Germany: What Next? (And a fascinating read as a bonus)

I’ve thoroughly enjoyed learning more about Germany as a consequence of writing these articles. Alas, I am all too aware that the learning has been very superficial indeed, but that will hopefully only serve to whet my appetite further. I’ll attempt to summarize my key learnings in a post scheduled for later this week, and in March, we’ll learn more about France.

Onwards then, to the topic of today’s essay: where does Germany go from here?

For many years, Germany’s economic strength has been based on prudent
monetary policy, a highly skilled workforce and a renowned manufacturing
sector that has successfully built up export markets across the world. Germany
has enjoyed political stability and exhibited a contained approach towards
foreign policy, where Germany regularly played by the rules set by others in the
liberal international order.
However, these pillars of Germany’s strength and stability may not be the right
tools to manage the upcoming disruptive changes.

That is from the executive summary of a report titled “Is Germany ready for the future? The case for action in a climate changed world“. The report speaks about how increasing digitilization, rising social inequality (globally), the disruption to the rules based trading order that worked so well for Germany, rising nationalism (again, globally) and low/non-existent aggregate demand will challenge Germany’s current model. The infographic below gives their (the authors) recommendations to deal with these challenges. Also, the word for the day where I am concerned: mittelstand.

Figure 1 from the same report linked to above

“Germany isn’t exactly in a state of disrepair. It doesn’t feel as though it is, even though potholed streets aren’t a rarity, trains often don’t run on time and cellular reception is spotty outside cities. Nor, however, does it feel future-proofed enough, even after a decade and a half of Merkel’s generally successful rule. The WEF touts unshakable financial stability (the country got 100 points out of 100 for it in the competitiveness ranking) as one of Germany’s biggest advantages, but that stability has been achieved, in part, by shifting problems to the local level. “

That is from a short, but excellent, persuasive and full of surprises column in Bloomberg by Leonid Bershidsky. The report that he cites is, alas, in German, but his takeaways make for thought provoking reading. And speaking of surprises, from the same article:

The World Economic Forum ranks Germany as the world’s seventh-most-competitive economy this year, down from third in 2018. According to WEF, its greatest weakness is in information and communication technology adoption, where it’s ranked 36th in the world; only one German out of 100 has a fiber optic broadband subscription, compared with one out of 32 in South Korea.

In an embarrassing episode on Monday, a state TV broadcast about a special government session on improving mobile coverage was broken off because of a bad connection.

I traveled through parts of Germany last month, and while Internet speeds in both Airbnb’s that I stayed in were slower than in France, they were certainly good enough, and with no loss in connectivity. I’ll note that for about four hours in a town called Gottingen, I lost connectivity on my phone.

Does this report on population trends in Germany by the year 2050 hold a cultural clue that might help us think more about the excerpt above? Pure conjecture on my part, of course, but worth thinking about, perhaps.

As a result, there will be a clear shift in the age structure of working-age people.
At present, 50% of working-age people belong to the medium-age group, which includes people of 30 to 49 years, nearly 20% belong to the young age group of 20 to
29 years and 30% to the older age group of 50 to 64 years. In 2020, the medium-age
group will account for as little as 42%, the older one, however, will remain almost
unchanged at about 40%; the situation will be similar in 2050 (medium group: 43%,
older group: nearly 40%). The percentage of the 20 to under 30-year-olds will not
change very strongly. As a result, older people will clearly prevail among working-age population.

I’d never heard of Strategic Perspective 2040 until I started searching for phrases linked to the future of Germany. But the fact that it was written, leaked, and the responses to it – they’re all equally fascinating.

The assumption behind the UK’s repeated promise of security cooperation with Europe after Brexit is that the core democracies – Germany, France, Italy and Spain – will remain committed to Nato, democracy and the rule of law. And that a reformed and revitalised Europe will deliver enough jobs and growth to sap the energy of the nationalist and xenophobic right. But it would also be wise for politicians to begin admitting that these things are no longer certain. If we want order, we have to create it – through engagement, multilateralism, by accommodating what we can of the demands of rising powers and through the promotion of resilient democratic institutions. If we fail to achieve order, we must deal with disorder when the US is no longer a reliable ally, nor even a stable democracy.

And now for the bonus. I have read quite a few articles/PDF’s/essays about Germany, and given last week’s essay, about the Berlin Wall. None was as gripping as this one. It is titled “The Story of Tunnel 29“, and it is an absolute must read.

My thanks to Gandhar Joshi, a student of the BSc programme at Gokhale Institute, for sharing it with me.

Tweets for 28th June, 2019

 

 

 

 

 

Links for 5th February, 2019

  1. “If there is one number that can make the edifice of budgetary arithmetic collapse and impair the growth prospects, it is the movement of crude oil prices. If for nothing else, but simply reduce the vulnerability of the fisc, this should be done. For, it is the “resource deficit” of the country which is the single biggest threat to sustained growth of 9%”
    How might a new age budget look like? Haseeb Drabu takes a look at the ways – five of them. You’ll be reading this by the time the budget has come out, of course, but it still makes sense to read this in order to think about how the budget needs to be structured.
  2. “The 0.9 per cent year-on-year (YoY) growth in the adjusted net profit of 385 companies, which have released their results for the third quarter (Q3) of the current financial year so far, does not inspire much confidence. If financials and energy companies are removed from the sample, net profit has grown 6.4 per cent in Q3 — the worst performance in five quarters.”
    I’d recommend that you read this article to either get a sense of how to judge the macroeconomic environment (partially!) on the basis of stock market performance, or even better, if you are new to finance, read this with an Investopedia tab open alongside.
  3. “Passenger vehicle sales in China fell for the first time last year since the early 1990s due to a cut to government tax breaks and wider economic sluggishness. Hyundai, which was once the third-largest automaker in China together with Kia, is now sorting out overcapacity as its sales in China have not picked up much since being hit by the anti-Korean consumer backlash in 2017.”
    The FT provides additional information on the slowdown in China – and the link on the anti-Korean backlash is also worth reading.
  4. “From the start of 2012 to the end of 2016, China produced nearly three times as much cement as the US did in the entire 20th century.Much of that investment has gone to waste. A recent study by China’s Southwestern University of Finance and Economics estimates that more than one in five Chinese homes in urban areas, or about 65m apartments, are empty. And if demography is destiny, China’s prospects are bleak. Between 1980 and 2012, China added about 380m people to its working-age population. But that number has been shrinking for the past five years and is expected to fall by a third, or about 220m people, in the next three decades.”
    More grist to the China recession mill, from the FT. The numbers are truly breathtaking – especially that quote about cement!
  5. “China’s fertility rate has officially fallen to 1.6 children per woman, but even that number is disputed. Yi Fuxian, a professor at the University of Wisconsin-Madison, has written that China’s government has obscured the actual fertility rate to disguise the disastrous ramifications of the “one child” policy. According to his calculations, the fertility rate averaged 1.18 between 2010 and 2018.”
    The NYT picks up from where the FT left off, and tells us about the impending population crisis in China – that there may soon be too few  people in China, not too many.