If you believe the words of some politicians, a new Germany is emerging. But the newfound openness to change is not solely due to Putin. Public pressure has been mounting for years.
Much of Germany’s progress in recent decades can be traced back to the country’s consistent political line. Even the crises were characterized by continuity – for example, when Angela Merkel refused in 2015 to change the asylum policy in view of the massive influx of Syrian refugees.
“We can do it,” she said. The much-quoted statement conveyed compassion and confidence and offered voters a clear reassurance. Germany is strong and stable enough to cope with this extraordinary development.
Adjustments would be made, but no drastic changes and no serious costs. The crisis brought about by the Russian attack on Ukraine in February this year is of a different kind.
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Olaf Scholz, who took office in December 2021 as Merkel’s successor at the head of a coalition of Social Democrats, Greens and Liberals, quickly understood the change. In a speech just three days after Russian tanks entered Ukraine’s borders, he announced a turning point.
Germany will support Ukraine by any means necessary, he said. Russia would be punished with sanctions and its own army would be increased. Germany will abandon its willingness – partly out of trade commitment, partly out of opportunism – to become overly dependent on Russia for supplies of natural gas.
The strong words opened up a broader debate about the need to break the beaten path – a debate in which almost nothing seems untouchable anymore. The Greens in the coalition under Scholz are apparently ready to bite the bullet when it comes to nuclear power plants and coal power.
The Conservatives are talking about easing the deficit limit, which will slow down public investment; and the titans of industry recognize that the German economy will perish unless it breaks new ground.
If the rhetoric is to be believed, a new Germany is emerging: more pragmatic, less lecturing, less smug and more decisive.
Not only does it appear to be emerging as a more self-reliant and assertive engine for an expanding European project, but also as a hub for new industries and environmental technologies.
At the same time, the country’s willingness to assert itself with the help of its armed forces is growing. If things go right, Germany’s war-related transformation could become one of Vladimir Putin’s most unfortunate events.
But that’s a big “if”. Admittedly, Germany’s newfound openness to change is not solely due to Putin. Public pressure has been mounting for years.
Despite the prosperity, the Germans were aware of the problems of their infrastructure after decades of underinvestment, the over-dependence of their industry on exports to China and the shortage of skilled workers in the companies. Many felt that longer-term challenges such as climate change and securing pensions were being neglected.
The poor election results for Merkel’s Christian Democrats last year showed the nation’s growing impatience. Your successor government is the youngest and most diverse that Germany has ever seen.
The traffic light coalition came out with a strong agenda for domestic reforms. There was talk of a greener, highly digitized “social market economy”. The project quickly fell into the shadow of the turning point. Nevertheless, individual elements of the program will be continued, as will the rehabilitation of the Bundeswehr and the restructuring of the energy supply.
Six months after the Federal Chancellor’s speech, the government’s record of putting words into action is impressive. For example, Germany supplied the Ukrainian government with money and its own weapons.
Germany has provided further funds through the EU and so-called “backfilling”, in which German arms deliveries to NATO allies have enabled them to be passed on to Ukraine. At the same time, the country took in almost a million refugees. About 150,000 Ukrainian children are now registered in German schools.
Nevertheless, there are critical voices on individual aspects of the initiative. Although Germany made financial resources available, other countries were more generous, especially in relation to gross domestic product.
The accusation was raised from the Ukraine that Germany had only been slow to take action. The long list of aid supplies supplied by Germany consists primarily of surplus and used equipment. There is much to indicate that the German army has been severely thinned out by decades of underfunding and is reluctant to part with what little it has.
That being said, Germany could help Ukraine more in the longer term than most other countries if it slowly but surely approaches the task. The pace of military aid has undoubtedly increased.
The arrival of the first German-made mobile rocket launchers this month was the most significant contribution yet from a country that for decades has systematically refused to supply weapons to war zones.
When it comes to isolating non-energy parts of the Russian economy, the record is clear. Despite the sanctions imposed after Putin’s annexation of Crimea in 2014, Germany remained the largest foreign investor in Russia at the start of the year, with around 4,000 German companies.
More than 200 German companies continue to operate in Russia, including Globus (retail) and Fresenius (health care company). However, the vast majority have shut down their operations and withdrawn employees – well beyond what the new EU sanctions demanded for safety concerns, deference to public opinion and moral scrutiny.
This has led to severe cuts in investments, business relationships and sales, which have met with little resistance. Politicians have also increased their commitment.
The Greens have long maintained a strong pacifist stance, but this did not come to the fore when 41-year-old Secretary of State Annalena Baerbock – one of the two leading Greens in the government – told New School students in New York that Russia’s “brutal war” is an attack on “freedom, democracy and human rights”.
