There are three types of economic crisis. The first responds to stimulus. The second responds to reforms. And then there is the type of crisis that the people of Germany are experiencing right now: a crisis about who they are, who they are in partnership with, what they are good at, and their role in the world. The Germans have always told themselves that theirs is an old-fashioned industrial economy, that they must run trade surpluses against the rest of the world, and they must resist the pernicious influence of a US-dominated digital world. But this decade has brutally undermined the German world-view and the economic model on which it is based. The political gridlock in the European Union, and its inability to carve out an ecosphere in a world dominated by geopolitical bullies, has a lot to do with Germany’s structural slump.
It has only recently been noted in the UK, but this crisis started a while ago. When the UK voted for Brexit in 2016, Germany was still regarded as the economic power on the continent. Angela Merkel was seen as Europe’s most powerful leader. The Economist called her “the indispensable European”. What only few saw was that all the fateful decisions had already been taken by then: the close relationship of successive German chancellors with Vladimir Putin that led to Germany’s growing dependence on Russian gas; the overreliance on China for the supply chains of German companies; and Merkel’s unilateral decision in 2011 to close nuclear plants. Another problem that did not appear on people’s radar back then as much as it does now is Germany’s chronic under-investment in digitalisation. China and Russia had become Germany’s strategic partners and I still remember my shock when a fellow columnist in Berlin ten years ago said: “We Berliners are looking east, towards Moscow and Warsaw. Paris and London are yesterday’s cities.”
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