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Kaput - O Fim do Milagre Alemão
Até há pouco tempo, a Alemanha parecia ser um modelo de sucesso económico e político.
Angela Merkel era amplamente considerada como a verdadeira "líder do mundo livre" e o modelo económico alemão, impulsionado pelas exportações, parecia garantir prosperidade.
No entanto, eventos recentes – desde a dependência da Alemanha do gás russo até aos atrasos da sua indústria automóvel na transição para a eletrificação – abalaram essa perceção.
Em Kaput, Wolfgang Münchau argumenta que as fragilidades da economia alemã, na verdade, vêm-se acumulando há décadas.
As políticas neo-mercantilistas do estado alemão, impulsionadas pelos laços estreitos entre a elite industrial e política do país, tornaram a Alemanha excessivamente dependente da Rússia e da China, tecnologicamente atrasada e pouco preparada para se adaptar às realidades digitais do século XXI.
Este livro é uma leitura essencial para quem deseja compreender o futuro da maior economia da Europa.
Angela Merkel era amplamente considerada como a verdadeira "líder do mundo livre" e o modelo económico alemão, impulsionado pelas exportações, parecia garantir prosperidade.
No entanto, eventos recentes – desde a dependência da Alemanha do gás russo até aos atrasos da sua indústria automóvel na transição para a eletrificação – abalaram essa perceção.
Em Kaput, Wolfgang Münchau argumenta que as fragilidades da economia alemã, na verdade, vêm-se acumulando há décadas.
As políticas neo-mercantilistas do estado alemão, impulsionadas pelos laços estreitos entre a elite industrial e política do país, tornaram a Alemanha excessivamente dependente da Rússia e da China, tecnologicamente atrasada e pouco preparada para se adaptar às realidades digitais do século XXI.
Este livro é uma leitura essencial para quem deseja compreender o futuro da maior economia da Europa.
252 pages, Paperback
First published February 24, 2006
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December 15, 2024
"Kaput" is a sufficiently detailed and easy-to-follow analysis of what's happened with the German economy in the last ... well, not just a couple of years — at least since 2000. It's short and very to the point. The author doesn't waste time on re-iterating facts or statements. All key "sins" of Germany have been (IMHO) sufficiently covered here:
- mindless reliance on Russian resources
- naive "mutual coupling" with Chinese cheap labor
- terrible decisions when it comes to strategic decisions of German industry & research (all the best were wrong)
- an insane amount of bureaucracy & regulations that are mostly detached from reality
- terrible policies related to immigration that encourage all that's wrong and constrain any potential benefits
- toxic behavior within the EU (aimed primarily for sole German benefit), that not only undermines the Union itself but also corrodes any trust partners had towards Germany
- and a bunch of smaller ones
Such a grim picture of what happened to Germany may seem a bit shocking unless you've been in Germany recently. I've visited both Berlin and Munich and couldn't help the amazement - how could things go so wrong in such a short period of time ... Normally (based on my bias) I'd say that "c'mon, they are Germans, they'll pivot with discipline and fix things in no time - they are the best in that", however apparently all their corrective actions only deepen the problem and make the crises grow.
This book is probably the best resource to help you understand why Germany is becoming "a sick man of Europe". Which is unfortunately very bad news for us all - as the dire times are coming and the weakness of both Germany and France will have a huge impact on all the countries around.
- mindless reliance on Russian resources
- naive "mutual coupling" with Chinese cheap labor
- terrible decisions when it comes to strategic decisions of German industry & research (all the best were wrong)
- an insane amount of bureaucracy & regulations that are mostly detached from reality
- terrible policies related to immigration that encourage all that's wrong and constrain any potential benefits
- toxic behavior within the EU (aimed primarily for sole German benefit), that not only undermines the Union itself but also corrodes any trust partners had towards Germany
- and a bunch of smaller ones
Such a grim picture of what happened to Germany may seem a bit shocking unless you've been in Germany recently. I've visited both Berlin and Munich and couldn't help the amazement - how could things go so wrong in such a short period of time ... Normally (based on my bias) I'd say that "c'mon, they are Germans, they'll pivot with discipline and fix things in no time - they are the best in that", however apparently all their corrective actions only deepen the problem and make the crises grow.
This book is probably the best resource to help you understand why Germany is becoming "a sick man of Europe". Which is unfortunately very bad news for us all - as the dire times are coming and the weakness of both Germany and France will have a huge impact on all the countries around.
December 7, 2024
On Nov. 6, 2024, the German government of Olaf Scholz fell due to internal tensions over how to solve the industrial crisis. It seemed like the perfect publicity stunt for Wolfgang Münchau's new book. The decades-long German correspondent for the Financial Times wrote all his expertise together in a solid account of the decline of the German economy. That that industrial export engine is kaput now has serious political implications. Scholz's government was torn between liberals who wanted to continue the typical German austerity model, while the Social Democrats and Greens wanted to move away from it (slightly). Those who take a look at Münchau's book learn to place this recent crisis in the broader political economy of Germany.
Münchau's characterization of the German political economy can be summed up in one word: neo-mercantilism. By this he means that exporting is the main obsession in German industry, politics and ideology. That common thread brings us to a diverse range of German idiosyncrasies. For example, Münchau devotes a chapter to the role of public Landesbanken in German industry. Governed by local politicians, they have great influence over investment decisions and takeovers. Not surprisingly, those politicians use that influence to anchor sectors with high employment (steel, automotive) and export opportunities.
Furthermore, Germany's export drive also explains its geopolitical pragmatism. Münchau discusses in detail how German politics, Social Democrats at the forefront, made its economy dependent on Russian gas to reduce energy costs. The political ties were very close: ex-chancellor Gerhard Schröder made Putin himself the godfather of his child. Strong ties with China also frame this pragmatism. More than the US, Germany has been able to integrate itself into the new global production chains, with China becoming an important trading partner. In contrast to the U.S., Germany has succeeded in finding an export market in China, rather than merely importing. Münchau therefore concludes that Germany did remain politically loyal to the West, but in its economic expansion in recent decades it integrated mainly with the East.
The root cause for the fall of that German neo-commercial model is that the export products themselves are no longer cutting edge. A key example is the classic auto industry, which hardly produces electric cars. In general, Münchau distinguishes between mechanical and digital industries. In the former the Germans are lords and masters, of the latter they can do nothing. As a result, the Germans have lost the Schumpeterian battle of creative destruction. German industry and politics were so obsessed with boosting exports that all the help went to the export winners. There was no room for diversification from which new businesses could grow. Instead, politicians continued to roll out the red carpet for Volkswagen for decades. That that very manufacturer now decided to close plants in the country seems to add strength to the main argument. You can try to cut costs all you want, if you've bet on the wrong horse, you've lost beforehand, Münchau says.
