Taps Coogan – October 6th, 2023

In a recent interview with CNBC the IFO’s President Emeritus Werner-Sinn explained why Germany has become an economic laggard within the EU:

Some excerpts from Werner-Sinn:

“The European economy is doing better than the Germany economy. Germany is the sick man of Europe in the moment. There has been a decline in manufacturing output trend-wise since 2018. It’s not a short term phenomenon and that has to do with the automobile industry which is at the heart of German industry and many things hinge on that… and then comes the war. Putin shut off the gas and Germany shut off deliberately it’s nuclear power plants and one wonders where the energy should come from that industry needs and an economy that is based on that. Investors have doubts…”

“From some source the energy has to come and if we just rely on wind and solar energy, which is nice green energy which has no climate effects, we will have a volatility problem. Sometimes there is no wind and no sun. There are dark lulls. What are you doing then? You need to fill them with conventional energy. It’s very difficult to have this double structure which we will have to sustain in the future: on the one hand the green volatile energy and on the other hand the conventional energy to fill the gaps. This is double cost, high energy costs, and in the end this is not good industry…”

“It’s all good to have this green new world but the government should not dictate it but rather use pricing systems to allow individuals to choose between alternatives and that is not the case. This dictatorship with rigid commands is something which annoys the people.”

“Sometimes there is no wind and no sun…” Indeed, every night there is no sun and guess when people are most likely to be charging their electric vehicles?

That any of this needs to be said is the most remarkable thing about the interview above. Every part of what has happened to Germany’s economy has been visible for decades: an overreliance on (quite expensive) Russian gas, an industrial overreliance on a collection of auto brands with a deteriorating quality reputation, an overreliance on the internal combustion auto industry, de-nuclearization, and the bizarre notion that intermittent power sources that require duplicative generation infrastructure would somehow lower prices. 

On top of all of that, Germany’s working age population peaked back in 2005, its regulatory regime has become one of the most business hostile among major economies, and it’s taxes are relatively high.