The end of the German economic model
Created: 03/27/2022Updated: 03/27/2022 06:08
By: Ludovic Subran
Ludovic Subran is chief economist at Allianz.
© N. Bruckmann/M.
Litzka/Allianz
For many years, the success of the German economy was based on open markets and cheap energy from Russia.
But with the outbreak of the Ukraine war and the faltering supply chains due to Corona, the question marks are growing, writes Allianz chief economist Ludovic Subran in the guest article.
Munich - The brutal attack on Ukraine is a turning point in world history, the likes of which we last experienced more than 30 years ago with the fall of the Wall.
However, while the turning point at that time was associated with high expectations of a better world - which were partly fulfilled - today's war stands for the end of precisely these hopes.
The idea of a rule-based global order of liberal and pluralistic societies - the end of history - had already suffered deep cracks;
they were most evident in the growing rivalry between China and the United States.
Nevertheless, many in politics and business clung to this illusion to the end.
The Ukraine war* destroyed them painfully.
Ukraine War: Nuclear Threat Real Again
The world is facing a new epoch of geopolitical confrontation.
This brings back memories of the "Cold War" of the last century, including the nuclear threat: the possibility of nuclear war is suddenly once again a risk that has to be reckoned with.
But the differences cannot be overlooked either: the struggle is not only about political and ideological hegemony, but also about informational and technological dominance.
And with China, a new, powerful player is emerging.
The new era is by no means exhausted by the return of what is known and what was believed to be overcome;
their contours cannot yet be clearly discerned.
voice of economists
Climate change, supply bottlenecks, corona pandemic: Rarely before has interest in the economy been as great as it is now.
This applies to current news, but also to very fundamental questions: How do the billions in corona aid and the debt brake go together?
What can we do about the climate crisis without jeopardizing our competitiveness?
How do we secure our pension?
And how do we generate the prosperity of tomorrow?
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There is no doubt that relations in the world economy will also change fundamentally.
Trade relations, energy supplies, international value chains and technological dependencies: everything is put to the test.
Hardly any other country will be as badly affected as Germany, where two phenomena overlap: Its economic model is highly dependent on open, global markets - and energy from Russia.
Ukraine war reveals Germany's dependence on Russian energy supplies
Overall, the share of Russian energy sources (gas, oil and coal) in final energy consumption in Germany is 19 percent;
in France or Spain, on the other hand, it is only four percent or three percent.
Of the major European economies, only Italy (17 percent) has a comparatively high degree of dependence on Russia;
at the same time, the Italian economy is less export-oriented and less involved in the international industrial division of labor.
more on the subject
High energy costs: The fuel price brake is the wrong way
Debt brake: Overtaken by reality
Ukraine War and the Price of Return
Germany suffered badly from the supply chain difficulties
There is no question: Germany has benefited from his model for a long time.
With the Corona * crisis, however, its dark side came to the fore for the first time.
Hardly any other country has suffered as much from the stress of the international supply chains as Germany: In 2021, economic growth in this country lagged well behind that of the other major economic nations;
only Japan fared worse (see chart).
This year the picture threatens to repeat itself.
Because while everyone is suffering equally from high energy and raw material prices and rising inflation is shattering hopes of a boom in demand after all corona restrictions have been lifted, the unresolved problems in global value creation are particularly serious in Germany.
Not only the upheavals of the Ukraine war play a role, but also China's zero-Covid policy, which leads to recurring lockdowns and thus disrupts the international flow of goods.
In our base scenario, ie without assuming a far-reaching oil and gas embargo, we therefore expect that Germany will only grow by 1.8 percent in 2022.
It would be at the bottom of the big seven.
What does this mean for Germany?
Certainly not a move away from globalization;
national self-sufficiency efforts are simply foolish.
But it is important to reduce one-sided dependencies.
The lesson learned from the tearing down of supplier networks should be to make the network even more closely meshed in future, with duplications at neuralgic points.
Above all, however, the German economy must free itself from the illusion of "purely" private-sector projects;
in the new era, the political must always be considered: strategic thinking is required.
This also applies not least to relations with Europe.
Ukraine war: Europe must move even closer together
The war has led to a new cohesion in Europe;
the talk of European sovereignty has overnight become a key issue for peace and freedom.
However, the new common ground should not be limited to the political and military.
It is just as important to bring Europe's economies closer together.
The measures to overcome the Corona crisis have already given new impetus here;
in particular the reconstruction fund "NextGenerationEU" (NGEU), with which debts were communitized for the first time to any significant extent, is a milestone - not least for German politics.
In view of the disproportionately greater challenge facing Europe today, it would be desirable that German European policy would not fall back into its old patterns,
Germany will have to master two mammoth tasks in the next few years: in addition to the decarbonization of all economic processes, the economic model that has been so successful up to now must also be readjusted.
This requires great effort from everyone involved - and will have its price.
After the seven strong years before the Corona crisis, seven lean ones could now follow.
About the author: Ludovic Subran is chief economist at Allianz SE and at Euler Hermes. Before joining the Allianz Group, he worked for renowned institutions such as the French Ministry of Finance, the United Nations and the World Bank. He also teaches economics at HEC Business School. *Merkur.de is an offer from IPPEN.MEDIA.
