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Europe's economic engine is shutting down

2023-05-26 23:41:56Biznes SHKRUAR NGA REDAKSIA VOX
Europe's economic engine is shutting down
Europe's economic engine is shutting down

Germany has been the economic engine of Europe for a long time, orienting the region to get out of every crisis. But it is fading and threatening the entire continent.

Decades of lax energy policies, the waning use of combustion cars and a slow transition to new technologies are threatening the country's future. But unlike in the 1990s, the political class lacks the leadership to address the structural issues consuming the heart of the state.

"We are naive as a society because everything seems fine," Martin Brudermüller, chief executive of BASF SE, told Bloomberg . "We have accumulated problems in Germany. We have a period of change ahead of us; I don't know if everyone understands that or not."

While Berlin has shown an ability to overcome crises in the past, the question now is whether it can pursue a sustainable strategy. The chance seems slim. As the risk of energy shortages loomed, Chancellor Olaf Scholz's tentative coalition devolved into petty squabbles over everything from debt and spending to heat pumps and speed limits.

But the warning signs are becoming increasingly difficult to ignore. Despite Scholz telling Bloomberg in January that Germany would escape the Russian energy squeeze this year without a recession, data released Thursday showed the economy has actually contracted since October and in only two of the past five quarters.

Economists expect German growth to remain smaller than the rest of the region for years to come, and the International Monetary Fund predicts Germany will be the worst-performing G-7 economy this year. However, Scholz again showed enthusiasm.

"The outlook for the German economy is very good," he told reporters in Berlin after the latest economic data. By unlocking market forces and reducing red tape, "we are addressing the challenges we face."

Germany finds itself inadequate to continuously meet the energy needs of its industrial base; heavily dependent on old-school engineering; and lack of political and commercial agility to address fast-growing sectors. A series of structural challenges point to a cold awakening for a European power that has grown accustomed to endless wealth.

To its credit, industrial giants like Volkswagen AG, Siemens AG and Bayer AG are surrounded by thousands of smaller Mittelstand companies, and the country's conservative spending habits make it a stronger force than its peers to support policy change. further. placed on a financial level. But there is little time to waste.

The most pressing issue for Germany is getting its energy transition back on track. Cheap electricity is an important prerequisite for industrial competitiveness, and even before the end of Russian gas supplies, Germany had the highest electricity costs in Europe. Failure to stabilize the situation could turn into a flurry of manufacturers moving elsewhere.

Berlin is responding to concerns by calling for a cap on electricity prices for some energy-intensive industries such as chemicals by 2030 — a plan that could cost taxpayers up to 30 billion euros ($32 billion). But this would be a temporary solution and reflects Germany's desperate supply situation.

After shutting down its last nuclear reactors this spring and phasing out coal by 2030, the country installed nearly 10 gigawatts of wind and solar power capacity last year.

The Scholz administration aims to add about 625 million solar panels and 19,000 wind turbines by 2030, but promises to speed up deployment from years to months have yet to materialize. Meanwhile, demand is expected to increase due to the electrification of everything from heating and transport to steel and heavy industry.

"We need to think about which types of industries can deal with the higher energy price and which can't, and then focus on the future," said Roland Busch, Siemens' chief executive, in an interview with Bloomberg TV.


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