Breaking neo-mercantilism is relatively simple for Münchau. First, the ties between auto industry and politics must be cut. Next, Germans must get rid of their obsession with exporting and saving. Once healed, they can diversify and let thousands of flowers bloom. Münchau himself cites David Ricardo, as if an entire generation of German economists had never heard of the thinker. For Münchau, then, this neo-mercantilism is primarily a fallacy, something that, given the necessary retraining, can easily change.
That is precisely where his analysis falls short. Münchau lacks a structural analysis of Germany's political economy in the context of capitalist globalization. It was West Germany that was able to emerge as one of the most important manufacturing countries in the U.S. global market. Exports were central to the social pact between unions, employers and state. The Bundesbank held the reins firmly and unions remained cowed in exchange for job security. Yet maintaining its export position was difficult in a globalizing economy, especially when new manufacturing centers in Asia offered themselves. After all, Germany did not have the privileges of the United States, whose new export became the dollar. Competition became fierce, and to survive, costs had to be cut. Exports had to be made. To dismiss the German model as a fallacy, then, is to grossly underestimate the structural constraints to which the country is subject.
Not surprisingly, the German model is in crisis at this very moment. In recent decades, the global market has tilted, in Marx's words, from “a workable brotherhood [...] into a hostile struggle between brothers.” Chinese producers have become the industrial frontrunners and the global market has been impoverished by trade barriers. Trump 2.0 only promises to throw oil on the fire here. Economic competition between the U.S. and China has turned into geopolitical tensions. In this context, the German neo-mercantile model is failing, torn between Western political loyalty and Eastern economic integration.
Not only the global context must be considered here, but also how German politics was digging its own grave. When the “autumn” of globalization announced itself in 2008, the Schwäbische Hausfrau implemented a draconian savings policy in Europe. Although her goal was to safeguard Europe's global competitive position, in the burgeoning geopolitical globalization, she ultimately undermined her own position. European states no longer have the fiscal clout to steer their economies through politically murky waters. As tensions spill over into militarization, European politicians are making a last-ditch effort to put on an economy mode so that hopefully an additional F-16 can be ordered. None of this gives a hopeful outlook for German Europe. It is an open question whether Germany has any chance of changing course, as Münchau suggests.
In a positive reading, the fall of Germany's export engine creates an ideological crisis of the austerity consensus. West Germany was the founder of monetarism and austerity logic. It was the first to be able to tame the crisis of the 1970s by enforcing wage moderation and discipline. Since the beginning of European monetary integration, the Deutsche Mark was at the forefront as the undisputed regional trigger. The accompanying fiscal straitjackets also came from the German ordo-liberal machine. If that consensus now dies down in German national politics, there is more room for strategic shift on the European stage as well.
This may also have major implications for our national politics. The German export engine was the model for generations of Flemish nationalists, with the N-VA in the lead. When it rains in Berlin, it drips in Antwerp. Wage moderation, strict budget line, ironclad competitiveness and monetary meagerness were sweet dreams for the new Flemish bourgeoisie stuck in the Belgian construction. The West Germans had incorporated East Germany and conquered communism, but the Flemish nationalists could not master the integrated social democracy of the PS. Our ordo-liberal elite continued to yearn for a power it never had. A crash of that German model is therefore also a crash of the Flemish aspiration.
A crash of the German model also resulted, not surprisingly, in a deep political crisis in recent months. The decline of the political consensus opens possibilities for an anti-saving coalition, but it does not mean that a progressive alternative will automatically prevail. Other tendencies can grow out of the crisis, as we see in Germany with Sahra Wagenknecht or the AfD. It is therefore necessary to follow German politics closely. In this way we can also combat the Flemish variants of a failing neo-mercantilism.
Münchau's characterization of the German political economy can be summed up in one word: neo-mercantilism. By this he means that exporting is the main obsession in German industry, politics and ideology. That common thread brings us to a diverse range of German idiosyncrasies. For example, Münchau devotes a chapter to the role of public Landesbanken in German industry. Governed by local politicians, they have great influence over investment decisions and takeovers. Not surprisingly, those politicians use that influence to anchor sectors with high employment (steel, automotive) and export opportunities.
Furthermore, Germany's export drive also explains its geopolitical pragmatism. Münchau discusses in detail how German politics, Social Democrats at the forefront, made its economy dependent on Russian gas to reduce energy costs. The political ties were very close: ex-chancellor Gerhard Schröder made Putin himself the godfather of his child. Strong ties with China also frame this pragmatism. More than the US, Germany has been able to integrate itself into the new global production chains, with China becoming an important trading partner. In contrast to the U.S., Germany has succeeded in finding an export market in China, rather than merely importing. Münchau therefore concludes that Germany did remain politically loyal to the West, but in its economic expansion in recent decades it integrated mainly with the East.
The root cause for the fall of that German neo-commercial model is that the export products themselves are no longer cutting edge. A key example is the classic auto industry, which hardly produces electric cars. In general, Münchau distinguishes between mechanical and digital industries. In the former the Germans are lords and masters, of the latter they can do nothing. As a result, the Germans have lost the Schumpeterian battle of creative destruction. German industry and politics were so obsessed with boosting exports that all the help went to the export winners. There was no room for diversification from which new businesses could grow. Instead, politicians continued to roll out the red carpet for Volkswagen for decades. That that very manufacturer now decided to close plants in the country seems to add strength to the main argument. You can try to cut costs all you want, if you've bet on the wrong horse, you've lost beforehand, Münchau says.
Breaking neo-mercantilism is relatively simple for Münchau. First, the ties between auto industry and politics must be cut. Next, Germans must get rid of their obsession with exporting and saving. Once healed, they can diversify and let thousands of flowers bloom. Münchau himself cites David Ricardo, as if an entire generation of German economists had never heard of the thinker. For Münchau, then, this neo-mercantilism is primarily a fallacy, something that, given the necessary retraining, can easily change.
That is precisely where his analysis falls short. Münchau lacks a structural analysis of Germany's political economy in the context of capitalist globalization. It was West Germany that was able to emerge as one of the most important manufacturing countries in the U.S. global market. Exports were central to the social pact between unions, employers and state. The Bundesbank held the reins firmly and unions remained cowed in exchange for job security. Yet maintaining its export position was difficult in a globalizing economy, especially when new manufacturing centers in Asia offered themselves. After all, Germany did not have the privileges of the United States, whose new export became the dollar. Competition became fierce, and to survive, costs had to be cut. Exports had to be made. To dismiss the German model as a fallacy, then, is to grossly underestimate the structural constraints to which the country is subject.
