The German economy is in crisis. Plants and factories are shuttering. Industrial production is down. And overall GDP hasn’t risen since 2019. According to Andreas Rüter, a corporate consultant interviewed by the Financial Times, the present crisis is of a “completely different order of magnitude” from the dotcom bust, September 11, the financial crisis, the euro crisis and the Covid pandemic.
In the latest piece of bad news, the car manufacturing giant Volkswagen announced that it may have to shut down several German factories for the first time in its 87-year history.
Everyone agrees that a major cause of Germany’s economic troubles is high energy costs. Indeed, the price that industry pays for electricity is about three times higher in Germany than in the US. But why have energy costs risen?
Many people on social media blame the Energiewende (Energy Transition), a policy that involves expanding solar, wind and hydroelectric power, while phasing out the country’s remaining nuclear plants.
There can be little doubt that energy costs would be lower in the absence of the Energy Transition. However, it can’t explain why the economy is suddenly in so much trouble. The Energy Transition was formally announced in 2010 and has been implemented in various stages since then. Yet as the chart above shows, Germany enjoyed robust growth between 2010 and 2019. In fact, industrial production reached an all-time high as recently as 2018.
A related claim is that energy costs have soared because of the decision to close three nuclear plants in April of 2023. But this doesn’t fit the facts either. The chart below shows the price of electricity for non-household users in band IC from the first half of 2010 to the first half of 2024. As you can see, practically all of the increase happened before the three nuclear plants were closed. (Charts for other consumption bands tell a similar story.)
Indeed, most countries in Europe saw a sharp rise in energy costs at exactly the same time, including France, which relies heavily on nuclear power.
The chart below plots the same quantity as above but with taxes and levies included. Here the increase is much less steep, which suggests that fiscal policy has actually been making energy cheaper over the last few years, relative to the period before the increase.
The main reason energy costs have soared is that Germany is no longer buying large quantities of cheap Russian gas. Indeed, practically all of the increase happened between the first half of 2022 and the first half of 2023 – the exact period in which the price of gas spiked owing to the drastic reduction in Russian gas flows. (Europe still gets about 20% of its gas imports from Russia, as compared to 45% before the war.)
In the medium-term, there are things Germany can do to bring down energy costs, like building more LNG terminals, reversing its phase out of nuclear power and shifting to less energy-intensive industries. But in the short-term, there’s nothing it can do to replace large quantities of cheap Russian gas. So the country’s economic troubles will continue for the foreseeable future.
An earlier version of this article stated that Europe gets about 20% of its gas from Russia. This has been corrected.
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I seem to remember the Germans were initially very enthusiastic about not buying Russian gas.
They said stuff like “Rather a cold shower than Russian gas!”.
But eventually reality catches up with you.
It always does.
Remember how the German contingent giggled when trump told them that they relied too much on Russian gas?
Your arrogance has come home to roost
Swivel on that finger Germany!
Remember how it was actually German money that financed the Bolshevik revolution and that from the late 1930s until 1941 Germany and Russia had a defence pact?
I suppose this is a case of schadenfreude really, although it isn’t just Germany that has been affected by an inability to understand energy security.
Question for historians (I am definitely not one!): is the 2024 budget the start of the biggest revolution in land ownership since the Bolshevik Revolution, or, more locally, since the Inclosure Acts? Will the changes be analogous to the Industrial Revolution, but with land replacing labour? That is, whereas the Inclosure Acts made agriculture efficient and moving employment from the land into the factories, will the forthcoming Farm Inheritance Bills seek to resources from the farms into the “Renewable Revolution”? If so, it will become unstuck, spectacularly, because the Industrial Revolution based on real technological progress, whereas the Renewable Revolution is based on belief in unicorns, authoritarianism, delusionalism and fiat currency.
It looks like it’s intended to be a 21st century version of the Highland Clearances to me.
Subsistence farming family in the Scottish Highlands were cleared off the land to make way for a more valuable commodity … sheep.
Keir-Ching! and Theeves (actually the WEF) want them off the land to make way for solar panels, windmills and housing for migrants.
100%
Yes, I do remember!
Sniggering, contemptuous faces.
A very shallow poor article that doesn’t offer any incite into Germany’s cratering economy as high electricity costs are the final straw for most companies on top of over regulation, educated people leaving for a better standard of living, the decline in people’s wealth driving a decline in spending on goods which supplies a lot of tax income in Germany and the decline in tax income means they are running out of money to subsidise electricity for industry. They have allowed unfettered expansion of rooftop solar that causes an oversupply at times of low demand and this has to be paid for so is haemorrhaging yet more tax money and bringing their grid to the edge of collapse. Hard not to laugh but under the current shower of shite led by Never Here Kier we are going the same way.
