German industrial row spells economic trouble

Thousands of unionised workers in the four-million strong workforce of electrical engineering and metal industries went on strike on Tuesday demanding higher wages. The strike is affecting car-makers like Porsche, BMW and Mercedes.

Another major development has been the plan of Volkswagen to shut three of its units. The striking workers also entered the Volkswagen units and the workers walked out. The industrial strike is not unusual and it recurs especially at the time of wage negotiations. The workers are demanding a legitimate wage rise but the industry-owners feel that they are not in a position to oblige.

The strike turns into a case of serious industrial unrest because for the first time in decades Germany’s economy, the largest in Europe, is not growing. Taxation at home and fierce foreign competition are pushing the industry-owners into a corner. The workers are plagued by the anxiety of jobs in the future, even as the economy contracts in 2024 and there in no prospect of growth in 2025.

Martin Wansleben, managing director of the German Chamber of Commerce and Industry (DIHK), made the gloomy pronouncement about the German economy: “We are greatly concerned about how much Germany is becoming an economic burden for Europe and can no longer fulfil its role as an economic workhorse.”

For decades, Germany has remained the stable centre of Europe’s fluctuating economy, especially through the Great Financial Crisis of 2007-08 even as the rest of Europe has failed to recover the growth momentum since then. It looks like that Germany has reached a dead-end, and it is not bad news not just for Germany but for the whole of Europe.

In a precursor of sorts for the shutting down of three units of automaker Volkswagen, a survey shows that by 2035, the German auto industry would lose 186,000 jobs, and a quarter of the job losses have already occurred. The economic survey of the auto industry also shows that the German carmakers are losing their international competitiveness.

German companies pay three times more for electricity compared to their counterparts in the United States and in China, and at home they face higher taxes and bureaucratic burden. Many of the European states do not enjoy the free market privileges that industrialists in the United States enjoy. The state plays a dominant role in the economy. And state intervention to stave off economic trouble is the only remedy.

German Finance Minister Christian Lindner finds himself bound by the constitutional mandate of a debt brake through which the state’s debt cannot be increased. On the other hand, Lindner is at loggerheads with Economy Minister Robert Habeck who supports the idea of a multi-billion euro fund to stimulate growth. The International Monetary Fund (IMF) is also arguing the case for economic policy reforms in Germany, which includes increase in state debt to push economic growth. 

The economic situation in the strongest economy in Europe is facing a grim future, and the left-centre coalition government of Chancellor Olaf Scholz is facing a daunting task even as politically the coalition is fraying at the edges. And the rise of the far-right Alternative for Germany (AfD) is causing much concern in the political circles.

Historically, it is the economic woes of the Great Depression in the early 1930s that gave rise to the Nazis and its leader Adolf Hitler. Germany’s political leaders do not want the country to go down that path of catastrophe again. What Scholz and other middle-of-the-road politicians have to find is solutions to the economic problems of the country. The slow growth in the German economy will have a direct impact on the rest of the European economy. Germany has to save itself and save Europe as well.