Not surprisingly, the German model is in crisis at this very moment. In recent decades, the global market has tilted, in Marx's words, from “a workable brotherhood [...] into a hostile struggle between brothers.” Chinese producers have become the industrial frontrunners and the global market has been impoverished by trade barriers. Trump 2.0 only promises to throw oil on the fire here. Economic competition between the U.S. and China has turned into geopolitical tensions. In this context, the German neo-mercantile model is failing, torn between Western political loyalty and Eastern economic integration.
Not only the global context must be considered here, but also how German politics was digging its own grave. When the “autumn” of globalization announced itself in 2008, the Schwäbische Hausfrau implemented a draconian savings policy in Europe. Although her goal was to safeguard Europe's global competitive position, in the burgeoning geopolitical globalization, she ultimately undermined her own position. European states no longer have the fiscal clout to steer their economies through politically murky waters. As tensions spill over into militarization, European politicians are making a last-ditch effort to put on an economy mode so that hopefully an additional F-16 can be ordered. None of this gives a hopeful outlook for German Europe. It is an open question whether Germany has any chance of changing course, as Münchau suggests.
In a positive reading, the fall of Germany's export engine creates an ideological crisis of the austerity consensus. West Germany was the founder of monetarism and austerity logic. It was the first to be able to tame the crisis of the 1970s by enforcing wage moderation and discipline. Since the beginning of European monetary integration, the Deutsche Mark was at the forefront as the undisputed regional trigger. The accompanying fiscal straitjackets also came from the German ordo-liberal machine. If that consensus now dies down in German national politics, there is more room for strategic shift on the European stage as well.
This may also have major implications for our national politics. The German export engine was the model for generations of Flemish nationalists, with the N-VA in the lead. When it rains in Berlin, it drips in Antwerp. Wage moderation, strict budget line, ironclad competitiveness and monetary meagerness were sweet dreams for the new Flemish bourgeoisie stuck in the Belgian construction. The West Germans had incorporated East Germany and conquered communism, but the Flemish nationalists could not master the integrated social democracy of the PS. Our ordo-liberal elite continued to yearn for a power it never had. A crash of that German model is therefore also a crash of the Flemish aspiration.
A crash of the German model also resulted, not surprisingly, in a deep political crisis in recent months. The decline of the political consensus opens possibilities for an anti-saving coalition, but it does not mean that a progressive alternative will automatically prevail. Other tendencies can grow out of the crisis, as we see in Germany with Sahra Wagenknecht or the AfD. It is therefore necessary to follow German politics closely. In this way we can also combat the Flemish variants of a failing neo-mercantilism.
November 24, 2024
The book is a relatively short read and well written. The main argument is that Germany has relied too heavily on a neo-mercantilist, pro-industry (leaning towards crony corporatist) economic model, with bad (geo)political decisions (e.g. over reliance on Russia and China and under investments in digitization and infrastructure). I agree with these main points.
However, the book was much too journalistic for my taste, focussing on individual politicians and their corporate network as well as individual companies. I found many of these accounts interesting as anecdotes and to make a broader point, but felt they lacked more systematic evidence. After reading the book, one may walk away thinking the malaise of the German economy is basically due to the bad decisions of a handful of politicians and company leaders.
The book lacked more systematic evidence and a better engagement with the academic literature. Two examples: 1. the chapter on migration even explicitly stated that this was just a combination of anecdotes for which there is no claim of representativeness (why write the chapter then?). 2. The author argues that energy dependence from Russia was a major political mistake that is hurting German industry. But there is little engagement with the academic literature on whether and why energy prices are actually key for German industry.
The exact mechanisms through which neo-mercantilism and corporatism hold back the economy are also unclear. Under-financing of new companies is one example that was mentioned but not expanded on. So the missing "European Google" (or other top company) is driven by lack of funds or maybe also other barriers to entrepreneurship (e.g. lack of top university talent?)? The author also argues that over reliance on industry is holding the economy back. But it's unclear what this means exactly. Which policies hold back services compared to industry?
However, the book was much too journalistic for my taste, focussing on individual politicians and their corporate network as well as individual companies. I found many of these accounts interesting as anecdotes and to make a broader point, but felt they lacked more systematic evidence. After reading the book, one may walk away thinking the malaise of the German economy is basically due to the bad decisions of a handful of politicians and company leaders.
The book lacked more systematic evidence and a better engagement with the academic literature. Two examples: 1. the chapter on migration even explicitly stated that this was just a combination of anecdotes for which there is no claim of representativeness (why write the chapter then?). 2. The author argues that energy dependence from Russia was a major political mistake that is hurting German industry. But there is little engagement with the academic literature on whether and why energy prices are actually key for German industry.
The exact mechanisms through which neo-mercantilism and corporatism hold back the economy are also unclear. Under-financing of new companies is one example that was mentioned but not expanded on. So the missing "European Google" (or other top company) is driven by lack of funds or maybe also other barriers to entrepreneurship (e.g. lack of top university talent?)? The author also argues that over reliance on industry is holding the economy back. But it's unclear what this means exactly. Which policies hold back services compared to industry?
This entire review has been hidden because of spoilers.
June 12, 2025
Do all economists think they know everything? The sanctimonious know-it-all tone of this book is off putting. Munchau predicts the total failure of the German system while admitting it has frequently bounced back. The reason that he wrote the book and the point that he tried to make appear to be drivel. My own counter prediction is that Germany will bounce back.
The book is not without merit. The recent history of German economics was well-documented. Germany's wiggling with the Russians, Chinese and the EU is spelled out clearly and the actions of the country in recent years become understandable.
Good economic history. Poor conclusion.
The book is not without merit. The recent history of German economics was well-documented. Germany's wiggling with the Russians, Chinese and the EU is spelled out clearly and the actions of the country in recent years become understandable.
Good economic history. Poor conclusion.