Scholz’s party has also long been associated with a rather lenient attitude toward Russia. Your former chancellor, Gerhard Schröder, who was in office around the turn of the century, became a lobbyist for Russian interests after he left office.
Nevertheless, Lars Klingbeil, the party’s 44-year-old co-chairman, bluntly calls military force a legitimate means of securing peace. “It’s not talking about war that leads to war,” he said in a recent speech. “It’s closing your eyes to reality.”
The same applies to the lack of willingness to deal seriously with the issue of defence. In his speech, Scholz encouraged the NATO allies above all by promising to increase military spending to 2 percent of gross domestic product – a goal that the alliance had agreed to more than ten years ago, but which Germany fell blatantly short of. As recently as the mid-2010s, German military spending accounted for just over 1 percent of GDP.
A special fund of 100 billion euros is now to be used to increase spending on the armed forces from the 51 billion euros planned in the 2021 budget to around 80 billion euros a year. A first substantial sum is to benefit the ailing Air Force, which will receive 35 F-35 fighter jets from the US as part of an $8.4 billion deal.
However, increasing investment alone is not enough. “It is necessary to spend a lot of money on the Bundeswehr,” emphasizes former chief of staff at the Defense Ministry Nico Lange, “but what really needs to change is their administrative culture.”
He thinks the army is too deskbound. “We are thinking about how to teach the Ukrainians how to use our ‘advanced’ weapons, when we should learn from them how to improvise and take the initiative on the battlefield.”
Irrespective of the increasing military ambitions, the change in energy policy poses greater challenges for the domestic economy. Merkel’s governments had not only increased the Russian share of gas imports to 55 percent.
They also approved the sale of refineries, gas storage facilities and other vital infrastructure to Russian companies. It did not build liquefied natural gas terminals from more distant suppliers and banned so-called fracking – a technology that would have allowed Germany to develop its own gas reserves.
Free-market reforms to encourage renewable energy dampened the exponential boom of the early 2010s and resulted in smoother, less drastic growth. The nuclear phase-out was a thoughtless reaction to the Fukushima disaster.
Measured against the intended purpose of bringing about change in Russia through mutually beneficial trade relations, this was a complete failure. It also put Germany in the embarrassing, if not tragic, role of financier of Putin’s aggression.
According to the Helsinki-based Research Center for Energy and Clean Air, fossil fuel payments made by Germany have flowed around 18 billion euros into Putin’s coffers since his tanks advanced on February 24 into new Ukrainian territories.
The government’s arduous goal of weaning the country off Russian energy by the summer of 2024 has raised media fears of popular uprisings and catastrophic deindustrialization. But so far the throttling has been faster than expected and less noticeable than expected.
While Putin cut gas supplies, Germany managed to get supplies from alternative sources, often by outbidding other countries. According to the government, the volume of gas purchased from Russia is now only 26 percent of total capacity.
Before the war, gas supplies were very low, but now they have increased to the normal August level. The first of five new liquid gas terminals is scheduled to go into operation at the beginning of next year.
A decline in demand is becoming apparent. Large companies such as Mercedes-Benz and the chemical giant BASF are now saying that they can get by with far less gas than originally thought; the car manufacturer states that it has already reduced its gas consumption by 10 percent and can reduce this to 50 percent by the end of the year – but it does not give any precise information on this.
The government plans to introduce an auction model that will allow companies to bid reduced gas usage at a set price, allowing the government to identify the most efficient options.
To encourage thrift among private consumers, who typically have long-term gas contracts with fixed tariffs, the government will impose a gas surcharge from October, while pledged further support to financially strapped consumers.
Both industrial and residential gas consumption will also be cut by Germany’s European neighbors (they have pledged a 15 percent reduction).
Thanks to additional gas supplies to Europe from sources like Qatar, Algeria and America, and a temporary switch to coal for power generation, Germany should weather the winter without rationing and with minimal reliance on Russian gas — about 20 percent of Nord Stream 1’s full capacity. However, if the winter turns out to be particularly cold or if there are no gas supplies from Russia at all, further measures will be necessary.
The energy crisis has put Robert Habeck in the spotlight, who, as vice chancellor and economics minister, is the Green Party’s top man in the government. The ambitious plans of the Greens to expand renewable energies in Germany received strong momentum as a result of the war.
Habeck is using the crisis to overcome political resistance to these plans in the CDU-governed federal states. In July, the Federal Council approved a package of measures to accelerate the planning, approval and construction of the green electricity projects it had submitted.
