Engine 'kaput': The end of the German economic model

The end of the German economic model had long been in sight. But the voices that warned about it, coming from abroad -singularly from the United States-, were considered by many as suspicious of anti-European prejudices. Until the collapse became evident and the autopsy was performed by a German (one with sufficient critical eye and perspective, having lived abroad). Wolfgang Münchau, an economic journalist with experience in London, Washington and Brussels and former director of 'Financial Times Deutchland', carries out a dissection of the German economic and financial structure that has been in place in recent decades. And he does so with great rigor; with forcefulness, but without annihilationism.

The shared bet of the German leadership - the politicians, in fact, have followed the interests of industry - has been in favor of what Münchau calls neo-mercantilism: an absolute fixation on the export of industrial products, with special emphasis on machinery and automobiles, and the attainment of large surpluses in this trade. This was sustained in a unique environment, where the largest financial institutions (state banks and savings banks), in collusion with the local authorities, lubricated the factories in order to preserve work and maintain production, in the context of a social pact with the involvement of the trade unions, which are part of the companies' committee .

This formula, as Münchau explains, has acted as a doze to the warning signs of the growing dysfunctionality of the economic model , and it is only now that the precipice is in sight that it is evident that the wrong path has been persevered with. Although the signs were already there as we entered the new century, the extraordinary take-off of China and its insatiable demand meant that from 2005 until the Covid crisis the German establishment maintained a misguided strategy. Only with the invasion of Ukraine in 2022 and the end of Russian gas did Germany awaken from the illusion of its industrial competitiveness, which benefited from this access to cheap energy, while the European Union's systemic clash with China now calls into question its dependence on the main buyer of its products.

If that is the process, for Münchau there is a clear source of the problem: lack of innovation, manifested in non-digitization or at least very late digitization. "The refusal to adopt modern technologies is, in many ways, the original sin," he says. The symbol is the automobile: the big German brands, with an overweening self-esteem, scorned the electric car and today are overtaken by Chinese electric vehicles in many markets. The author exemplifies this by saying that it is like insisting on continuing to produce typewriters, even with improvements, when more and more people are writing on computers: today the car is no longer a mechanical device, but an electronic one; it is a computer on wheels.

Despite the digital revolution, large German corporations continued to make the same old machines. This is, according to Münchau, an "economic ideology that equates Economics in general with industry".

The author blames the politicians and their promiscuous relationship with big industry; the CDU and SPD politicians, who have generally governed both separately and in grand coalition, and the influence exerted on them by the Ost-Ausschuss der Deutschen Wirtshaft, the German business association for business with Russia (in its determining role, Münchau compares it to the Rifle association in U.S. politics). For this friendship towards Russia, which he distrusts (he even says that Brandt's Ost-Politik could have delayed the collapse of the Soviet system), the author blames more the SPD, with Schröder at its head, but argues that Merkel, however reluctantly, maintained this dependence not only on gas, but also as a market. "What we have witnessed here," the author writes, "is a monumental national collective misjudgment."

Kaput' makes a diagnosis and expressly refrains from advancing possible policies to overcome the status. Applying Münchau's analysis, one might think that the new government, if Merz's CDU succeeds in reaching a pact with the SPD, can correct some of the mistakes of the past. With the invasion of Ukraine, the pro-Putin wing in the SPD has faded, while Scholz's departure means the departure of someone who insisted on saving trade dependence on China. Without the Greens in government, perhaps a return to nuclear power could be explored, although Münchau believes the nuclear chapter has been Closed altogether in Germany. But a CDU-SPD pact would still repeat the disadvantage of leaving the civil service examination to the extreme parties, while the obligatory cooperation of the two center parties would be placed in the comfortable place of consensus, as Münchau stresses.