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German Chancellor Olaf Scholz recently presented a new “Germany-Pact” to advance the country, following media reporting that has portrayed Germany as the “sick man of Europe” due to its waning economy. However, as Johannes Lindner and Nils Redeker observe, Europe does not play a big role in this pact. In this op-ed, originally published in Handelsblatt, they explain why Germany should refocus on the EU single market and develop an overall strategy for modernising the country and Europe.
Germany is once again seen as the sick man of Europe. The news that Germany will be the only major industrialized nation in the world to slip into recession this year has roiled the economic policy debate from Berlin to Munich. Since then, the country has been debating reform agendas, Growth Opportunity laws, industrial electricity prices and a new Germany Pact.
Curiously, Europe plays no role in this discussion. Newspaper commentary columns and virtual debates are filled with 10-point plans, but without mention of Europe. According to its own statement, the German government has plans for renewal of many sectors. But it is looking primarily at national solutions. Recently, the German Minister Presidents met in Brussels in a European gesture. In the end, however, the main purpose of the excursion was to ask the EU Commission President more leeway for national energy subsidies.
A new economic model - taking advantage of the European single market
This may come as little surprise. Sick men tend to feel sorry for themselves, and abdominal pain tempts navel-gazing . Besides, there is enough to do in this country: Digitization of administration, investment backlog, education problems, shortage of skilled workers - the list of national problems is long. Nevertheless, Germany cannot rely on solving this structural crisis on its own. Individual reforms will not be enough. From energy and industrial policy to export orientation and the reduction of bureaucracy, Germany must fundamentally reorganize itself. The country needs nothing less than a new growth model. For this, Germany is more dependent than ever on Europe.
For example, Germany can only procure cheap green energy in cooperation with Europe. No national package of measures will prevent Germany from having to import a growing share of its electricity in the future. Green electricity can be produced more cheaply in the sunnier parts of Europe. In addition, Germany needs energy imports to compensate for fluctuations in the availability of renewables in the national grid. To do this, green energy needs to flow from the solar panels in Zaragoza to the steel furnaces in Salzgitter. So far, the EU lacks the physical capacity for this, the necessary digitization and the right electricity market design. According to the EU Commission, around 585 billion euros will have to be invested by 2030 to change that. In the end, there is no German transition without European transmission.
Germany also needs Europe for its industrial policy plans. In the German debate, the EU is seen above all as an obstacle to state aid. Yet a Europeanization of industrial policy would be in Germany‘s interest. For example, the German government has recently been celebrating that it successfully lured Intel into opening a new semiconductor factory in Magdeburg using vast sums of subsidies. However, it has gone largely unnoticed that this planned computer chip factory in Saxony-Anhalt will work closely with a new Intel plant in Wroclaw, where German semiconductors will be tested and processed into finished processors. A lot of Polish taxpayer money has gone into this. Intel is also planning further investments in France, Spain as well as Italy. The success of this German showcase project will thus depend largely on what happens in other member states. There is a more fundamental lesson here: To become the world market leader in the technologies of the future, Germany needs a division of labour and scaling across the entire EU. This then also requires more industrial policy coordination and funding at the European level.