Nicely articulated. Trying to explain a complex economic situation by assigning cause to just one variable among many – natural gas – is absurd.
Germany is just in a more advanced state of ruin than the other EU basket cases, and of course our current Socialist nitwit rulers are mirroring them, because UK never properly cast itself off from the EU.
And there is also the sunk-cost fallacy, as well as not admitting being wrong they was well articulated in an article yesterday.
A good summary, but why has THAT happened?
A common factor is the arrogant belief of Arts and Humanities graduates that Intelligence is a substitute for Experience and that they can skill up by having conversations with the suitably ‘STEM Experienced’ Sales Force of the Green Industries.
Look at the ministers in the Dept of Energy, and note their undergraduate degrees. And it’s true of their Government Advisors, and our Media! I can remember when Generalists ruled, and Specialists, were considered minions.
Here’s Starmer knowing he’s doing the right thing, because the BBC says so:
https://www.telegraph.co.uk/news/2024/11/19/farmers-protest-starmer-bbc-iht-tax-inheritance-clarkson
It looks like a plan to level down west Germany to the much lower living standard of east Germany. And the lower living standard of east Germany to the living standard of Romania.
You omitted to mention nthe possibility of fraking. There are many areas of Europe where large reservs are believed to exist and just await exploration.
BTW why “shuttering”. What is wrong woth “closing”?
To me, “shuttering” carries a suggestion that the establishment might re-open later after a temporary suspension, whereas “closing” suggests irreversible cessation, and “demolition” even more so.
Meaning perhaps that owners/companies are thinking they may be able to reopen once the insanity of Nut Zero comes crashing down…?
We live in hope…
I seem to remember Coal Power Stations blown up, with the usual virtue signalling for good measure.
Ah yes, remember Alok Kumar Sharma? Conservative M.P. for Reading West. BSc in Applied Physics and Mathematics from Salford U. How on Earth then, President of COP26? Awarded KCMG for Services to tackling climate change, New Year 2023. Life peerage, Baron Sharma in August 2024.
Is there any woe that cannot be attributed to Russia, somehow?
”… has actually been making energy cheaper…”
Compared to what? Cheaper than it was before Green Fairy Merkel waved her Energy Wand?
The reason the German economy is in trouble is because it is a net exporter, but high energy costs (no longer subsidised) – nothing to do with gas from where-ever – as well as strangling EU regulations have made it uncompetitive on the global market with the rise of the unfettered BRICS.
Germany follows the Mussolini economic model – a triumvirate of Government, Unions, Big Business working in unison for mutual benefit but as directed by the State to serve the interests of the State. It’s only a matter of time before the wheels come off.
Government direction of economic activity with the aim to “Green” it and make things few want or can afford. This prevents the corrective market process, mis-allocates resources, prevents innovation and efficiency – and delivers economic ruin.
It is actually the end-run of the EU regulated, protectionist, centre planned and controlled, economic model.
Benito, call your Office.
The Skripal poisonings was a UK security services false flag to blame it on Russia and to stop Germany agreeing to the Nord Stream 2 pipeline.
The US and its vassals finally blew it up.
The US now exports more LNG to Europe than Asia.
Just follow the money.
European countries would rather sink their economies than admit that Russia was provoked and were totally justified in the actions they have taken again Ukraine.
At 4 times the price of Russian gas…
Meanwhile Ukrainian boys are fighting and dying to fill the pockets of the MIC.
God bless the neocons.
“The main reason energy costs have soared is that Germany is no longer buying large quantities of cheap Russian gas.”
No.
The main reason energy costs have soared is that Germany does not prioritise the production of cheap reliable energy. They shut all their nuclear reactors and at the same time they still have large coal fields they can exploit while fracking is also an option for them to use.
Those directing operations are clueless and double down, when any Engineer would be looking at the Plan (what plan?) and discussing what to do next.
Not a good time to be Germany or Japan. They have had an air of artificiality about them since the war but who cared when they were propped up by the Anglo-Americans. The Brits can be a bit fickle in case you didn’t notice. It was decided that the destruction of Germany would make more sense because as any analyst knows the main objective is preventing an alliance of the industrial discipline of Germany with the natural resources of Russia. I think it is woefully misguided and I know I will be proved right about that but the Anglo-Americans of today are not the Anglo-Americans of 1962. These people will bring us to destruction.
The western bankers say ‘inflate or die’. This is the point where they have to exert complete inflationary pressure and of course global war, especially nuclear war will greatly increase inflation. You might think that they aren’t crazy enough but you would be wrong. According to the demands of their system they have no choice. It has to end this way.
Poor old Germany. See what happens when your leaders become WEF puppets?you get screwed. Good luck.