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As some of you know, I'm a geopolitics enthusiast and the current era is perhaps the most volatile one in several decades. The Post-WW2 world order may be on its last legs and all bets are off regarding how the next era will shape up. With that in mind, I've taken note of the current state of German economy, its inputs & outputs, and how the war in Ukraine and resulting sanctions on Russia pose a very real threat of de-industrialization, and what effect that could have on the EU and rest of Europe.
The way I see it, the current German economic model is chiefly built around manufacturing, and the export of said manufactured goods. This model, at least in its current proportions, was only possible on the back of guaranteed access to cheap, reliable sources of energy i.e. coal and more recently Natural Gas. Renewables are still unable to substitute for the likes of coal/gas when it comes to providing base load...and the Germans effectively threw themselves out of the Nuclear conversation and refuse to stick with coal long-term citing green goals.
Now, they are legitimately looking at cutting themselves off from piped Russian gas full stop. It doesn't look like even if they wanted to continue buying it, the US would ever allow it - if Nord Stream-II deep below the sea is not safe, the overland pipelines traversing through Ukraine, a warzone, (or Belarus, a potential future warzone) are probably not long for this world either.
There are hard limits to how much LNG supply from other sources (US, Middle East) can be scaled up. Even if they do, the economics of liquifying the gas, shipping it across the ocean and re-gasifying it can simply never compete with the costs of a pipeline which pumps gas 24x7. A lot of these manufacturing businesses operate on wafer-thin margins...an increase in cost of inputs of this magnitude is likely to cause a lot of damage long term. A lot of production could no longer be viable.
At the least, we're looking at a permanent downsizing of scale. At worst, we're talking almost near-complete deindustrialization (which would take away at least a third of German GDP and lead to the country becoming a more Services-centered economy like UK). But a lot of Germany's existing Services economy is directly related to or performed in support of the Manufacturing, so the effect is likely to be compounded if manufacturing goes. There are also a lot of EU countries neighbouring Germany who's own economic well-being is dependent in one way or another on the German manufacturing industry.
www.reuters.com
The EU in its current form has Germany at its economic heart...soon, that could become France. Not due to the French position expanding, but due to the Germans declining.
With all that said, just as a thought exercise: Toward end of this decade, how likely do you guys think it is that Germany could decide to ditch NATO and get into an alliance with Russia & China? Russia for energy, China for market access. This would of course leave them with no security cover from NATO/US which means that if the future German leadership (in no small part influenced by the huge industrial concerns which have a lot to lose if cheap energy & the Chinese market is no longer available) decides in favour of such a geopolitical realignment, German re-armament would become an inevitability.
Looking at the recent pace of arms buildup by countries like Poland I can't help but think its not just Russia they are concerned about. I think the Polish already have an appreciation of the economic & geopolitical pressures that will befall Germany in the near future, and are preparing for a worst case scenario as to what the German leadership could decide to do in response to said pressures. I think the powers that be are already seeing the pieces on the chessboard have started to move.
By the way, Poland has recently officially demanded $1.3 trillion reparations from Germany for WW2.
www.pbs.org
This just serves to illustrate the possibility of things to come:
www.theguardian.com
The basic premise of this is that the current German political alignment is a result of certain economic conditions & equations being favourable to Germany as a result of maintaining that alignment - the question is, what will happen when those preconditions inevitably change.
Recall what I said earlier "There are also a lot of EU countries neighbouring Germany who's own economic well-being is dependent in one way or another on the German manufacturing industry." That, when combined with the effects of a slowing/receding economy (thanks to factors like the war, inflation, and rise in costs of energy due to Russia being taken off the market) is going to mean that the purchasing power of European economies (including UK) i.e. the size of the European consumer market, will reduce significantly.
One way for a manufacturing + export driven economy like Germany to compensate for that (or at least try to minimize the losses) is to double down on a growing consumer market the size of China. And if they ever want to even hope to see actual sustainable YoY growth again, they HAVE to find a source of energy that is at least as cheap as Russian gas.
This creates a particular kind of pressure for Germany. Increasingly, the US will want Europe to stop trading with China. They will want (and largely already achieved) Europe to stop trading with Russia. This has the potential to be a double-whammy for a manufacturing economy like Germany (hitting both production as well as consumption at the same time).
OR
I do not want to speculate as to which option they will choose - I'll leave that to readers of this post. As of the premise itself, yes I realize how outlandish this may sound given Germany has been such a core part of the Western sphere for over 70 years. But like I said, when you change the underlying conditions, the world as we know it will also change...and the underlying conditions today aren't just being changed, they're being ripped apart. Stranger things have happened, and its not unthinkable that you would stop doing what you're doing when the conditions become such that doing those things doesn't benefit you anymore.
P.S. - Let's also talk about the Energy question. I for one refuse to believe that the almost irrational fear that Germany (and most of EU, except France) have for Nuclear is not the result of a multi-decade campaign by Russian state-backed actors & influence operations. The Europeans are/were drowning in a sea of Russian gas & they've literally thrown away the one life raft they potentially had to develop an alternative, green, base-load energy source.
The effects of that decision alone are likely to be the most profound when it comes to downstream effects.
+++
The way I see it, the current German economic model is chiefly built around manufacturing, and the export of said manufactured goods. This model, at least in its current proportions, was only possible on the back of guaranteed access to cheap, reliable sources of energy i.e. coal and more recently Natural Gas. Renewables are still unable to substitute for the likes of coal/gas when it comes to providing base load...and the Germans effectively threw themselves out of the Nuclear conversation and refuse to stick with coal long-term citing green goals.
