Just about my first of very many foreign trips for the BBC was to Germany in the early 1990s to report on what was then being called the “sick man of Europe”. The whole point of the trip was to point out to those who were revelling in schadenfreude that in fact the German economy had many good things going for it and was about to bounce back; as it subsequently did.
Germany is now in a similar situation. It is reeling from a series of blows, and Brexiteers are revelling in its discomfort. But it is not out for the count.
Where did it go wrong? For a start, Germany made the terrible strategic mistake of making its energy-intensive manufacturing industries almost totally dependent on cheap gas from Russia. When the rest of the world was hit hard by massively higher energy and other commodity prices after the invasion of Ukraine, the German economy suffered even more. German industry has been scrambling to adapt ever since.
Second, the German economy is emerging from a golden period as one of the world’s leading exporters of industrial products. Developing countries absorbed vast quantities of the things it makes best – cranes, trains, power stations, machine tools, mining machinery, trucks, cars, and heavy engineering equipment. But the developing world has developed fast, and demand is not what it was.
Disruption to supply chains because of Covid, Ukraine, blockages in the Suez and Panama canals, and now disruption to shipping in the Red Sea by the Houthis because of the war in Gaza have hit the German economy particularly hard because of its dependence on manufacturing exports and imports. Its high-tech engineering and its carmakers (trying to transition quickly to EVs) and others are at the end of very complicated global supply chains, and their vulnerability is showing.
And like many other countries, Germany is sitting on a demographic time bomb. Years ago, I visited a distribution firm in Germany that had gym equipment against almost every wall. When I asked why I was told, “We have to keep our workers fit, there are no replacements out there in the labour market.” Last year the labour minister, Hubertus Heil, told the FT that “Germany will lack 7 million workers by 2035 if we don’t do something”.
Germany is also more hindered than helped by its fiscal conservatism, which is almost a religion. It could and should be spending far more, especially on defence, where it has many companies that could expand production. But late last year, for legal reasons Germany’s Constitutional Court overturned the government’s intended reallocation of around €59bn (£50.5bn) in Covid loans to revamp the economy. This was hardly sensible.
All these factors have pushed Germany towards recession. Its economy shrank by 0.3% last year and its total growth for this year is expected to be an anaemic 0.2%.
But as in the past, the country still has a remarkable capacity to turn itself around, to make tough decisions and difficult reforms.
It paid for the reunification of East and West Germany on a scale that we could never have managed if Britain had been in a similar position. In the early 2000s, it introduced the painful and unpopular Hartz reforms to make the labour market more flexible, and reaped the benefits.
Its car industry is in the middle of costly, risky changes, but if it succeeds it will once again be a world leader. It is already one of the go-to sites for new gigafactories.
Germany is investing huge amounts to move away from dependence on Russian gas and has chartered specialist ships to import liquefied natural gas (LNG) at several sites on the North Sea coast. It is investing in hydrogen, too.
All of these are not the signs of a sclerotic, underperforming, defeated economy that is in long-term decline.
Yet now the naysayers are back, and Germany’s current problems are even being used by the Brexiteers as some kind of justification for Britain leaving the EU. Their argument, if you can call it that, is that since the German economy is doing worse than the UK’s, Remainers are wrong to say that the UK has suffered because of Brexit.
This is childish. For it to be true, the Remainer camp would have had to have claimed that Brexit would mean the UK economy would always perform worse than every EU country for ever, and that no other European country would ever fall into recession.
No one ever said anything approaching that, for the simple reason that it would have been amazingly stupid. The economic argument against Brexit was and is that it hurts the British economy far more than any others. We now know from numerous studies that the economic damage amounts to 4-6% of GDP, lost permanently.
Britain has in effect declared a trade war on itself. It was a colossal blunder – but it has never meant other countries would not make their own mistakes, or struggle to shrug off the effects of global crises.
The desperate attempts by the Brexiteers to point to Germany as a justification for the self-harm they have forced on the country is a sign of their inadequacy and weakness. Saying “someone in the EU is doing worse than us, we were right to leave” is puerile and illogical.
When we were in the EU, exactly the same people used to boast and preen every time the UK managed to outgrow Germany or France. The only thing that has changed is that, because of them, it is now more difficult for the UK to outperform those countries. It is still not impossible – especially when one of our neighbours is doing badly – but just not as easy.
Remember, even as Germany suffers, the average German is still 20% better off than the average Brit.
Schadenfreude has a habit of coming back to bite you. The Germans probably have a word for that, too.