March 1, 2025
Seemed to me like a very biting but accurate analysis of Germany's issues. Fairly bearish on Germany, sadly. Was useful to appreciate how I (and apparently a lot of people) didn't appreciate the health of how money is (or isn't) invested in Germany. I came away feeling annoyed how populists and party politics and large firms were able to capture the Landesbanken. Some notes on the 6 chapters:
Fundamental problems of the German economy
- Bearishness on new technology, especially digital technology (that's the original sin according to Münchau)
- Bureaucratic legal approach strongly favors existing large firms
- Lack of venture capital
- Mediocre epistemics: leading institutions in Germany making one bad economic, political, and geopolitical bet after another
Economic Context (2005-2015)
- Labor market reforms → labor price stagnation, partially due to reduction in social welfare
- Cheap gas from Russia
- Global supply chains freeing
- German tooling in China and India
- Eurocrisis: currency devaluation against dollar that benefits German exports
Economic Strategy Issues
Beggar thy neighbor strategy:
- Currency union with neighbors to fix exchange rate
- Cut labor prices to outcompete them
Neo-mercantilism: Trying hard to have an export surplus
- Problem: Very little domestic investment in infrastructure and VC
- Problem: Bad performance of international investments
- Problem: Relatively low consumption
- Problem: Eurozone imbalances
- Reason: Misapplying financial responsibility and success of a single household to a whole country
Required close relationship between national champion firms and government, most prominently car companies (who e.g., were really bad on electric cars)
Downside of national champions: Huge lack of diversification
1. The Canary
Landesbanken as politically controlled but little regulated vehicles that politicians abuse to rescue struggling companies
- → Corruption and survival of uncompetitive companies
- In particular the SPD-associated WestLB in NRW
- Also: Landesbanken are (or used to be) very non-meritocratic and more corrupt, positions going via connections
Justification of Landesbanken: More long-term bets that are not well supplied by private finance
- → But in practice that's not what the Landesbanken did, instead stuff like local shopping centers and investing in big existing firms
2. Neuland
Failure to catch on the trend of digital technology, partially still as a consequence of WW2
- WW2 mostly left classical engineering and chemistry as the relative advantage of the German economy
Culturally distributed skepticism of digital technology and education
- Digitalization deprioritized by Ampelkoalition, saw biggest spending cuts after budget problems became apparent
- Collaboration between state and federal governments doesn't work well with digital infrastructure rollout, too many overlapping competencies
General problem for start-ups, e.g., also in Green Energy where Germany would have some potential given their industrial specialization:
- Bureaucracy
- Industry and university integration is lacking behind US
3 billion AI investments under Merkel(?) didn't go to deep learning but things like expert systems
- → Consulted experts were biased and wrong
- → Financing decisions based on working groups that probably didn't work well
Steinmeier, Sigmar Gabriel, fairly pro-Russian even after 2014, Steinmeier suppressing criticism as foreign minister, Gabriel opposing sanctions on Russia
- Behind the scene: German Eastern Industry Lobbying group
Heiko Maas taking over foreign ministry, not being Russian friendly at all and taking criticism for it back then, but looking really good in hindsight
3 & 4. Low on Energy & The China Syndrome
More content on Russia and China, nuclear exit and energy dependency, etc.
5. Breaking the Brake
Export surplus as a problem
- Lacking diversification, huge exposure to industry
- The financial surplus was used by firms to invest in factories abroad → cluster risks, e.g., within the car sector
- Export surplus reflects low domestic demand, both in terms of consumption (less welfare than would be possible) and in terms of investments
- Eurozone imbalances, some countries building debt
Ordoliberalism
- Outdated definition of a competitive market in terms of number of firms and their respective market shares
- Ludwig Erhard added to Ordoliberalism: unions as representatives of workers, codetermination structure with unions on boards
Bundesbank has a solo mandate: price stability (not low employment like the Fed)
- Economic stimulus highly neglected by German governments
- Problem: More lawyers than economists in finance ministry, with an anecdote suggesting a fairly hostile attitude among politicians with legal backgrounds against economists
6. We and the Others
Migration problems centrally cultural
- Not making it easy for skilled immigrants
- Applying same standards to low and high-skilled labor
A ton of bureaucratic hurdles to migrate to Germany
- One anecdote of making it really hard for non-German children of a professor to switch to a Gymnasium despite clearly not belonging in a Realschule
- Wages for high-skill labor in Germany often uncompetitive, e.g., in IT
Fundamental problems of the German economy
- Bearishness on new technology, especially digital technology (that's the original sin according to Münchau)
- Bureaucratic legal approach strongly favors existing large firms
- Lack of venture capital
- Mediocre epistemics: leading institutions in Germany making one bad economic, political, and geopolitical bet after another
Economic Context (2005-2015)
- Labor market reforms → labor price stagnation, partially due to reduction in social welfare
- Cheap gas from Russia
- Global supply chains freeing
- German tooling in China and India
- Eurocrisis: currency devaluation against dollar that benefits German exports
Economic Strategy Issues
Beggar thy neighbor strategy:
- Currency union with neighbors to fix exchange rate
- Cut labor prices to outcompete them
Neo-mercantilism: Trying hard to have an export surplus
- Problem: Very little domestic investment in infrastructure and VC
- Problem: Bad performance of international investments
- Problem: Relatively low consumption
- Problem: Eurozone imbalances
- Reason: Misapplying financial responsibility and success of a single household to a whole country
Required close relationship between national champion firms and government, most prominently car companies (who e.g., were really bad on electric cars)
Downside of national champions: Huge lack of diversification
1. The Canary
Landesbanken as politically controlled but little regulated vehicles that politicians abuse to rescue struggling companies
- → Corruption and survival of uncompetitive companies
- In particular the SPD-associated WestLB in NRW
- Also: Landesbanken are (or used to be) very non-meritocratic and more corrupt, positions going via connections
Justification of Landesbanken: More long-term bets that are not well supplied by private finance
- → But in practice that's not what the Landesbanken did, instead stuff like local shopping centers and investing in big existing firms
2. Neuland
Failure to catch on the trend of digital technology, partially still as a consequence of WW2
- WW2 mostly left classical engineering and chemistry as the relative advantage of the German economy
Culturally distributed skepticism of digital technology and education
- Digitalization deprioritized by Ampelkoalition, saw biggest spending cuts after budget problems became apparent
- Collaboration between state and federal governments doesn't work well with digital infrastructure rollout, too many overlapping competencies
General problem for start-ups, e.g., also in Green Energy where Germany would have some potential given their industrial specialization:
- Bureaucracy
- Industry and university integration is lacking behind US
3 billion AI investments under Merkel(?) didn't go to deep learning but things like expert systems
- → Consulted experts were biased and wrong
- → Financing decisions based on working groups that probably didn't work well
Steinmeier, Sigmar Gabriel, fairly pro-Russian even after 2014, Steinmeier suppressing criticism as foreign minister, Gabriel opposing sanctions on Russia
- Behind the scene: German Eastern Industry Lobbying group
Heiko Maas taking over foreign ministry, not being Russian friendly at all and taking criticism for it back then, but looking really good in hindsight
3 & 4. Low on Energy & The China Syndrome
More content on Russia and China, nuclear exit and energy dependency, etc.
