‘No,’ my column this week is not about the German football team that was eliminated in the quarter-finals of the European Football Championship by now-finalist Spain. However, I am writing this column before the semi-final of Orange, so if I ‘jinxed’ that match with this, I apologise in advance.
The end of an era
The title refers to the graph below, which went fairly viral on X last week, showing industrial production in Germany. It should be clear, not least because of the red arrow, that the trend in German production is rigidly downwards. Since the ‘peak’ in late 2017, industrial production went down by more than 14 percent. That is not exactly what you would expect from a ‘manufacturing powerhouse’. And fairness dictates that Germany has lost that status for some time.
Late
The question, of course, is what caused Germany’s demise as one of the world’s leading manufacturing centres. China is a major reason. Firstly, because Chinese exporters are more competitive than German ones. Take the example of electric cars. Whereas for a long time German car brands focused mainly on confirming their brand status, in China one electric car manufacturer after another shot out of the ground.
The result is that China now competes away Volkswagens, BMWs and Mercedes, nota bene on their own continent. I don’t know if you have ever seen the inside of a Zeekr, but that is serious value for money. So it is no surprise that, following the US, Europe too wants to increase import tariffs on Chinese cars.
Enttäuschend
Now politicians are eager to blame angry outsiders like China for Germany’s shrinking manufacturing sector. But this is mostly also to disguise their own incompetence. Germany’s energy policy, for instance, is woefully poor. Not just because the German manufacturing giants were running entirely on cheap Russian gas, but mainly because of the bizarre reaction to still shut down nuclear power plants even when Germany had to get rid of that same Russian gas.
It was even more bizarre when Germany ‘just joined’ the list of countries that promised the world during that ever-so-slightly dubious World Economic Forum to put more effort into nuclear energy precisely from a climate change perspective.
Skewed
This immediately raises another important point as to why Germany is underperforming. Ever more demands on sustainability at the expense of literally everything. If there is something that has characterised Europe - Germany is certainly not the only one and the Netherlands is a painful example of this - in the past decade, it is that it can shoot itself in its own foot wonderfully.
The rule books from Europe, which surely it is hard to prove is where the ‘best’ politicians now end up, are one-dimensional. Let it be clear that climate change and sustainability are important issues, but so are good housing (Germany also has a new-build problem due to these excessive regulations), employment (for instance in manufacturing), ageing, and so on.
Now, of course, things can be undone with time. Germany can implement a more pro-business policy. In principle, any policy that strikes a better balance between different social issues will already help. But based on what I see at the moment, for now Europe is mostly concerned with how to shoot itself in the foot a bit more. That’s a shame.
Jeroen Blokland analyses compelling, up-to-date charts on financial markets and macroeconomics in his newsletter, The Market Routine. He also manages his own multi-asset fund, which includes investments in gold. Previously, Blokland was head of multi-asset at Robeco.