Berlin’s shift away from Russia has undermined its economic foundations.
Germany’s past prosperity stemmed from affordable Russian energy, robust free trade with Western allies, and minimal military spending due to US security guarantees. This enabled a strong industrial economy, a generous welfare system, and global market dominance.
However, the severing of ties with Russia following the Ukraine crisis jeopardizes this model. Germany’s alignment with NATO’s anti-Moscow strategy has precipitated an economic crisis. The repercussions are already evident, with worse to come.
The energy crisis: A critical blow to Germany
Germany’s energy-intensive industries (chemicals, autos, manufacturing) relied on cheap Russian natural gas. This relationship, facilitated by pipelines like Nord Stream, is now severed. The ensuing energy price surge and manufacturing crisis are crippling German industry. Without affordable energy, these sectors lose global competitiveness.
Germany’s rapid green energy transition has worsened the situation. Renewable energy sources cannot yet replace reliable baseload energy previously supplied by Russia. The phase-out of nuclear power further weakens energy security, creating an unsustainable economic burden.
A changing world of trade
Germany’s export-oriented economy thrived under free trade. However, rising protectionism, US-China decoupling, and trade tensions threaten this model. The country’s reliance on China, its largest trading partner, poses a risk amidst growing geopolitical friction.
Even the German-US trade relationship is strained. Concerns about European defense spending and potential trade barriers threaten Germany’s access to US markets.
The cost of military buildup
Germany’s low military spending during the Cold War, enabled by US security guarantees, allowed for economic development. This post-war strategy prioritized economic growth over defense, keeping spending below 2% of GDP.
The Ukraine war necessitates increased defense spending, putting pressure on Germany’s finances. The €100 billion defense fund diverts resources from infrastructure and industrial investment.
The end of German exceptionalism?
Germany’s actions against Russia have turned cheap energy into a critical vulnerability. Its dependence on global free trade is unsustainable in a protectionist world, and increased military spending threatens its economic stability.
Chancellor Scholz’s government’s policies – a rapid green agenda, strained China relations, and close alignment with US interests – are accelerating decline, leading to economic stagnation and lower living standards. These decisions, while earning favor internationally, harm the German population.
Germany’s error wasn’t opposing Russia, but forgetting the foundations of its success. A significant economic downturn is likely unless Germany fundamentally alters its course.
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