What helps Habeck is his willingness to be pragmatic, for example when it comes to temporarily restarting closed coal-fired power plants. So far, he has stuck to his long-standing plans to shut down the last three nuclear power plants in December, which would cut power supplies by 6 percent.
Given his own popularity, the fact that his European allies support the measure, and polls showing that around 80 percent of Germans, including the majority of the Greens, want the power plants to keep running for at least a few months, it seems giving in on this question is only logical.
Germany appears to be well on the way to becoming less strategically vulnerable through expanded energy procurement options. In the long term, the country could increase its independence by expanding renewable energies and switching from natural gas to hydrogen via electrolysis.
But the high price of gas and CO2 emissions (which does not make coal a cheap alternative), in addition to significant short-term costs, are also causing widespread fears that the industry, which has so far been dependent on cheap Russian gas, could find itself in real trouble.
However, this does not have to be the case in all areas. Monika Schnitzer from the University of Munich points out that the relative costs are more important than the absolute costs. “Should other countries face similarly high gas prices, which will be the case in global gas markets over time, production in Germany could continue, particularly for products that require both gas and technology.”
However, an economy dependent on manufacturing and with a large chemical industry cannot remain indifferent to rising energy prices.
The manufacturing industry in Germany is no longer growing in absolute terms. However, prior to the pandemic in 2019, it accounted for nearly 20 percent of GDP, compared to 11 percent in America and 9 percent in the UK.
Although economists expect the trend towards the service sector to continue, the industrial character of the economy is likely to remain. Jens Südekum from the University of Düsseldorf states: “Germany’s service sector does not offer a new Facebook, but will be closely linked to the manufacturing industry, like the Internet of Things.
However, the transformation of an industrial economy requires digital skills – an area in which Germany is lagging behind. In 2013, Merkel described the internet as “uncharted territory”. Although the availability of broadband and high-speed mobile phone connections has improved in the meantime, the digitization of companies and public administrations still leaves a lot to be desired.
A key challenge in this, as in many other areas, is the lack of specialist staff. The number of employable people in Germany will shrink faster in the current decade than in any other major economy with the exception of South Korea. Even the intended increase in the flow of immigrants – also an expression of Germany’s newfound pragmatism – will probably only be able to fill this gap with difficulty.
Industry also has to deal with the lack of sales markets for its products. Russia is no longer available. As early as 2019, the Federation of German Industries (BDI) warned of excessive dependence on China. At the same time, the nature of global demand is changing as part of the energy transition.
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Take the automotive industry. The agreement to set up a Tesla factory near Berlin was considered a great success. It will — contrary to the company’s penchant for vertical integration — boost the fortunes of some vendors.
For the domestic network of highly qualified engineering offices that deal with the intricacies of the internal combustion engine, however, it should not be very pleasant. The country’s own car manufacturers are also developing more and more in a Tesla-like direction, which makes them more dependent on cheap batteries from Asia than on injectors that Germany can masterfully manufacture.
It is quite possible that the hopes for growing technology clusters around the Tesla factory and in “Silicon Junction” near Magdeburg, where the American chip manufacturer Intel is investing 17 billion euros in a semiconductor factory, will come true. Further investments from abroad could also follow.
However, the economic benefit is not only granted to the manufacturers based in Germany. There is a risk of radical upheavals, which the country has largely tried to avoid. Nevertheless, the European efforts to relocate existing supply chains away from China can accommodate some German manufacturers.
The Germans may well forgive their politicians for the abuses caused by the war. Recent polls have shown that the majority of respondents remain in favor of sanctions against Russia and arms sales to Ukraine.
Among the coalition partners, however, only the Greens are seeing growing support. The popularity of Scholz and his party has steadily declined since February, and supporters of the third coalition party, the Free Democrats, are increasingly defecting to the Christian Democrats.
Awareness of national targeting is already suffering from discussions about federal and state roles in gas savings and site selection for wind turbines or transmission lines. Constanze Stelzenmüller from the think tank Brookings Institution is confident that Germany will not fall back into old habits.
In her view, the turning point is real – and the government is working flat out to enforce it. Nevertheless, she urges caution. “It’s real because of Putin and the fact that he won’t let up,” she says. “If it had been a week-long war, maybe things would have been different.” For Germany to commit to long-term change, its challenges may need to persist for just as long.
The article first appeared in The Economist under the title “Germany is facing dramatic change in many dimensions all at once” and was translated by Cornelia Zink.
The article “A new Germany is emerging – for Putin it can end unfortunate” comes from The Economist.
