Non-carburetor engine from Germany, Europe

What is the German model and what threatens it?

based on german model public-private cooperationAccording to Otero, in small and medium-sized companies. Actually, in German countries this type of companies have a name: Mittelstand, SMEs that rely on workers with high technical training“The German model is that of a social market economy,” summarizes the Elkano Royal Institute researcher.

These companies have been and remain in many cases leaders in different elements of the industry: pharmaceuticals, chemicals, automobiles or machinery. Coordination and political stability among social actors in these areas that has characterized Germany in recent decades, has put the country at the forefront Great export powers of industrial products,

manufacturing industry had some control over production costs And the EU’s monetary policy kept the euro relatively weak against the dollar. These two circumstances helped in promoting exports A sector that accounts for 27% of German GDPAs recalled Diego Sande, economics research coordinator of the Galician Institute of International Analysis and Documentation (IGADI).

Thus, Exports from energy-intensive industries Germany’s economic growth has been sustained over the past decade. For this reason, protectionist measures by the United States, China and Europe and the post-war increase in energy prices in Ukraine have greatly affected the economy of the country, which Olaf Scholz now rules with the sole support of the Greens.

Now political instability has also been added to the economic concerns. The Liberals, who were part of the executive until this week, have left after a serious crisis in the coalition that began with the dismissal of the finance minister. Christian LindnerThe decision came after a prolonged period of significant disagreement over the budget and a proposal by Lindner to call early elections.

Scholz has already announced that he will submit a vote of confidence to parliament on January 15, which is expected to fail, making it likely that the next election will be held in March. It is also possible that the Chancellor will try to form a new coalition with the conservative opposition of the Christian Democratic Union (CDU), which, at the moment, not shown Willing.

Germany had to suffer the consequences Brake on exports especially in 2023The latest data published by the Federal Statistics Office (Destatis) shows that, despite registering a slight increase (+0.1%) this year, there are still 3% less than the figures recorded in 2022Additionally, factory orders declined 3.9% year-on-year in August.

High dependence on international trade

as sand places Starting point of Donald Trump’s entry into the Capitol“One of the foreign policies pursued by President Trump, which continued during Joe Biden’s mandate United States’ protectionist turn With separate tariff hikes,” explains the expert, who adds that Europe and China soon followed suit.

The Asian country has become Germany’s main partner in the last decadeBut China has not been growing as much in recent years and its international demand has declined. ,If you depend on specific markets Those who are prone to problems and if you are dependent on a particular sector, such as automobiles, “You become very weak.”

Isik Ozel says.

Furthermore, China’s modernization and development makes the country a “Direct competitor in many areas where Germany dominated”Since the example of automobile is very clear Chinese companies like BYD are leading Regarding manufacturing electric cars: Otero says, “Germany has been slow to accept that the electric car is the car of the future.”

The lack of competitiveness of German industry further exacerbates this Benefits arising from incentives received by the Asian automobile sector Of their government. “The way to make electric cars in China is very different, “Germany can’t compete”UC3M professor explains. Diego Sande recalls that “while Volkswagen is closing factories, smaller manufacturers are opening them in a global context.”

As a result, the EU decided to impose tariffs of up to 36.3% on imports of Chinese electric vehicles. but this solution This is not favoring even a European countryAs Sande explains, the Chinese government has responded by imposing new tariffs on European cars and this has hurt companies like Volkswagen, for example, which “sold a large part of its production to China”.

Tariff on country led by Xi Jinping These also affect imports. On which the supply chain of the German manufacturing sector depends. “Most batteries for electric cars are imported from China,” recalls Otero, who argues that the automobile sector will recover as the global economy grows, but he The profit margins of German companies will be reduced.

increased costs and lower consumption

This change of focus in international trade This coincides with rising energy pricesWhich had a special impact on the German country due to its dependence on Russian gas. Thus, sectors like automobiles, which represent 17% of German exportsHe saw how his increased production costs At the same time international trade deteriorated.

Faced with this situation, German industry and the European Union chose “Strengthen your energy strategy in renewable energy” In the words of the IGADI researcher, with the aim of self-reliance. Now, as Isik Özel explains: “Germany had a very high level of dependence on Russia and is changing that dependence through the decarbonization process It’s quite expensive”,

The transition to a green economy is leading to higher costs for German companies, which have also had to consider a salary increase Of recent years. “The average German salary has increased by about 1,000 euros since the pandemic, which was the same increase over the past 12 years,” Sande explains.

Higher costs, lower exports and also lower internal consumption. According to experts, this recessionary sentiment has led Germans to “distrust the market situation and scale back their consumption.” ,If businessmen see that consumption is low, they cut down investment.“They have cut down on recruitment etc,” says a researcher at the Elcano Royal Institute.

Germany’s future: more investment and improvement of its growth strategy

Özel also highlights Germany’s “small investments and innovation”, particularly ““Increasing flow of German capital to other countries”In fact, he points to the United States and its industrial policy as the main destination of this money: “Volkswagen, which plans to close plants in Germany, can invest in the United States thanks to new incentives. Has been.”

Therefore, looking to the future, the UC3M professor believes the German government should Invest more in “decarbonization and digitalization reforms”

With the aim of accelerating these processes, preventing capital flight and improving the competitiveness of their industry. This also indicates There is a need to diversify supply chainsSo that one does not have to depend on any one market. “They have to rethink their strategy,” Sande summarized.

He population aging This is one of the factors that influences this structural crisis in Germany, as explained by the Ifo Institute researcher, especially the lack of qualified labour. “There will be a shortage in the German market 7 million skilled workers In the year 2035,” Özel also highlights a problem related to the country’s education system, which is not adapted to the new times.

In any case, no researchers believe that Germany’s dominant position within the EU could change, especially if the crisis does not extend beyond 2025. Forecast for that year They have estimated a growth of 1% from Germany. “Although it is Weak competitive position is likely to continue to impact on export-oriented companies in the manufacturing sector,” warned Vollmershauser.