By FLAVIO AGUIAR*
Germany entered an accelerated process of deindustrialization, dragging the entire continent with it
Is Germany a threat to the rest of Europe? Don't worry, I'm not talking about war, although thanks to the conflict in Ukraine, many countries on the continent, including Germany, are increasing their military budgets. I'm talking about another battlefield: the economy.
Last week, a section of one of the main bridges in the city of Dresden, in the province of Saxony, broke off overnight and collapsed into the Elbe River. Engineering teams spent the weekend working feverishly to remove the debris, as flooding is feared as the river rises, thanks to heavy rain and early snowfall in its headwaters and on some of its tributaries.
I heard an economist on the radio saying that this was a perfect metaphor for the German economy. It has been collapsing and the decline has caused a ripple effect across the continent, because many other countries depend on imports from and exports to Germany, whose economy is still the strongest in Europe.
After a long period of prosperity at the beginning of the 19st century, the German economy began to suffer with the COVID-XNUMX pandemic, which seriously affected trade, services and transport. Small and medium-sized businesses initially closed their doors, and then the crisis spread to large department stores. To make matters worse, some consumers became accustomed to shopping online. The most dramatic effects of the pandemic have passed, but the habit of shopping remotely has not. To this day, large stores are closing branches across the country.
The situation was aggravated by the war between Russia and Ukraine. Germany joined in the supply of weapons, financial support to the Kiev government and economic sanctions against Russia. The Nord Stream 1 and 2 gas pipelines, the latter under construction, which brought Russian gas to Germany were sabotaged in September 2022, in an episode that remains unclear to this day.
As a result of this whole process, the supply of Russian gas was abruptly interrupted, seriously affecting German industry, which began to shrink. Agricultural inputs from Ukraine were also damaged by the war. The cost of energy rose sharply, as did that of food. The German economy contracted and the country now finds itself on the brink of a prolonged recession.
According to Franciska Palma, analyst at the London-based Capital economics, the decline in the German economy began in 2018 and worsened from 2020 and after 2022, and there are no signs of a quick recovery.
In 2023, the country's economy contracted by 0,3%. The forecast for 2024 is zero growth. Despite the government's efforts, the situation is not expected to improve in 2025. In response to the crisis, Berlin wants to promote biotechnology, green technologies, artificial intelligence and the defense industry, i.e. the military. But it is bound by the principle that public debt, or budget deficit, cannot exceed 0,35% of the Gross Domestic Product.
There was an internal power struggle within the government coalition, formed by the social-democratic SPD, the Greens and the liberal FDP (Free Democratic Party). The Greens and the SPD wanted to increase the percentage of public debt in relation to GDP, but the FDP closed the deal and won the deal: it would only remain in government if the 0,35% was maintained.
The result of all this is that Germany entered an accelerated process of deindustrialization, dragging the entire continent with it.
From July 2023 to July 2024, German industrial production fell by 5,45%, a rate surpassed only by the decline in the sector in Hungary (-6,4%) and Estonia (-5,8%). The overall decline was 2,2% in the Eurozone and 1,7% in the European Union.
A sharp sign of the crisis appeared at Volkswagen, a company closely linked to German identity and culturally. Also beset by the decline in Chinese imports and competition from that country within Europe, for the first time in its almost 90 years of existence the company announced its willingness to close production plants to balance its accounts. It also announced its decision to break a 30-year labor agreement with the workers' union, which protects wages and jobs.
As the union has strong representation on the company's Board of Directors, the battle promises to be tough.
The fight for recovery and balance in the German and European economy also promises to be tenacious and long.
* Flavio Aguiar, journalist and writer, is a retired professor of Brazilian literature at USP. Author, among other books, of Chronicles of the World Upside Down (boitempo). [https://amzn.to/48UDikx]
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