As factories falter, France and Germany head for hustings in search of scapegoats

(Originally published Dec. 18 in “What in the World“) Behind Germany’s political turmoil is, of course, a stalled economy.

Germany faces snap elections Feb. 23 after Chancellor Olaf Scholz lost a confidence vote Monday. Reviving economic growth is already emerging as a central campaign issue. (Outgoing) Economy Minister Robert Habeck earlier this week tried to blame the government of former Chancellor Angela Merkel for leaning too heavily on exports for growth and failing to see that globalization was in peril.

Germany’s GDP is expected to shrink this year, as exports sag and heavy industry succumbs to that as well as a combination of domestic factors: high energy costs, red tape, and aging public infrastructure. Germany is the world’s third-largest exporter, after China and the United States. And exports represent 43% of its GDP, according to World Bank statistics, which many say is excessive for a developed economy with a large domestic component like Germany’s. But Germany’s export reliance isn’t as high as other developed economies such as Belgium, Denmark, the Netherlands, Norway, Portugal, South Korea, Sweden, and Switzerland. Ireland leads the pack, with an export-to-GDP ratio of 135.1%.

And Germany isn’t suffering alone. There’s also France. The latest purchasing managers index for the Eurozone—a predictor of industrial activity—suggested the kind of contraction normally seen during a recession. While it’s tempting to blame the downturn on the threat of new U.S. tariffs under incoming President Donald Trump, economists say the real problem is falling competitiveness for European (especially French and German) manufacturing. Weak domestic demand and rising prices, particularly for energy, are forcing energy-intensive and low value-add industries to move out of Europe, resulting in rising layoffs.

The ever-sagacious Financial Times columnist Martin Wolf argues that Europe needs to take the advice of former European Central Bank President Mario Draghi and invest in reviving productivity growth. The question is how, given that public budgets are already stretched and Europe already faces the rising costs of aging populations and paying for a greater share of its own defense. By expanding its membership, Wolf writes, the European Union has raised real incomes across the continent while creating a more egalitarian society than the United States. The rise of right-wing politics, however, threatens to eliminate an important ingredient—immigration—while failing to address the problem of stagnant productivity.

Winter is coming—to Europe. A milder one.

Thanks to climate change, more of Europe’s winter days aren’t seeing temperatures dip below freezing. Less snow and ice to clear from roads and roofs, yes, but also less fresh water come spring. This phenomenon isn’t unique to Europe: climate change is warming winters across the entire Northern Hemisphere. But it’s more intense in Europe, particularly around the Baltic Sea.