The “suicide” of Germany and Europe

Everyone agrees that Germany and Europe are facing a recession and an energy crisis due to wrong strategic choices, rising energy costs, weakening industry and geopolitical tensions, which threaten economic stability and competitiveness.

The problems facing the German economy are mainly based on wrong and hasty energy policies, which have led to serious impacts on economic growth and its industrial base.

Energy crisis and dependence on Russia

Germany relied heavily on cheap energy from Russia through the Nord Stream 1 and 2 pipelines. After the Russian invasion of Ukraine, this dependence collapsed, leaving Germany without cheap energy sources.

The lack of preparation for alternative solutions (such as LNG imports or greater use of renewable energy sources) led to sharp increases in energy prices, hitting industry.

Nuclear phase-out

After the Fukushima accident in 2011, Germany decided to close all nuclear power plants. The last nuclear power plant closed in 2023.

This decision increased the reliance on renewable energy sources and fossil fuels (e.g. lignite), which are not sufficient to meet demand, especially during periods of low production from solar and wind systems.

Green transition without sufficient infrastructure

Germany has aggressively promoted the energy transition (green policy), but has not invested enough in developing the necessary infrastructure (e.g. energy storage).

This has created grid instability and rising energy costs, making German industries less competitive.

Industrial crisis

The energy crisis has negatively affected heavy industry, such as the chemical and metal industries, which depend on cheap energy.

Deindustrialization threatens Germany’s position as a leading power in Europe, as many companies move their production to countries with lower costs.

Broader Economic Consequences

Recession: In 2023, the German economy recorded negative growth (-0.1%), and for 2024 only 0.4% growth is forecast. This means that Germany risks plunging into a prolonged recession.

Reduced competitiveness: High energy prices make German exports less competitive on international markets.

The impact of all the measures on German industry is evident: industrial production, excluding construction, fell by 17% from 2017 levels.

Car production fell by 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 factories on German soil while announcing investments of 10 billion euros in China.

Volkswagen has announced its intention to close three factories in Germany for the first time in its long history.

Competition from Chinese electric vehicles is also a serious problem not only in the European market itself, but also in the Chinese market, the destination of a high proportion of German car exports.

China has transformed itself from a destination for many German industrial products into a competitor both in the Chinese market and globally. The electric car is just one example.

Ripple effects in Europe: Germany is the EU’s largest economy and the main contributor to the European budget. If the German economy remains in crisis, the effects will be felt throughout Europe.

Wrong strategic decisions

Dependence on Russia and the abrupt shift away from nuclear energy have left the country vulnerable to energy crises. Overreliance on renewables without sufficient support from other sources (e.g. natural gas or nuclear power) has created instability.

Geopolitical challenges

The war in Ukraine and the global turmoil in energy markets have drastically affected the German economy.

With the start of the war in Ukraine and the sanctions on Russia, energy costs for German industry have skyrocketed, eliminating the supply of cheap energy from Russia. The German Industrial Employers’ Association (BDI) has repeatedly spoken out very critically about the energy policy developed by the German government.

The lack of diversification of energy sources has made Germany vulnerable to these changes.

Excessive focus on green policies

The green transition is important, but requires gradual implementation while maintaining energy security. Germany seems to have pushed the transition without taking into account the pace and needs of the economy.

Outlook and Opportunities

Germany faces serious challenges, but remains one of the most developed and innovative economies in the world. To recover, it needs to strengthen its energy diversification.

This can be done by investing in alternative energy sources (e.g. LNG, new generation nuclear power). Strengthening energy storage to support renewables.

Germany needs to support industry. This by giving incentives to companies to stay in the country. It needs to reduce energy costs through state support or tax breaks.

It needs to revise its green strategy. Mainly by gradually implementing green policies while ensuring energy security.

What is certain is that Germany is facing significant problems, mainly due to the energy crisis, geopolitical changes and wrong strategic decisions.

Although the situation is difficult, it has the potential to recover, as long as it adopts more balanced policies that combine sustainable development with economic stability.

What is certain is that Europe is directly affected by the crisis in Germany, which, as the main financier of the EU, has a limited capacity to support the European budget and development programs.

The weakening of German industry affects supply chains and dependent sectors throughout Europe.

Furthermore, the energy crisis in Germany is intensifying pressures on energy markets, increasing prices for other EU countries.

There is automatic destabilization of the EU. Germany’s economic weakness, as a leading economy, reduces Europe’s overall resilience to global crises.

There is also a problem with the delay in the Green Transition: Germany’s failure to implement sustainable policies affects the EU’s progress towards a green economy.

Trump’s victory is a problem

Trump’s victory exacerbates Germany’s problems. It will have to increase its defense spending, while the tariff war will hurt its exports. Greater relaxation of environmental standards by 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. According to opinion polls, it is difficult to form a strong government. Barring major surprises, the new government will necessarily consist of two or three parties, making it difficult to make a clear change of course.

Germany’s problem is Europe’s problem.