and the prestige of the German economy”.

Well, perhaps. And yet all Weimer was really guilty of was the kind of plain talking that British business leaders used to be well known for before they were captured by woke posturing, and restricted themselves to Left-wing, big state platitudes. And Weimer was completely right: the German economy is paying the price for a decade of policy mistakes and for complacently assuming that 20th-century heavy industry could sustain it forever.

Under the vastly overrated Angela Merkel, who despite the praise heaped on her by the Remain establishment has left a disastrous legacy, Germany made two major policy mistakes.

First, it based its economic model on cheap Russian gas, fuelling an industrial machine built on chemicals and automobiles that requires huge amounts of energy (one BASF plant consumes more gas than the whole of Switzerland). Its nuclear plants were closed down on a whim, fracking was ignored even though Germany has abundant shale oil and gas, and wind and solar power were not built quickly enough to replace it.

Under Angela Merkel, Germany made a costly mistake by basing its economic model on cheap Russian gas
Under Angela Merkel, Germany made a costly mistake by basing its economic model on cheap Russian gas – EPA/CLEMENS BILAN

The result? When Vlaidimir Putin invaded Ukraine and the gas was turned off, German industry was left with some of the highest energy costs in the world, destroying its competitiveness at a stroke. Meanwhile, the Merkel government encouraged huge increases in immigration, using the same arguments familiar to the UK about an ageing population requiring lots of young people to fill all the vacancies.

But immigrants, as elsewhere, don’t always have the skills industry needs, and do not necessarily accelerate the growth rate. Sure, a handful of immigrant entrepreneurs might create new industries – although, as it happens, it seems less in Germany than elsewhere – but many are either in low-skilled jobs or else on benefits. Instead, immigration looks to have turned into a drag on the economy.

Germany is now in a deep hole. It is the slowest-growing economy in the G7 this year, forecast to expand by a meagre 0.2pc over 2024, significantly slower than the UK. Its stock market is doing just as badly as London’s, with giants such as Linde switching their listing to New York and the few new companies that are emerging listing their shares elsewhere (indeed, the entire German stock market is now worth less than the microchip giant Nvidia).

Its once mighty auto industry is stuck in the diesel era and has lost billions developing electric alternatives, only to see sales plummet and the Chinese invade the European market.

Meanwhile, the country has failed to adapt to the internet, with no emerging tech start-ups of any significance. True, it still has a huge trade surplus but that is only because domestic demand is so weak and government debt is impressively low, certainly compared with Italy and France.

But that is of little use while the constitutional “debt brake” prevents the government from ramping up investment to help new industries emerge. Even when there is investment, such as the huge new Tesla plant outside Berlin constructed with massive government subsidies, green protesters have sought to prevent it from operating effectively.

It is hard to see any way out of this mess for the hapless Olaf Scholz. The Social Democrats are in hock to the unions dependent on heavy industry, the Greens refuse to allow any form of serious energy policy while doubling down on anti-growth regulations and the supposedly pro-business Free Democrats don’t have the clout or the ideas to change anything.

As the economy stagnates, the AfD is picking up support among angry voters and the Christian Democrats, the traditional centre-Right party, have yet to come up with a programme of radical reform that would make any real difference.

One point is certain: as it descends into political chaos, with a comically weak government clinging on desperately to power, the country is not about to start the hard work of rebuilding itself for the 21st century.

It is ridiculous to criticise Weimer for simply telling the truth. Indeed, it would be a relief if some of the leaders of the City, and the major British companies, could make the same points about the dire prospects of the UK economy, instead of signing up for platitudes about welcoming “stability” and “partnership” with a Labour government that will prove every bit as disastrous as the floundering Scholz coalition in Berlin.

The German economy is descending to third world status, and its hapless political class has no idea how to turn that around – and it will take the rest of the eurozone down with it.

 

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