Germany: Facing the perfect storm

Recession, record inflation, loss of prosperity, reduced purchasing power, shrinking consumption, insecurity, rise of the far right, nuclear threat, risk of social unrest, drought, threats of hybrid warfare: in other words, the perfect storm for Germany, which is struggling now on one side with her worst self and on the other with what she wants to be in the future.

At the beginning of the year, everyone predicted that the German economy was at the beginning of the end of the crisis caused by the pandemic. They were talking about the V of growth and waiting for the ejection. Order books were full, supply chains were being streamlined, shortages of essential materials were being contained, and the new government had come with a raft of public investment, environmental and digital transition policies, and a new-age industrial economy.

The wounds of the lockdowns were visible, but they could be closed soon, by what the Germans know how to do best: work consistently, spend wisely, trust their leadership and look ahead.

THE war in Ukraine however, it was a historic turning point for everyone – and for the German economy, which within a few weeks saw the collapse of the growth model based on cheap (Russian) energy.

The entire planning of the governing coalition for a four-year return to “prosperity for all” was thrown into disarray, especially when it became clear that the crisis had long-term – if not permanent – characteristics.

During the pandemic it appeared that the outcome of the effort depended especially on what the citizens dare to do and how much they remain convinced that the right decisions are being made that will lead them to the other end of the tunnel. Angela Merkel faced no such problem – at least not at the beginning of the crisis.

Society appreciated her … anti-communicative style, her seriousness, her composure and the respect she showed to experts. Today, as opinion polls show, dissatisfaction with the government’s handling continues to grow, although the majority of citizens are still clearly in favor of continuing to support Ukraine. “Better to cook in a chukka, than to lose our freedom,” read the placards of the demonstrators in Berlin.

However, our “freedom” obviously also depends on energy security, which for Germany is … a glorious past. Shortly before the sabotage of the Nord Stream 1 and 2 pipelines, Russia had already turned off the natural gas tap to Germany, forcing a violent adaptation to the new situation.

The government had already announced packages totaling 95 billion euros to support citizens and the economy, when it found that they were not enough to ensure a winter of social calm. Unlike Angela Merkel, Olaf Scholz likes big, catchy phrases when it comes to state financial aid: in the pandemic he talked about the “bazooka” and the “big bang”, in the current crisis he promises “You’ll never walk alone’ and ‘Whatever is necessary’, then he talks about ‘rushing support’ and ‘giant help’.

The day before yesterday, the chancellor’s communicators probably lacked inspiration, so Mr. Soltz spoke only of …”double bang”, announcing the imposition of a ceiling on the price of natural gas, cost measure of 150-200 billion euros.

Many commentators believe that she was the “Whatever it takes» moment of the chancellor, referring to his famous phrase Mario Draghi as head of the ECB during the euro crisis. So why do citizens remain dissatisfied and insecure?

One consequence of high energy prices is inflation, and in Germany it has now reached 10% for the first time since 1950. GDP is estimated to contract by 0.4% next year. “The sharp increase in natural gas prices also caused a dramatic increase in energy costs, leading to a massive loss of purchasing power in the economy as a whole,” states the rationale of the periodic report by Germany’s four leading economic institutes, which even includes a “risk scenario » with a lack of natural gas, especially cold winter and minimal savings. In this case, the economic recession for 2023 may even reach 7.9% and the GDP will shrink by 4.2% in 2024. No one wants to even think about it.

The ominous economic forecasts, combined with the certainty that is already here and the unknown outcome of the war in Ukraine, are causing insecurity in a society that has become accustomed to living with certainties. The ruling coalition parties clash every day over everything and they don’t even make an effort to hide it. Green Economy Minister Robert Habeck announced in early September the imposition of an “emergency gas tax” of 4.2 cents/kWh, touting the measure as a “lifesaver for the energy market”.

Reactions followed from all sides, until the day before yesterday he himself announced the diametrically opposite plan of imposing a maximum price on gas. “A different tool, improved, more comprehensive, easier and faster” this scheme, the minister said, while the chancellor enthusiastically proclaimed “an end to consumer worry about bills!”. It was preceded by the fight between the Greens and the Liberals (FDP) over the extension of the operation of the nuclear plants, which will eventually be closed, after first… operating until the spring, and Mr. Habeck’s public complaints about the overwork of his partners, the who, as he said, are constantly writing and erasing bills…

But it is doubtful if the citizens are now watching all that is happening. After all, as the federal energy regulator announced, last week, with temperatures of 4-17 degrees, they used more gas than in the same period in previous years, ostentatiously flouting politicians’ admonitions about “five-minute showers.”

The incoherence of the government partners, the backbiting, the announcements that are canceled before they are even implemented, create an image that is difficult, as it turns out, to inspire trust in society. In the same society, from which discipline, self-restraint, thrift and above all… calmness are now demanded.

Because it is (also) the fear of social unrest that drives the government to “blow up the bank”. Every Monday, demonstrations are organized in the eastern states – against sanctions against Russia, to be exact – by the far-right Alternative for Germany (AfD) and the Left. The paradoxical and awkward couple seems to be united by the instinct of political survival: and this crisis can be a basis for rallying new forces.

At the same time, the Germans have already begun to sacrifice their well-being. According to the GfK institute, consumer spending contracted in September by 22.4 points, recording the biggest drop since it was tracked for the whole of Germany in 1991. general pessimism about the future.

“The belief that in 10-15 years Germany will still be one of the leading economies in the world has now generally been shaken,” says Professor Renate Kecher from the Allensbach Institute, analyzing the results of her research. Germans are now trying to guess what the next six months will be like and what they will leave behind. Politics, business and society – and in Germany – are now at the crossroads that they either avoided or postponed for a long time

RES-EMP

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