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Germany Needs a More European Economic Approach

Thorben Albrecht

4 mins - 9 de Mayo de 2023, 07:00

In the second half of the 20th century, Germany developed an economic model that is successful still today. Based on producing manufacturing goods for exports it also includes a comprehensive welfare state and widespread sectoral collective bargaining agreements on wages and working conditions as well as powerful workers’ voice in its companies. This development went along with the establishment and deepening of the European internal market and European integration has been a crucial asset for Germany’s success story.

However, while Germany saw the other European countries as political partners it treated them as competitors economically. This was the 'logic' of the internal market and other countries acted the same way, but Germany’s huge export-surplus nevertheless was a challenge for the functioning of this market. While being the economic powerhouse of Europe, Germany at the same time threatened European economic dynamics, not least with its political approach of austerity in the banking crisis from 2008.

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Today Germany needs to re-invent its business model as climate protection, new digital technologies, and changing geo-economics are altering the landscape. Germany is eager to keep manufacturing and so are its workers, as its workforce is seen as the core of wealth-creation, needed also for maintaining a strong welfare state and good wages and working conditions. However, to keep a strong industrial core, changes in the industrial system are needed. Moreover, in all three fields mentioned above a 'go-it-alone' approach in these changes will not be successful. Germany needs Europe and thus needs a more European approach than in the past.

While Germany, after the Russian invasion in Ukraine, managed to replace Russian gas with other sources in rather short time, the challenge will be to build up renewable sources of energy. Here, Germany is lagging behind its own targets of constructing windmills and solar panels. Even if speed is picked up quickly, imports of renewable energy from the north and the south of Europe as well as from countries in Europe’s neighbourhood will be needed in the future to supply German factories with sufficient and affordable amounts of electricity and green hydrogen. However, potential suppliers and transit-countries like Spain for instance will not limit themselves to simply export energy but will try to use their advantage to establish industries on their own soil. Therefore, Germany needs partnerships that go beyond imports and exports and should work together with its European partners on a common energy and industrial policy that will have to include European funding if it is to be supported by southern European governments.

In addition, when it comes to digital technologies, Germany needs European partners to be able to develop more competences and become more innovative in fields like artificial intelligence to avoid dependence on US or China. Digital technologies will be crucial for maintaining traditional industries like the car industries. It is not enough to have battery production in Europe to keep the wealth creation of the automotive industry in Europe. Software systems will be even more important and here some German carmakers are about to give up and buy these from overseas. This is a very dangerous development for the German business model. Here again Germany should try to establish European partnerships to keep on par with non-European competitors at least in those fields of digital technologies crucial for sectors like machines, chemicals, and mobility.

Finally the increasingly multipolar-world, in which power politics including economic warfare are gaining ground and multilateral approaches are under pressure, forces Germany to re-define its role in the world. With supply chains becoming more vulnerable and export-markets like especially China becoming more insecure, German industry must diversify its up- and downstream value chains. This requires building up new partnerships with countries like India, but also in Latin America and Africa. Germany will be able to do so only as part of a European approach, especially given the Chinese competition in this field and the fact that trade policy is a competence of the European Union.

All these changes are urgent if Germany wants to maintain its socio-economic model securing wealth and welfare. They require massive investments into green and digital technologies as well as active industrial policies. They also require a re-adjustment of the role Germany plays in Europe. Germany must deepen its political and industrial partnerships within Europe, not least as a foundation for partnerships beyond Europe. To keep its economic strength, Germany must accept a new division of labour in Europe and help promote growth through European funding for the transitions ahead. To stay strong change is inevitable.
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