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Various possible solutions were advanced to the "German question" in the years after 1945. European integration of Germany within the wider Western world was considered the most viable way forward for Germany. In 1951, Germany became one of the founding members of the European Coal and Steel Community (ECSC). This involvement of Germany in the ECSC was seen as the first step towards creating a much more integrated Europe which would help to "Europeanise Germany" to solve the "German question". However, this integration also entailed the partition of Germany into two in 1945. Eventually, in 1990 both parts of Germany joined together.
In a drive towards much closer European integration, Germany signed the treaty establishing the European Economic Community (EEC) in 1957 (also known as the Treaty of Rome) together with Belgium, France, Italy, Luxembourg and the Netherlands. Out of this Community, the European Union was founded in 1992. There has been a consensus within Germany about Germany's European integration. Close cooperation and coordination with its European partners also allowed Germany to rehabilitate itself as a credible political actor in the post WW II period.
In many ways European integration has defined Germany's politics in the posit-war period. Germany has become the indispensable engine of European integration. So much so that German Chancellor Olaf Scholz' coalition government vowed turn it into a federal state. Also, close relationship between France and Germany has exerted considerable leadership underpinning the foundation of the EU, single currency and much more.
Although for decades France and Germany dominated the decision making process in the EU and other member countries accepted whatever decision they worked out, that system is now cracking in critical areas of cooperation. Their two areas of major differences are energy and defence. France is in favour of nuclear energy while Germany is opposed to it and is in the process of phasing it out.
There are other areas of disagreements that have emerged in recent times between Chancellor Scholz and President Macron straining their relationship. Very late in February the rift between the two became very open when Macron refused to rule out sending ground troops to Ukraine, bur Scholz told reporters that there would be no ground troops on Ukrainian soil.
Macron is widely known in Germany for his penchant for making loud statements but with no substance, and in Paris Scholz is seen as a leader without courage or ambition and cannot see anything beyond short term.
According to the Kiel Institute for the World Economy, despite Macron's willingness to escalate the war in Ukraine, Germany has sent 27 times more bilateral military aid to Ukraine than France (€17.7 billion to €0.64 billion).
But now a very different picture has emerged about Germany's military involvement in Ukraine. A leaked telephone conversation between senior leaders of the German Air Force on February 19 clearly confirms that Germans were planning to use Taurus long-range missiles to launch attacks on Russian territory. The conversation further revealed the presence of military personnel from Britain and France in Ukraine. This leaked conversation shows Germany is actively involved on the ground in the Russia-Ukraine conflict.
However, Germany's decision to buy US F-35 fighter jets irritates France. France wants EU member countries including Germany to buy European made military hardware (which are most often French). German Chancellor Olaf Scholz told a global security conference in Munich last month that Europe must strengthen its ability to defend itself regardless of who wins the upcoming US elections or how the war in Ukraine turns out.
France's call for strategic autonomy is designed to make Europe more self-sufficient. Such a policy while looks appealing to many EU members, progress towards such an autonomy is limited. Germany is also slowly turning inward and becoming more nationalistic. So overall, there is a tendency in Europe to look inward, but Northern European countries and the Commission in Brussels stand against such dirigisme espoused by France.
That inward drive is also reflected in massive protests by EU farmers last month which started in Germany, then spread to France, Belgium, Portugal, Poland and other countries. While the farm sector has been under pressure for a long time in the EU, the anger is most often directed against competition from other EU countries or countries outside the EU, especially from Ukraine now. While the EU generally pursues a free trade agenda, currently it appears to be much less enthusiastic about that agenda than a decade ago.
Also, France is opposed to an expansion of EU until the current structure and the operational system are reformed, but Germany wants to expand the EU and sees that to transform and maintain peace in Europe. While the Franco-German reconciliation has historically constituted the core of European integration, now some European countries such as Poland and the Baltic states are also increasingly questioning the Franco-German leadership.
