The spectre of deindustrialisation has long haunted Germany. Russia’s full-scale invasion of Ukraine in 2022 caused energy prices to spiral. The economy of Germany’s biggest trading partner, China, has slowed. And as competitors, Chinese carmakers are proving more than a handful for Europe’s biggest, Volkswagen (VW). Now the apparition looks worryingly solid. “The signs of deindustrialisation are becoming clearer,” warned Martin Wansleben, head of the German chamber of trade and industry (DIHK), on October 29th.
The most alarming sign so far came the previous day, when Daniela Cavallo, the main official representing VW’s workers, said that the company would close at least three factories in Germany, cut tens of thousands of jobs (30,000, rumours say) and slash pay by 10% (18% for some). VW’s bosses, who have been talking to labour representatives for weeks, have not yet confirmed this. But if the factory closures do go ahead, they will be the 87-year-old carmaker’s first in its home country. On October 30th VW reported a slump in net profit of 64%, year on year, in the third quarter, attributable mainly to weak sales of its cars in China.
This follows months of similarly spine-chilling news. In February Miele, a maker of household appliances, said it would move some production to Poland, which will affect 700 jobs in Gütersloh in North Rhine-Westphalia, the headquarters of the 125-year-old family business. Continental, an automotive supplier, is cutting 7,000 jobs and closing sites. Michelin, a French tyremaker, is slashing 1,500 jobs in Germany and closing factories. And in July ZF Friedrichshafen, another German auto supplier, said that by 2028 it would shed 14,000 jobs.
A new survey by Mr Wansleben’s DIHK is full of frightening figures. It finds that one-third of all companies and two-fifths of industrial firms surveyed are planning to reduce investment in Germany. A mere 19% of industrial firms rate their current situation as “good”, while 35% call it “bad”. Such pessimism reminds Mr Wansleben of the severe crisis in 2002-03. The government of the day responded with Agenda 2010, a package of successful liberalising reforms.
Earlier this year Moritz Schularick, head of the Kiel Institute for the World Economy, a research body, predicted that only a crisis at a big carmaker would be enough to convince today’s governing coalition that Germany cannot continue with its old manufacturing-based economic model. “Perhaps VW’s problems are at last the call that we have waited for,” says Mr Schularick now.
Perhaps, perhaps not. On October 29th Olaf Scholz, the chancellor, held a “summit” to discuss ways of alleviating industry’s troubles with senior business figures, including Oliver Blume, the boss of VW, and the heads of Siemens and BASF, giants of engineering and chemicals, as well as union leaders.
Little is known about what was discussed, besides help with the high price of electricity and a plan to cut red tape by scrapping a law obliging big firms to monitor whether their suppliers around the world meet human-rights and environmental standards. More could be done, for instance to promote decarbonisation and digitisation. Yet the governing coalition of Mr Scholz’s Social Democrats, the Greens and the liberal Free Democrats is so dysfunctional that it is doubtful whether it will, or can, do anything much.
Mr Scholz had convened his summit without telling either Christian Lindner, his liberal finance minister, or Robert Habeck, his Green economy minister. Mr Lindner then held his own summit on the same day; Mr Habeck proclaimed that he was “climbing summits every day” and floated the idea of a debt-financed investment fund to aid business that he had not discussed with the chancellor.
The chancellor’s select group is due to convene again on November 15th, the day after the deadline for agreement on next year’s budget. But negotiations between the governing parties have been so acrimonious that they could break the coalition. Against that backdrop, the chances of anything as effective as Agenda 2010 are remote indeed.
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