5. Breaking the Brake
Export surplus as a problem
- Lacking diversification, huge exposure to industry
- The financial surplus was used by firms to invest in factories abroad → cluster risks, e.g., within the car sector
- Export surplus reflects low domestic demand, both in terms of consumption (less welfare than would be possible) and in terms of investments
- Eurozone imbalances, some countries building debt
Ordoliberalism
- Outdated definition of a competitive market in terms of number of firms and their respective market shares
- Ludwig Erhard added to Ordoliberalism: unions as representatives of workers, codetermination structure with unions on boards
Bundesbank has a solo mandate: price stability (not low employment like the Fed)
- Economic stimulus highly neglected by German governments
- Problem: More lawyers than economists in finance ministry, with an anecdote suggesting a fairly hostile attitude among politicians with legal backgrounds against economists
6. We and the Others
Migration problems centrally cultural
- Not making it easy for skilled immigrants
- Applying same standards to low and high-skilled labor
A ton of bureaucratic hurdles to migrate to Germany
- One anecdote of making it really hard for non-German children of a professor to switch to a Gymnasium despite clearly not belonging in a Realschule
- Wages for high-skill labor in Germany often uncompetitive, e.g., in IT
April 12, 2025
Niepozbawiona wad, o których świetnie mówią w odcinku poświęconym tej książce podcasterzy Dwóch Lewych Rąk. Dla mnie bardzo informacyjna, łatwo się czytająca, wywołująca dużo emocji (emocjonuje mnie ekonomia i polityka, ale kogo nie?).
March 5, 2025
Man, this book speaks to my soul. Most of the things wrong with this country, intelligently pointed out and interwoven. Even the fact that, were you to point any of it out to any among the older generations they'd look at you with pity and disbelief as if you didn't know how the world works.
This country is under invested in every single sector that's key to our future success. Our infrastructure alone is worth less today than the year I was born, '96. It deserves everything bad coming its way. Not only do people vote against modernisation, they couldn't vote for it if they wanted to because all existing parties are utterly blind to it, stuck in the old corporatist paradigm.
F*ck the traitor Schröder who sold the future of Germany to Russian business interests, and the SPD who abandoned the interests of the worker long ago. Now we are stuck with their mess, and the consequences of Merkels inaction. No party is willing to address the structural problems of our economy, least of all the far right who will continue to capture frustrated voters with every election, but never solve their problems.
Mandatory read for our incoming Chancellor, if he wants to turn out fortune around. Meanwhile, I'll be looking at sensible places to migrate to. This book unfortunately makes a convincing case that, when politicians will finally hear the wake-up call, it will be too late.
This country is under invested in every single sector that's key to our future success. Our infrastructure alone is worth less today than the year I was born, '96. It deserves everything bad coming its way. Not only do people vote against modernisation, they couldn't vote for it if they wanted to because all existing parties are utterly blind to it, stuck in the old corporatist paradigm.
F*ck the traitor Schröder who sold the future of Germany to Russian business interests, and the SPD who abandoned the interests of the worker long ago. Now we are stuck with their mess, and the consequences of Merkels inaction. No party is willing to address the structural problems of our economy, least of all the far right who will continue to capture frustrated voters with every election, but never solve their problems.
Mandatory read for our incoming Chancellor, if he wants to turn out fortune around. Meanwhile, I'll be looking at sensible places to migrate to. This book unfortunately makes a convincing case that, when politicians will finally hear the wake-up call, it will be too late.
August 2, 2025
Para mim, que me especializei em Política Externa Alemã e acompanhei de perto as premissas sobre as quais assenta a ideia de que a Alemanha é o motor económico da Europa, este livro foi uma descoberta incrível.
Escrito por um alemão a viver fora da Alemanha, "Kaput - O Fim do Milagre Alemão" demonstra como os chanceleres alemães da Alemanha reunificada e os demais ministros no geral têm feito más escolhas no que respeita às relações privilegiadas e focadas na economia que estabeleceram com a Rússia e a China. É também colocada em evidência a falta de investimento no desenvolvimento das telecomunicações e na própria digitalização e na indústria do carro elétrico. O excesso de conservadorismo, a densa burocracia, e a estreita ligação que existe entre empresas e política têm vindo a contribuir para a actual situação em que se encontra a economia alemã.
Uma leitura imperdível para se perceber o estado económico-social e político da Alemanha pós Merkel!
Escrito por um alemão a viver fora da Alemanha, "Kaput - O Fim do Milagre Alemão" demonstra como os chanceleres alemães da Alemanha reunificada e os demais ministros no geral têm feito más escolhas no que respeita às relações privilegiadas e focadas na economia que estabeleceram com a Rússia e a China. É também colocada em evidência a falta de investimento no desenvolvimento das telecomunicações e na própria digitalização e na indústria do carro elétrico. O excesso de conservadorismo, a densa burocracia, e a estreita ligação que existe entre empresas e política têm vindo a contribuir para a actual situação em que se encontra a economia alemã.
Uma leitura imperdível para se perceber o estado económico-social e político da Alemanha pós Merkel!
January 14, 2025
The book contains interesting and useful information, which I found valuable. However, the author uses it to draw incorrect conclusions and mislead the audience. Here and there, the author claims that the mercantilist system of Germany is the problem. But let us look at the facts and see whether the same problems don't exist, for example, in the US (which is not mercantilist):
1 - Influence of corporations on policymaking: Look at the problem of universal health insurance in the US and the lobby of insurers and corporations that prevent it in the US. Examples can also be given here, like the US defence lobby and its influence.
2 - Influence of corporations on politicians and politicians becoming their employees or lobbyists after their retirement: this problem is more severe in the US. The revolving door between public office and private companies is a characteristic of late capitalism.
3 - Cheap energy for progress: the US and China are the role models of the digital future in this book, both after accessing cheap gas and oil flows for the future, while both still use nuclear energy. The US has its resources, and China uses Middle Eastern countries and Russia to secure its energy needs. Nuclear energy can't solve Germany's problems as it has not solved similar problems in France, where nuclear energy comprises a large portion of the total supply.
4 - The problem with banks discussed in Chapter 2 has existed not only in Germany but also in the US, the UK, Spain, Italy, France, etc.
Interestingly, in its first chapter, the book claims that Germany didn't develop digital technologies because of its mercantilist mindset. In contrast, in Chapter 4, we suddenly understand that China, which leads in these aspects, is also a mercantilist.
The book never discusses the harmful aspects of the US influence on Germany's domestic and international policies.
This discussion can go on, but I think this is enough for this review.
1 - Influence of corporations on policymaking: Look at the problem of universal health insurance in the US and the lobby of insurers and corporations that prevent it in the US. Examples can also be given here, like the US defence lobby and its influence.
2 - Influence of corporations on politicians and politicians becoming their employees or lobbyists after their retirement: this problem is more severe in the US. The revolving door between public office and private companies is a characteristic of late capitalism.
3 - Cheap energy for progress: the US and China are the role models of the digital future in this book, both after accessing cheap gas and oil flows for the future, while both still use nuclear energy. The US has its resources, and China uses Middle Eastern countries and Russia to secure its energy needs. Nuclear energy can't solve Germany's problems as it has not solved similar problems in France, where nuclear energy comprises a large portion of the total supply.
4 - The problem with banks discussed in Chapter 2 has existed not only in Germany but also in the US, the UK, Spain, Italy, France, etc.
