Britain risks relegation from the advanced league of global economic powers within a decade if it is not careful, but less obviously so does Germany.
The close siblings have opposite flaws. While the British are gambling wildly on political and economic upheaval – full of dangers, yet also breath-takingly bold – the German people are doubling down on ideological certainties, a 20th Century pre-digital model, and the status quo.
There is a whiff of the Brezhnev era about the long cautious reign of Angela Merkel. Some Germans are vaguely aware that Deutschland Inc is no longer entirely fit for purpose but there is no sense of urgency.
“We’re living in cloud-cuckoo land. We think we are the superstars and that other Europeans should follow our example,” said Marcel Fratzscher, president of the German Institute for Economic Research in Berlin (DIW) and author of The Germany Illusion.
“If you compare us with southern Europe or Italy we look fantastic. Compared to the Nordics we don’t look so good at all,” he said.
It might surprise some Britons – rightly impressed by Germany’s superb manufacturing exporters, but less exposed to the protected, archaic, over-regulated service sector – that Germany has been one of the world’s slowest growing economies over the last twenty years. East Asia, the Anglosphere, and Scandinavia have done better. Much-mocked Japan has done better.
The Bundesbank says Germany’s trend growth rate is heading for 0.75pc by 2021 if productivity continues to stagnate. OECD data shows German labour productivity growth has averaged 1.2pc since 1995 (it was zero last year.) This compares to France (1.2pc), the UK (1.3pc), Australia (1.5pc), the US (1.7pc), and Korea (3.9pc). Has the euro really done any favours for Germany, or has it been a trap?
Die Welt’s Olaf Gersemann warned as far back as 2014 in The Germany Bubble: the Last Hurrah of a Great Economic Nation that his countrymen had mistaken a confluence of particular events for a second Wirtschaftswunder. Germany was briefly able to ride the ‘China wave’, becoming the supplier-in-chief of machine tools and capital goods for the industrialisation of Asia.
That Chinese catch-up phase is over. Worse yet, the Lehrer has outgrown the Meister. “China is increasingly exporting products that coincide with Germany’s top export categories,” says the German Council of Experts. The annihilation of Germany’s solar champions by Chinese upstarts -with stolen technology and export subsidies – shows how fast the tables can turn.
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October 10, 2019 at 08:36AM