The downfall of German economy and the growing energy crisis. The German economy is going down as it enters the 3rd quarter of 2023. Let’s explore what are the series of events that has contributed to this situation. A good analysis of the past events and decisions from the policy makers and Bundestag (The Parliament in Germany) will provide a deep insight to why the energy and economic crisis will affect the future of Germany. It can no longer be touted as the economic powerhouse of EU. The decision to phase out the final three nuclear plants Isar 2, Neckarwestheim 2 and Emsland was implemented in April 2023. There are several factors that has contributed to the bad economic timing and closing of nuclear power plant.
Let’s explore the reasons together.
- The German society is often touted as a risk-averse society. The decision to shut down nuclear power plants as a risk threat to the society came on June 30, 2011, following the Fukushima nuclear disaster on March 11, 2011. In this case, being risk-averse is a good thing. But without planning alternatives and effectively investing in R&D and even implementing or testing alternative resources is not a wise decision in the long run.
- The ongoing Russian-Ukraine war has had it’s effect as well. In Feb 2022, Germany halted the NordStream 2 Baltic Sea gas pipeline project. The purpose of the pipeline was to double the flow of Russian gas directly to Germany. Other billion dollar energy projects are nothing but halted. So
residents in Germany and Europe overall are not going to get any relief from huge energy bills. On topof it existing solutions based on oil heating etc are also being challenged due to so called green regulations and since Germany has more than 7-8 months of winter, switching completely to solar is
out of question. Unless, better energy retention gadgets and technology moves ahead, that will alsorequire heavy investments etc. Moreover, the energy or return on investment on wind and other forms of energy maybe be useful for personal and short-term use but not for country-wise solution. The German govt does admit that Nord stream 2 was a bad bet. Other than that, Russia continues tohalt it’s gas supplies to the rest of the Europe. - Germany made another U-turn soon following the March 11, 2011 Fukushima nuclear accident. OnMarch 14, 2011, just three days after the terrible accident, the German government issued a series of political choices that became known as the “nuclear moratorium.” All nuclear power plants (and, later, all other types of nuclear facilities) were required to undergo comprehensive safety and robustnesstesting, known as a stress test. The dangers of nuclear energy dominated popular discourse at the time. Following the Fukushima disaster, nuclear power reactors were taken off the grid.
- Moreover, it’s very hard or next to impossible to dispose the high-level radioactive materials (old or newly suggested) safely according to the safety regulations. The existing raw materials are also hardto phase out or dispose off safely without harming humans or the environment. The German
regulators after long hour discussions and debate over the future of nuclear and how to dispose off the radio-active waste, saw that, there remained many open-ended and inconclusive debates on howto handle the waste. Therefore, there was no conclusive reasons left to support the continuing of
nuclear power plant. The law also requires that a final repository site be found within Germany by 2031, through an open-ended, transparent system including the public. - The Atomic Energy Act was originally passed on 2022, that outlined clear directions on phasing out of Nuclear power plants. This was further changed appropriately on April 22, 2002, after much public debate. It continued until April 2023 as the The goal was to gradually phase out nuclear energy for
commercial electricity generating. To that goal, each nuclear power station was assigned a residual electrical volume so that its overall production equated to an average 32-year lifetime. The development of new nuclear power facilities has been completely prohibited. - As from the Ukraine war, that nuclear facilities have become the target of armed conflict for the first time. The central argument for the nuclear phase-out the risk of catastrophic accidents – had thus intensified in Germany and other countries. Other than that, there are several other factors that add to weakening euro. There were cracks in theGerman economy that now after two consecutive quarters are beginning to fall and show it’s effect. This can be seen in day-to.day life, where the govt makes new rules and collects money by force by charging hefty fines from it’s citizens as they couldn’t react in a day such as moving their parking cars. It’s reported that some car owners have had to pay a hefty fine of EUR 540. The average money an average European student, fresh individual or renter earns is about EUR 1200-1800. Where is the money for food, clothing and shelter after paying hefty fines?
On the macro scale, let’s examine certain decisions that Germany was once alluded to be an economic powerhouse in 2014 is now being bashed or labeled as return of “Sick Man”. Germany’s GDP has stagnated and the heads of ifo institute (Leibniz Institute for Economic Research at the
University of Munich) and Commerze Bank have already set the alarm that there is going to be no significant improvement in the next quarter as well. They say this with conviction, from survey of the ifo Institute that had polled 9,000 executives on the current state of their firms and their expectations
for the next six months. For the third month in a running, the ifo Business Climate Index (July 2023) has declined. According to ifo analysts, Germany’s GDP will fall again in the current quarter. Compared to other developed countries, Germany’s economic situation is very bad and, according tothe International Monetary Fund’s (IMF) estimates, it will be the only large country whose economioutput is contracting. The industrial sector, the flagship of the country’s economy, is the biggest concern. At around 24%, it represents a relatively large portion of Germany’s gross value added (GVA), which has been plagued by the global economic downturn. The mechanical engineering and automotive sectors, which are heavily dependent on exports, are feeling particularly reluctant fromforeign customers. Manufacturers are still bailing out massive backlogs of orders that have accumulated during the
COVID-19 pandemic due to critical supply chain issues.
However, these orders are executed quickly and new orders are added more sparsely. The number of orders from March to May decreased by just over 6% compared to the previous three months. Other than that Germany’s cheap economic model depended heavily on importing from Russia, as thewar, sanctions and weakening political stance with Russia is not getting resolved anytime soon, one is expected to live with the frustration of rising prices, explosion of real estate, accommodating refugees and educating and teaching skills to a new ethnic population of the Islamic world that will not give theEuropean return of values or economies that the Germans are hoping. The energy intensive sectors mainly the automotive sector has also seen a sharp decline due to the misdirection on energy matter. One can clearly see, where German small and medium scale industries were once the backbone of German economy now are crippling under debt, lack of skilled workforce and unable to implement digitization schemes. The other cocktail of disadvantages include: soaring energy prices, they list potential skills shortages, as well as excessive bureaucracy, high taxes and struggling infrastructure, including difficulties in implementing digitalisation. In addition, Germany has an aging population. Peter Adrian, President of the Association of German Chambers of Commerce and Industry said: “The majority of our economy does not believe in investing in Germany as a place of business, due to the high costs and Sometimes there are conflicting regulations, which will be effective.” recently told the German news agency. The president of the Kiel Institute (ifW), Moritz Schularick, described a possible solution to this
dilemma in an article published on his institute’s website:
“If Germany doesn’t want to be the ‘sick man of Europe’ again, it must now have the courage to turnits attention to the floating sectors of tomorrow instead of spending the dreaded billions to preserve yesterday’s energy-intensive industries.” Schularick continued, Germany must quickly address the shortcomings and missed opportunities of the past decade: “Sometimes odd delays in all things digital, a sharp drop in state capacity and public infrastructure, and a lack of a meaningful strategy to ameliorate housing shortages and increase incomes.” to cope with the impact of an aging workforce.” Yes, these are the above problems that Germany faces, and hoping that the government takes concrete efforts to reverse this trend. But with everything, change and development happens at a snail pace. There’s not going to be immediate relief for the sick man of Europe.
Sources:
- https://www.dw.com/en/germany-economy-weakens-2023/a-66403943
- https://www.base.bund.de/EN/ns/nuclear-phase-ou