Interestingly, in its first chapter, the book claims that Germany didn't develop digital technologies because of its mercantilist mindset. In contrast, in Chapter 4, we suddenly understand that China, which leads in these aspects, is also a mercantilist.
The book never discusses the harmful aspects of the US influence on Germany's domestic and international policies.
This discussion can go on, but I think this is enough for this review.
December 29, 2024
Succinct analysis of how the decline of the German economy came about, and as such, a must read for everyone who solely blames the dissolved traffic light coalition.
August 25, 2025
This is a sharp, penetrating, and relatively up to date analysis of the current state of the German economy that take a sharply critical line on current German economic problems as being systematic and strategic - the result of past policy choices that work to the benefit of major German firms and that led to a fairly productive set of outcomes up until the past decade or so.
In essence, Mr. Munchau’s claim is that Germany came to fully invest its future in a strategy of manufacturing dominance versus the rest of the world, especially in sectors related to gas powered autos, precision engineering and manufacturing, heavy chemicals, pharmaceuticals, and some related areas. Germany’ s dominance in these areas stemmed from decades of focused investments, but was maintained by conditions in the world economy supportive of heavy dependence on exporting and heavy reliance on cheap energy prices, based significantly on inexpensive Russian oil. Times Chan age, however, and the claim in the book (persuasive to my reading) is that this macro/national economic strategy is no longer viable.
While Germany could have adapted its prior success into newer more adaptive strategies, German policy makers and corporate executives did not adapt but instead “doubled down” on the traditional national strategy. In doing so, Munchau claims that Germany missed on on several areas it could have invested in but failed to do and then got passed by as other nations such as China and the US, captured the areas and built capabilities and global scale. Digital technologies and electric cars are two such areas that Germany has lost out on due to its over focus on traditional manufacturing.
I found Munchau’s arguments clear and well crafted. Others may disagree. The great strength of the book, however, is that there are real arguments that tell a story about a very complex economic system with its own history and which is very different from the situations in the US or Britain. Books like this on Germany are uncommon and although the books arguments could be effectively updated to account for recent developments such as the Trump election and subsequent economic developments, or the consequences for Germany and Europe of the Ukraine war, it is highly informative and thoughtful and will be a good basis for keeping current on German economic developments going forward.
In essence, Mr. Munchau’s claim is that Germany came to fully invest its future in a strategy of manufacturing dominance versus the rest of the world, especially in sectors related to gas powered autos, precision engineering and manufacturing, heavy chemicals, pharmaceuticals, and some related areas. Germany’ s dominance in these areas stemmed from decades of focused investments, but was maintained by conditions in the world economy supportive of heavy dependence on exporting and heavy reliance on cheap energy prices, based significantly on inexpensive Russian oil. Times Chan age, however, and the claim in the book (persuasive to my reading) is that this macro/national economic strategy is no longer viable.
While Germany could have adapted its prior success into newer more adaptive strategies, German policy makers and corporate executives did not adapt but instead “doubled down” on the traditional national strategy. In doing so, Munchau claims that Germany missed on on several areas it could have invested in but failed to do and then got passed by as other nations such as China and the US, captured the areas and built capabilities and global scale. Digital technologies and electric cars are two such areas that Germany has lost out on due to its over focus on traditional manufacturing.
I found Munchau’s arguments clear and well crafted. Others may disagree. The great strength of the book, however, is that there are real arguments that tell a story about a very complex economic system with its own history and which is very different from the situations in the US or Britain. Books like this on Germany are uncommon and although the books arguments could be effectively updated to account for recent developments such as the Trump election and subsequent economic developments, or the consequences for Germany and Europe of the Ukraine war, it is highly informative and thoughtful and will be a good basis for keeping current on German economic developments going forward.
April 25, 2025
Bardzo fajna książka, napisana przez insidera - Niemieckiego dziennikarza financial times. Już od wstępu, w którym przywołano czasy w których „gdy Berlinska gospodarka miała katar Polska kładła się do łóżka”, do współczesnych problemów społeczno-gospodarczych. Zero rad, czyta analiza. Książka zainspirowała nas do szukania podobnych informacji o innych krajach. Polecam !
December 7, 2024
It is a compelling exploration of Germany's structural slump, unraveling how the nation fell prey to one of the most striking real-life examples of the sunk cost fallacy. Through incisive chapters on its flawed financial system, precarious energy dependencies, chronic underinvestment in innovation, and restrictive immigration policies, the author dissects how Germany squandered its potential to adapt and thrive.
The book delivers a sobering takeaway: during Angela Merkel's tenure and the era of the grand coalition, Germany had the political consensus needed to redirect its course but instead stagnated under the weight of competing interests and inertia. With upcoming elections on the horizon, this analysis serves as a timely wake-up call to question the fractured state of power, where too many parties and competing interests dilute decisive action—perhaps even signaling it’s time to short the market.
The book delivers a sobering takeaway: during Angela Merkel's tenure and the era of the grand coalition, Germany had the political consensus needed to redirect its course but instead stagnated under the weight of competing interests and inertia. With upcoming elections on the horizon, this analysis serves as a timely wake-up call to question the fractured state of power, where too many parties and competing interests dilute decisive action—perhaps even signaling it’s time to short the market.
April 18, 2025
Just another proof of the fall of the Christian civilisation. Germany being a subset of that. The tragic fall is long and painful. The new pagan goddess of Gaia has made her entrance and consequently deindustrialisation is imminent, as global capitalism is seen as ‘raping mother earth’. Germany will likely keep drowning herself for the sake of this false god.
Ofc the author here says nothing of this. He is in a different mental state altogether, more analytical, empirical. But behind all of that there is a battle of heaven so to speak, of which the neo-pagan conception of earth as goddess has won in many parts of Europe. This is a weak religion, ultimately a suicide cult, and will make room for more forceful ones. In the meantime; down she goes. Shame.
Ofc the author here says nothing of this. He is in a different mental state altogether, more analytical, empirical. But behind all of that there is a battle of heaven so to speak, of which the neo-pagan conception of earth as goddess has won in many parts of Europe. This is a weak religion, ultimately a suicide cult, and will make room for more forceful ones. In the meantime; down she goes. Shame.
March 7, 2025
Un libro narrado con un estilo periodístico bastante accesible y que permite entender el declive de la economía alemana, de la crisis de la industria automovilística, y con todo ello la crisis estructural que afronta la Unión Europea. También permite entender mejor los recientes movimientos políticos en Alemania y la dependencia de su industria a nivel energético y de exportaciones de China y especialmente Rusia.
January 24, 2025
Harsh but realistic explanation of the status of the German economy.
