Sergio Ferrari*, Prensa Latina employee
The German locomotive is making less progress. It is no longer devastating and radiating concern in the Old World as usual. And although the most optimistic forecasts for the coming months predict an increase in German gross domestic product (GDP) of 0.9 percent, there are no significant signs of “dynamic growth” as defined by the experts.
Although the final figures for the 2023 balance sheet are not yet known, it is clear that the German economy will bring up the rear in terms of growth among the 38 countries of the Organization for Economic Cooperation and Development (OECD). Something that hasn't happened in the last two decades and that dates back to the turmoil in the late 1990s after the reunification of the two Germanys.
As early as the end of November 2023, the OECD forecast a reduction in growth expectations for Europe both for the past year (0.6 percent) and for the current year (1.2 percent). If these forecasts are confirmed, Europe will be the region that will take the longest to recover among advanced economies, while the United States will show some resilience (with a forecast of 2.4 percent for 2023 and 1.5 percent for the current year). ). Far behind China and India, both lead growth in 2023 and show similar or higher values in 2024: four percent for the first and more than six percent for the second.
Europe, caboose
The situation is significantly less favorable for the old continent. According to the OECD, growth in the euro zone in 2023 would only reach a meager 0.6 percent (three tenths less than estimated in June last year). This directly reflects the decline in activity in a key country such as Germany (-0.1 percent) and the far from sensational figures in France (0.9 percent) and Italy (0.7 percent). The “positive” surprise in the Eurozone in 2023 was Spain, with GDP growth of 2.4 percent, the highest among its peers.
The forecasts at the end of November had to reduce the growth prospects of European Union countries for 2024 due to the impact of high financing costs and high uncertainty. A meager 0.9 percent is now forecast and, according to experts, we will have to wait until 2025 before we see a slightly more encouraging rate of around 1.5 percent.
Outside the European Union, but still within the continent, the signs are not pointing to optimal results for the United Kingdom either, with economic growth of just 0.7 percent in 2024 and a forecast of 1.2 percent for 2025. More optimistic analysis as stated in the economic and financial blog Bankinter: “After a weak end to 2023, we are entering a phase of soft growth.” This website assumes that Europe has already seen its two worst quarters: the third and fourth quarter of 2023.
Germany in crisis mode
The worrying economic reality of a “technical recession” that Germany is facing is closely related, among other things, to geopolitical factors. An analysis published in the last days of December by Deutsche Welle, the main German foreign media, said that “the calm times for German foreign policy are over” and that in 2024 Berlin will “find answers to two wars and an increasingly aggressive China must”. and a turbulent world order.”
This article emphasizes that “no foreign policy event in recent decades has challenged Germany and Europe as much as the Russian invasion of Ukraine in February 2022.”
Since the beginning of this conflict, Berlin has promised Ukraine extensive military aid. However, almost two years later, there has still been no significant progress in Ukraine's military efforts to retake the occupied territories.
Military cooperation between Western countries and Kiev is collapsing, especially in Europe and the United States, members of the North Atlantic Treaty Organization (NATO). This is largely due to the high cost of this aid, the negative impact on its own finances and the lack of concrete military successes. Prolonging the conflict appears to be damaging to Ukraine, which appears to be exhausted, and also to its NATO allies, who are no less tired of this conflict and its impact on their own economies. All this without addressing the thorny question of who should pay for the reconstruction of Ukraine – which wants to join the European Union – once the conflict is over. The costs of this war will be high for Western Europe.
Germany, which relied on cheap gas from Russia for decades, has had to pay very high prices since this latest war. Especially compared to France, which has plenty of nuclear energy, and the United States, which has its own natural gas reserves. Gas consumption in Germany cost three to five times more than in the US at the beginning of 2023, while electricity was four times more expensive than that in France. German industry bears a significant part of the burden of this extraordinary energy situation: a bill that is almost 40 percent more expensive than before the war and with an obvious decline in competitiveness at the international level. Economic analysts calculated that this conflict would cost Germany around 160 billion euros, or four percent of its GDP, at the end of 2023.
According to Agenda from Spain's El País, the German economy stands out for the importance of its industrial sector, which accounted for almost 27 percent of GDP in 2021, compared to just over 22 percent in the Eurozone. This share has remained fairly stable over the past 20 years, except for a decline related to the 2008 crisis, which is now being affected by the ongoing war between Russia and Ukraine.
It's raining, it's wet: The new and explosive conflict that began in Palestine at the beginning of October is posing unexpected problems for Germany and its European allies, who have almost exclusively chosen Israel. And in some cases they even provide military support. As Deutsche Welle's analysis shows, Germany is trying to strike a balance. For example, Chancellor Olaf Scholz claims that Israel's security is a “reason of state” for Germany. Through active solidarity with Israel, Germany is trying to distance itself from the severe trauma of its National Socialist past. As far as the German-Chinese relationship is concerned, it is now significantly more tense than that propagated by Chancellor Angela Merkel between 2005 and 2021. While Merkel treated the Chinese government “with kid gloves” (according to analysis by Deutsche Welle), the current Scholz said the government views China as a “competitive partner and systemic rival” of the European Union. A rhetorical stance that did not prevent China from being Germany's most important trading partner for the seventh time in a row in 2022. For example, the German group Volkswagen, the largest European automobile manufacturer, places 40 percent of its production in China.
Domestic political break in Germany
If German finances are not doing well, the domestic political climate does not seem to be improving either. The latest chapter in the crisis of the Social Democratic, Green and Liberal parties of the government coalition led by Olaf Scholz opened in November when the Federal Constitutional Court banned the diversion of 60 billion euros (more than 65 billion dollars) from unused loans wanted during the pandemic Government provide green investment and support to the industry. According to the court, such a redistribution of spending violates the country's strict budget rules. The withdrawal ordered by the German judiciary inevitably led to deep political tensions and a budget hole of 17 billion euros ($18.6 billion) by 2024. The government had no choice but to drastically review its budgets for 2023 and 2024 .
Parallel to this complex political-financial situation in Germany, as recent surveys show, there is a rapid and consistent consolidation of right-wing extremist political forces that could win the elections next September in three eastern federal states: Brandenburg, Saxony and Thuringia. On the other hand, we must not forget that three months beforehand, in June, German voters – as in the other countries of the European Union – will elect their representatives for the new European Parliament.
Gloomy prospects for the decaying European locomotive in the context of a new world political reality in which economic and financial crises everywhere open the door to power for right-wing, adventurous and opportunist projects. However, the scenarios are dynamic and in many Western European countries the main trade union centers and social movements are expecting mobilizations. The major six-day doctors' strike in Britain, which began in the first hours of 2024, shows a path of resistance rather than resignation.
rmh/sf
*Argentinian journalist residing in Switzerland
(Taken from selected signatures)