Underlying geopolitical tensions combined with the eruption of active hostilities in many regions, the Russia-Ukraine conflict is contributing to an unstable economic order in Europe. According to a study by S&P Global, manufacturing activity in 20 Eurozone countries has continued to decline, largely due to a slowdown in the area's leading economy Germany.
In fact, according to the report German economy registered the sharpest deterioration in four months in February. The loss of growth momentum so far this year has been underpinned by the lack of a solid growth driver, with weakness especially in consumption but also on the external side. Private consumption broadly stagnated on aggregate, as nominal wage growth continued to spur inflation. The volume of retail sales was still declining on a year-on-year basis up to the summer. Also, exports declined, and net trade contributed positively to growth only because the decline in imports outpaced that in exports.
Over the last 20 or so years, Germany was the admired industrial juggernaut. In recent times confidence in the German economy has dramatically deteriorated. Talks of Germany as the sick man of Europe has been losing traction as the country continues to underperform not only in the US but also in the European countries. German Finance Minister Christian Linder, injecting some humour at the recent World Economic Forum (WEF) in Davos, said that Germany is not the "sick man" of Europe but rather "a tired man", alluding to the recent years of unsatisfactory economic performance of the country, in need a "good cup of coffee".
But economic indicators point to something more than fatigue. Germany's poor economic performance is reflected in a recent decline in GDP, consumer spending despite rising incomes and falling inflation. Industrial output continues to decline along with investment as the ECB ratcheted up interest rates. Recession appears to be on Germany's doorstep. Early estimates indicate a 0.3 per cent decline in GDP in 2023. That decline positions Germany as the only industrialised country in the red.
However, due an upward revision of the third quarter GDP figure, Germany has so far avoided a technical recession, which is defined as two consecutive quarters of negative growth. That also catapulted Germany to become third largest economy in the world superseding Japan whose depreciated currency has also helped Germany to climb up by USD 0.3 trillion to USD 4.5 trillion GDP.
According to Bloomberg the German economy not only failed to grow at the start of 2024 contracting in the final quarter of last year, but is likely to stall in the first quarter of this year. Germany was the only G7 economy to contract last year as it struggled with the fallout from the energy crisis. Bloomberg further informs us that German Economy Minister Robert Habeck has warned that the German government will revise down its forecast for economic growth in 2024 to 0.2 per cent from an earlier projection of 1.3 per cent.This is in sharp contrast to the US economic performance which has surpassed expectations.
Germany is an export driven economy. Germany maintained its position as the world's third largest exporter (behind China and the US), and third largest importer (behind the US and China). Germany's most important target market for trade in goods continued to be Europe, which accounted for 67.5 per cent of German exports and 65.6 per cent of German imports in 2023. According to the Federal Statistics Office (November 2023), German exports experienced a decline of 5 per cent year-on-year, while imports recorded a notable fall of 12.2 per cent.
Also, the country's central bank, the Bundesbank said early this year that the economy was faring worse than expected and that the rebound would probably be delayed. The two largest commercial banks Deutsche Bank and Commerzbank also predict another contraction of the economy in the first quarter of this year.
So, why has growth stalled? Is the current economic slowdown in Germany just an outcome of business cycle, or are more worrying structural issues at play?
In a cyclical movement in an economy, recessions come and go. But there are no clear prospects for Germany for an imminent recovery. But the German economy is not just facing a downturn, it is much deeper. The German economy is experiencing significant structural changes as reflected in the ongoing process of deindustrialisation as manufacturing production units are shifted overseas driven by cost considerations.
The challenges faced by the manufacturing industry are further exacerbated by high energy costs. This situation has further been aggravated by Germany's attempts to shift towards green energy. The Russia-Ukraine conflict further deepened the crisis and Germany is bearing the brunt of sanctions on Russia as reflected in disrupted supply chains, reduced exports. Many commentators have mentioned that adhering to the Washington agenda has created vulnerabilities for the German economy that will not be easy to overcome soon.