February 17, 2025
“As they used to say in the 1970s: the world will always need typewriters. Until recently, many believed the world would always buy German cars. (…) Germans were shocked when a Chinese car executive on the TV programme Auslandsjournal, in early 2023, spoke only about artificial intelligence, autonomous driving and entertainment systems, as opposed to the qualities normally praised by German car makers, like speed and acceleration. A Tesla is an iPad with wheels – in fact, it’s easier to operate than an iPad.”
As a citizen of a European country, and one that owes much of its standard of living to the European project, I anticipated that the book would be both enlightening and alarming, and that it is, in spades.
What I did not expect, at all, how could I, was for it to be so much fun, but that it also amply is.
First, a note: Emmanuel Todd has recently been interviewed, as part of an ongoing series (“Le monde selon Todd”) on the theme of “Allemagne : de la puissance à l'impuissance”, in the Youtube channel “Fréquence Populaire Média”. I propose hearing his arguments before tackling the book, as they make for an interesting context.
Now, the book: Germany is irredeemably stuck in an industrial past that is increasingly less relevant in the virtual/digital global economy of the current dispensation, and has enormous problems to overcome this situation, Germans being Germans, Chinese being Chinese, and the country’s bureaucracy being, as one might expect, as it is German, the paradigm itself of bureaucracy. Münchau tells a number of stories, and dispenses with personal testimony and memoirs, that are at a minimum amazing, almost unbelievable (as I said before, the book is great fun). And as he says somewhere: “I heard brave forecasts, usually from economists on the left, who were certain that there was no way the Germans would ever be able to comply with their own fiscal rules. What they overlooked was that Germany’s willingness and ability to engage in fiscal restraint is legendary – even if it makes no economic sense.” Other countries and peoples of Europe, the French above all others, are not like this, and when push comes to shove, it will probably be complicated for the Germans to accept a systematic fudging of the rules by others, with consequences that probably won’t be manageable…
But that is hopefully far enough into the future...
Bureaucracy:
“One sector in which Germany ought to be leading the world is green tech, where Germany’s expertise in chemistry, biology and electronic and mechanical engineering all come together. The country is ahead of others in the transition to renewable energies. Is this a potential niche?
The answer is yes, in theory, but the reality is more complicated as the following example shows.
Vertical farming is the practice of growing crops in vertically stacked layers – the agricultural equivalent of urban high-rises, allowing farmers to produce more food on the same amount of land compared with traditional farming. Given the European Union’s Green Deal, with its emphasis on nature restoration, one might think vertical farming would be a particularly sought-after technology, but that was not how it seemed to two innovative Dutch farmers when they met the immovable object that is German bureaucracy.”
Innovation:
“Roland Berger’s 2023 innovation indicator has Germany in tenth place globally. In that ranking, Germany is ahead of the US. One should savor this for a second. The US is the leading digital economy in the world. It has the largest tech companies. It is leading in artificial intelligence, robotics and quantum technologies. And it has a blossoming venture-capital market that provides finance for tech start-ups. It is typical of the contempt Germans have for all things digital that innovation in the US is regarded by Roland Berger as too concentrated in just a few sectors. This ignores the fact that these sectors have overtaken classical industry in size, profitability and growth. The Americans also benefit from the winner-takes-all advantage, which is what German industry benefited from in the past. If you are the industry market leader, you reap the highest value added in a global supply chain.”
Realpolitik:
“But both Steinmeier and Gabriel have made sure that any official documents relating to their conduct in Russian–German relations will not be released until after 2045. I expect future historians will have a field day with this material, once it comes out. What we have witnessed here is a monumental collective national misjudgment.
This misjudgment had a much larger impact than the size of Russia as a trading partner would suggest. Germany’s dependency on Russia for its energy policy had a knock-on effect for the rest of the economy. Schröder’s big idea was to generate large industrial export surpluses, for which the country needed a cost-competitive industry. That, in turn, required cheaper and more reliable sources of energy than was available to Germany’s competitors. The Russian gas was, in some respects, too good to be true. The catch was the dependency it created.
When the economic strategy of an entire country is framed in such a delusional way, it should not be surprising that further delusions are built on top of existing ones.”
The current-account surplus:
“The problem with the current-account surplus is the massive size – and the persistence.”
The “tertiary sector”:
“Strangely enough, this is not debated anywhere in polite circles in Germany. Mainstream German economists, on the left and the right, are largely disinterested. I once asked a well-known economist what he thought about diversification from industry to services. That would take some of the pressure out of the current-account surplus and rebalance the economy. He thought this was a thoroughly bad idea. We don’t want to end up like the UK with its dodgy financial institutions, he said. The German establishment’s disdain for services, and its lack of understanding of what they are, is highly revealing. For them, the services industry is bankers and prostitutes. They call it the tertiary sector.”
The post-industrial future (and here I am thinking that I’ve just read Bruno Maçães’ “World Builders”, about the virtual reality of our current dispensation):
“Grimm’s comment is not mainstream in the German debate, not even among those on the right. Nor is anything that I have been writing in this book. If you shout into a room that we must strengthen the competitiveness of German industry, you will see a lot of nodding heads. If, however, you suggest, as I do here, that Germany needs to prepare for a post-industrial future, you will be treated as somebody who does not understand how the real world works.”
The author’s exasperation:
“The modernization part of the coalition deal never happened. I am not blaming the coalition for Germany’s economic crisis. That criticism – from the right – always seemed unfair to me. As I have argued in this book, the deep causes of Germany’s structural slump go back decades. The problem is that the government has given up on solving the problem. (…) Germany’s old economic model relied on qualified labor, cheap energy, globalization and technological leadership. All of these factors, which had worked so much in Germany’s favour, flipped within a few years. (…) Germany always wanted everything – a transatlantic alliance to protect its security, an EU internal market, and special relations with Russia and China. It took the German policy establishment a long time to realize that this was no longer possible.”
These are just a few notes and considerations, the book has depth, and it makes an extremely forceful argument that Germany is for a rough patch and a future of decreased prosperity and increased internal and external conflicts, particularly within the context of the European Union. VIB (very important book)!
As a citizen of a European country, and one that owes much of its standard of living to the European project, I anticipated that the book would be both enlightening and alarming, and that it is, in spades.
What I did not expect, at all, how could I, was for it to be so much fun, but that it also amply is.
First, a note: Emmanuel Todd has recently been interviewed, as part of an ongoing series (“Le monde selon Todd”) on the theme of “Allemagne : de la puissance à l'impuissance”, in the Youtube channel “Fréquence Populaire Média”. I propose hearing his arguments before tackling the book, as they make for an interesting context.
