Suicide of Germany and Europe

Last week, Germany experienced several days of heavy fog, no sun and no wind, causing renewable electricity production to virtually grind to a halt. Gas-fired power plants and imports of electricity from France were supposed to compensate for the lack of electricity from renewable sources. This particular event highlights the serious energy problems plaguing Germany.

Germany has traditionally been considered the powerhouse of the eurozone due to its strong economy, based mainly on a leading, competitive and exporting industry. Now, The German engine appears to have been confiscated, largely due to the delayed consequences of its own decisions and the implementation of green policies for an accelerated energy transition. Its economy is in recession, and the problems reported by some of its major companies do not bode well for a good future unless a significant change in direction is made.

Under Angela Merkel’s mandate (2005-2021), Germany made energy policy decisions whose consequences are currently being felt:

• His government approved the Climate Protection Act, which calls for a 65% reduction in CO2 emissions in 2030 compared to 1990 levels.
• It relied on cheap energy supplies from Russian energy imports, developing two major infrastructure projects: the Nord Stream 1 gas pipeline, opened in 2012, and Nord Stream 2, completed in 2021 and sabotaged by a mysterious attack with no declared responsibility in 2022.
• After the accident at the Fukushima nuclear power plant in Japan in 2011, Merkel decided to do without nuclear energy by gradually closing the plants then in operation. The last German nuclear power plant was closed in 2023. Germany decided to abandon nuclear power without having a reliable alternative to replace it.
• The implementation of accelerated energy transition policies has led to the closure of coal-fired power plants and the widespread use of renewable energy sources. Renewable energy sources are intermittent and do not guarantee supply. They need an alternative in case they are unavailable, as happened last week.

With the outbreak of the war in Ukraine and sanctions against Russia, the cost of energy for German industry increased sharply, leading to the disappearance of cheap energy supplies from Russia. The German Industrial Employers Association (BDI) has repeatedly been very critical of the energy policies developed by the German government.

The impact of all the measures mentioned on German industry is noticeable: Industrial production excluding construction decreased by 17% compared to the 2017 level.; automobile production fell 28% from 5.7 million vehicles in 2016 to 4.1 million in 2023; companies such as BASF, the flagship of the German chemical industry with 400 plants worldwide and 200 in Germany, are closing plants on German soil while simultaneously announcing a €10 billion investment in China; Volkswagen has announced its intention to close three plants in Germany for the first time in its long history.

Representatives of German industry complain about their government’s energy policy. They believe that neither the medium-term energy supply nor the price that energy will command in the future is guaranteed. They claim this puts them at a competitive disadvantage compared to other developed markets. In such conditions it is difficult to make investment decisions.

so in practice they make large investments outside their borders, such as building a Volkswagen battery plant in the US or a BASF plant in China. Guaranteeing the supply of energy at a reasonable price is essential to maintaining industry competitiveness globally.

European rules banning the sale of internal combustion engine cars from 2035 and suggesting that the winning technology will be the electric car are a shot in the foot for Germany’s other powerful auto industry. In addition, competition from Chinese electric vehicles is a serious problem not only in the European market itself.but also on the Chinese market, which accounts for a high percentage of German car exports.

China has transformed from a destination for numerous German industrial products to a competitor both in the Chinese market and around the world. The electric car is just one example.

Trump’s victory deepens Germany’s problems: it will have to increase defense spending; the tariff war will hurt their exports; Greater laxity regarding environmental standards on the part of Asian and now American competitors is further reducing the competitiveness of German and European products.

New elections will be held in Germany on February 23. Judging by the polls, it is difficult to form a strong government. Unless there are major surprises, the new government will necessarily have to consist of two or three parties, which, of course, makes a clear change of direction difficult.

Germany’s problem is Europe’s problem. Germany remains the main net contributor to the EU. Europe cannot succeed if Germany does not do well.

In short, the measures taken by Germany and the EU are causing deindustrialization without implying global emissions reductions. What is not produced in Europe will be produced in other parts of the world with much less environmental considerations. It remains to be seen whether Germany’s new government will reverse course, which is unlikely but not impossible.