Now, they are legitimately looking at cutting themselves off from piped Russian gas full stop. It doesn't look like even if they wanted to continue buying it, the US would ever allow it - if Nord Stream-II deep below the sea is not safe, the overland pipelines traversing through Ukraine, a warzone, (or Belarus, a potential future warzone) are probably not long for this world either.
There are hard limits to how much LNG supply from other sources (US, Middle East) can be scaled up. Even if they do, the economics of liquifying the gas, shipping it across the ocean and re-gasifying it can simply never compete with the costs of a pipeline which pumps gas 24x7. A lot of these manufacturing businesses operate on wafer-thin margins...an increase in cost of inputs of this magnitude is likely to cause a lot of damage long term. A lot of production could no longer be viable.
At the least, we're looking at a permanent downsizing of scale. At worst, we're talking almost near-complete deindustrialization (which would take away at least a third of German GDP and lead to the country becoming a more Services-centered economy like UK). But a lot of Germany's existing Services economy is directly related to or performed in support of the Manufacturing, so the effect is likely to be compounded if manufacturing goes. There are also a lot of EU countries neighbouring Germany who's own economic well-being is dependent in one way or another on the German manufacturing industry.
BASF seeks 'permanent' cost cuts at European operations
BASF said costs at its European sites must be cut to a "permanently" smaller size because of a triple burden of sluggish growth, high energy costs and over-regulation, with the German industrial giant's boss throwing his weight behind a planned expansion in China.
The EU in its current form has Germany at its economic heart...soon, that could become France. Not due to the French position expanding, but due to the Germans declining.
+++
With all that said, just as a thought exercise: Toward end of this decade, how likely do you guys think it is that Germany could decide to ditch NATO and get into an alliance with Russia & China? Russia for energy, China for market access. This would of course leave them with no security cover from NATO/US which means that if the future German leadership (in no small part influenced by the huge industrial concerns which have a lot to lose if cheap energy & the Chinese market is no longer available) decides in favour of such a geopolitical realignment, German re-armament would become an inevitability.
Looking at the recent pace of arms buildup by countries like Poland I can't help but think its not just Russia they are concerned about. I think the Polish already have an appreciation of the economic & geopolitical pressures that will befall Germany in the near future, and are preparing for a worst case scenario as to what the German leadership could decide to do in response to said pressures. I think the powers that be are already seeing the pieces on the chessboard have started to move.
By the way, Poland has recently officially demanded $1.3 trillion reparations from Germany for WW2.
Poland demands $1.3 trillion in World War II reparations from Germany
Poland's foreign minister has signed an official note to Germany requesting some $1.3 trillion in reparations for the damage incurred by occupying Nazi Germans during World War II.
www.pbs.org
+++
This just serves to illustrate the possibility of things to come:
BMW to axe UK production of electric Mini and relocate to China
Cowley factory on outskirts of Oxford not up to challenge of creating electric vehicles, says Mini boss
The basic premise of this is that the current German political alignment is a result of certain economic conditions & equations being favourable to Germany as a result of maintaining that alignment - the question is, what will happen when those preconditions inevitably change.
Recall what I said earlier "There are also a lot of EU countries neighbouring Germany who's own economic well-being is dependent in one way or another on the German manufacturing industry." That, when combined with the effects of a slowing/receding economy (thanks to factors like the war, inflation, and rise in costs of energy due to Russia being taken off the market) is going to mean that the purchasing power of European economies (including UK) i.e. the size of the European consumer market, will reduce significantly.
One way for a manufacturing + export driven economy like Germany to compensate for that (or at least try to minimize the losses) is to double down on a growing consumer market the size of China. And if they ever want to even hope to see actual sustainable YoY growth again, they HAVE to find a source of energy that is at least as cheap as Russian gas.
This creates a particular kind of pressure for Germany. Increasingly, the US will want Europe to stop trading with China. They will want (and largely already achieved) Europe to stop trading with Russia. This has the potential to be a double-whammy for a manufacturing economy like Germany (hitting both production as well as consumption at the same time).
Germany is soon gonna have a decision to make:
- Decide that they've had a good run while it lasted, and be happy to roll over and settle for a much smaller slice of the geopolitical power pie (there's no denying that the current economics-driven model has granted Germany more influence throughout Europe than they ever achieved through military means in the past), and let France take over political + economic leadership of Europe.
OR
- Decide that the geopolitical events are shaping up so that the balance of power is shifting away from Berlin, all thanks to decisions being taken anywhere else except in Berlin, and that Germany will not stand for this. In other words, very similar to the kind of situations that led to WW1.
I do not want to speculate as to which option they will choose - I'll leave that to readers of this post. As of the premise itself, yes I realize how outlandish this may sound given Germany has been such a core part of the Western sphere for over 70 years. But like I said, when you change the underlying conditions, the world as we know it will also change...and the underlying conditions today aren't just being changed, they're being ripped apart. Stranger things have happened, and its not unthinkable that you would stop doing what you're doing when the conditions become such that doing those things doesn't benefit you anymore.
+++
P.S. - Let's also talk about the Energy question. I for one refuse to believe that the almost irrational fear that Germany (and most of EU, except France) have for Nuclear is not the result of a multi-decade campaign by Russian state-backed actors & influence operations. The Europeans are/were drowning in a sea of Russian gas & they've literally thrown away the one life raft they potentially had to develop an alternative, green, base-load energy source.
The effects of that decision alone are likely to be the most profound when it comes to downstream effects.
@Nilgiri @Cabatli_TR @Mis_TR_Like @TR_123456 @Yasar @Bogeyman @Test7 @guest12 @Ryder @Anmdt @Vergennes @500 ... and everyone else
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