February 14, 2025
Top economist says Germany is the ‘sick man of Europe’ – and it’s causing a shift to the right

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According to Hans-Werner Sinn, honorary president of the Ifo Institute, Germany is once again the “sick man of Europe”, and the challenges it faces, particularly in the context of the country’s energy strategy, could benefit the increasingly popular right-wing. parties.

The nickname “the sick man of Europe” has resurfaced in recent weeks as manufacturing output in the region’s biggest economy continues to decline and the country grapples with high energy prices. The label was originally used to describe the German economy in 1998 as it faced the costly challenges of a post-reunification economy.

“This is not a short-term phenomenon,” Sinn told CNBC’s Steve Sedgwick at the Ambrosetti Forum in Italy on Friday.

“It has to do with the automobile industry, which is the heart of German industry and many things depend on it,” he said. Figures from the Federal Statistics Office show that cars were Germany’s main export product last year, accounting for 15.6% of the value of goods sold abroad.

Germany reported its first foreign trade deficit in decades in May 2022, totaling 1 billion euros ($1.03 billion). The country had for some time shifted from a trade surplus to importing more than exporting.

Germany has since returned to a trade surplus, rising to 18.7 billion euros in June 2023, according to the federal statistics office, but exports remain sluggish.

get into the business spirit

Sinn said investor skepticism about the feasibility of Germany’s sustainability goals also led to his describing the country as the “sick man of Europe”.

One of the goals currently in the eyes of the German government is to become carbon neutral by 2045. These plans came into sharp focus as Europe sought to cut itself off from Russian gas supplies after the Kremlin’s full-scale invasion of Ukraine sent prices soaring.

Some described Germany’s ambitions to move away from Russian gas as “overly optimistic”, especially in light of the country’s climate goals.

It rained in the finance district and the European Central Bank (ECB) in Frankfurt, Germany.

Thomas Lohans | Getty Images News | Getty Images

Speaking at the Ambrosetti Forum, Sinn said reliance on renewable technologies such as wind and solar would create a “sustainability problem”, which could cause problems for businesses.

“You have to fill [those gaps] With conventional energy, it is very difficult to have this dual structure that we have to maintain in the future. Green sustainable energy on the one hand and conventional energy to fill the gaps on the other,” he said.

“It’s a double cost. It’s a high energy cost and it’s not good for the industry. It’s a tough road.”

According to a research note released in August by Berenberg, Germany could lose 2% to 3% of its current industrial capacity as companies relocate their operations to countries where gas and electricity are cheaper, such as the US or Saudi Arabia.

Holger Schmieding, chief economist at Berenberg, wrote in the note that uncertainty about energy prices contributed to a “buoyancy” in business sentiment. He added that “current policy uncertainty and frustration over half-baked government plans are not structural factors that seem poised to hold the German economy for long.”

There is clearly a reaction…the population is now moving to the right.

hans-werner sinn

Honorary President at Ifo Institute

But there are growing signs of public disenchantment with the shift to a more sustainable Europe, with so-called “greenlash” emerging as people feel the cost effects.

Sin suggested that the focus on sustainability would result in political ramifications.

“There is clearly a reaction…the population is now moving to the right,” Sinn said, referring to the popularity of the right-wing Alternative for Germany party, which won district council elections for the first time in June.

He said, “I am not moving here to evaluate anything, but…the policies which were exaggerated purely for ideological reasons…the practicality is a bit missing in the current policy.”

Germany’s Federal Ministry for Economic Affairs and Climate Action did not immediately respond to CNBC’s request for comment.

Source: www.cnbc.com

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