Now, the book: Germany is irredeemably stuck in an industrial past that is increasingly less relevant in the virtual/digital global economy of the current dispensation, and has enormous problems to overcome this situation, Germans being Germans, Chinese being Chinese, and the country’s bureaucracy being, as one might expect, as it is German, the paradigm itself of bureaucracy. Münchau tells a number of stories, and dispenses with personal testimony and memoirs, that are at a minimum amazing, almost unbelievable (as I said before, the book is great fun). And as he says somewhere: “I heard brave forecasts, usually from economists on the left, who were certain that there was no way the Germans would ever be able to comply with their own fiscal rules. What they overlooked was that Germany’s willingness and ability to engage in fiscal restraint is legendary – even if it makes no economic sense.” Other countries and peoples of Europe, the French above all others, are not like this, and when push comes to shove, it will probably be complicated for the Germans to accept a systematic fudging of the rules by others, with consequences that probably won’t be manageable…
But that is hopefully far enough into the future...
Bureaucracy:
“One sector in which Germany ought to be leading the world is green tech, where Germany’s expertise in chemistry, biology and electronic and mechanical engineering all come together. The country is ahead of others in the transition to renewable energies. Is this a potential niche?
The answer is yes, in theory, but the reality is more complicated as the following example shows.
Vertical farming is the practice of growing crops in vertically stacked layers – the agricultural equivalent of urban high-rises, allowing farmers to produce more food on the same amount of land compared with traditional farming. Given the European Union’s Green Deal, with its emphasis on nature restoration, one might think vertical farming would be a particularly sought-after technology, but that was not how it seemed to two innovative Dutch farmers when they met the immovable object that is German bureaucracy.”
Innovation:
“Roland Berger’s 2023 innovation indicator has Germany in tenth place globally. In that ranking, Germany is ahead of the US. One should savor this for a second. The US is the leading digital economy in the world. It has the largest tech companies. It is leading in artificial intelligence, robotics and quantum technologies. And it has a blossoming venture-capital market that provides finance for tech start-ups. It is typical of the contempt Germans have for all things digital that innovation in the US is regarded by Roland Berger as too concentrated in just a few sectors. This ignores the fact that these sectors have overtaken classical industry in size, profitability and growth. The Americans also benefit from the winner-takes-all advantage, which is what German industry benefited from in the past. If you are the industry market leader, you reap the highest value added in a global supply chain.”
Realpolitik:
“But both Steinmeier and Gabriel have made sure that any official documents relating to their conduct in Russian–German relations will not be released until after 2045. I expect future historians will have a field day with this material, once it comes out. What we have witnessed here is a monumental collective national misjudgment.
This misjudgment had a much larger impact than the size of Russia as a trading partner would suggest. Germany’s dependency on Russia for its energy policy had a knock-on effect for the rest of the economy. Schröder’s big idea was to generate large industrial export surpluses, for which the country needed a cost-competitive industry. That, in turn, required cheaper and more reliable sources of energy than was available to Germany’s competitors. The Russian gas was, in some respects, too good to be true. The catch was the dependency it created.
When the economic strategy of an entire country is framed in such a delusional way, it should not be surprising that further delusions are built on top of existing ones.”
The current-account surplus:
“The problem with the current-account surplus is the massive size – and the persistence.”
The “tertiary sector”:
“Strangely enough, this is not debated anywhere in polite circles in Germany. Mainstream German economists, on the left and the right, are largely disinterested. I once asked a well-known economist what he thought about diversification from industry to services. That would take some of the pressure out of the current-account surplus and rebalance the economy. He thought this was a thoroughly bad idea. We don’t want to end up like the UK with its dodgy financial institutions, he said. The German establishment’s disdain for services, and its lack of understanding of what they are, is highly revealing. For them, the services industry is bankers and prostitutes. They call it the tertiary sector.”
The post-industrial future (and here I am thinking that I’ve just read Bruno Maçães’ “World Builders”, about the virtual reality of our current dispensation):
“Grimm’s comment is not mainstream in the German debate, not even among those on the right. Nor is anything that I have been writing in this book. If you shout into a room that we must strengthen the competitiveness of German industry, you will see a lot of nodding heads. If, however, you suggest, as I do here, that Germany needs to prepare for a post-industrial future, you will be treated as somebody who does not understand how the real world works.”
The author’s exasperation:
“The modernization part of the coalition deal never happened. I am not blaming the coalition for Germany’s economic crisis. That criticism – from the right – always seemed unfair to me. As I have argued in this book, the deep causes of Germany’s structural slump go back decades. The problem is that the government has given up on solving the problem. (…) Germany’s old economic model relied on qualified labor, cheap energy, globalization and technological leadership. All of these factors, which had worked so much in Germany’s favour, flipped within a few years. (…) Germany always wanted everything – a transatlantic alliance to protect its security, an EU internal market, and special relations with Russia and China. It took the German policy establishment a long time to realize that this was no longer possible.”
These are just a few notes and considerations, the book has depth, and it makes an extremely forceful argument that Germany is for a rough patch and a future of decreased prosperity and increased internal and external conflicts, particularly within the context of the European Union. VIB (very important book)!
May 21, 2025
Kaput is a good overview of the many mistakes that German political figures and business elites have made that have contributed to the country's current challenges. Wolfgang Münchau examines issues such as corruption, the persistence and creation of anti-competitive industries, Germany’s reluctance to invest in digital technologies, and its overdependence on Russian natural gas. He also explores how excessive bureaucracy stifles innovation, the economy’s lack of diversification, and restrictive immigration policies that deter highly skilled workers. The most interesting section for me was Münchau’s discussion of high quality Chinese EVs and their disruptive impact on Germany’s once dominant automotive industry. This overview is an oversimplification of an already pretty short book. Because of this, I highly recommend the book as an introduction to Germany right now, but I suggest not stopping here if you'd like to learn more.
August 23, 2025
Neo-markantilismi, autoteollisuuteen keskittyminen, digijälkeenjääneisyys, energiapolitiikka, riippuvuus Kiinasta ja Venäjästä, rahoitusmarkkinoiden pankkikeskeisyys (massit perinteiseen teollisuuteen, jota ei enää tule olemaan)
December 17, 2024
This book mainly states some of the "negatives" that would hinder the German economic progress from the last decade.
In summary, to name a few:
- Overreliance in the industrial sector (in particular, the automotive sector)
- Russia for gas imports (for its energy security)
- China for exports (despite now being a direct competitor, in particular the automotive sector)
- Lack of digitalization
- Lack of investment in the country (in particular, because of the debt brake).
(...)
In summary, to name a few:
- Overreliance in the industrial sector (in particular, the automotive sector)
- Russia for gas imports (for its energy security)
- China for exports (despite now being a direct competitor, in particular the automotive sector)
- Lack of digitalization
- Lack of investment in the country (in particular, because of the debt brake).
(...)
February 28, 2025
Sober analysis of German economy that is "producing yesterday's exports". Although some of the critic feels twisted into place, the main premise of the book is sound.
May 12, 2025
A great journey through the modern economic and political history. It changed the way I viewed the German model.
May 28, 2025
This book is a great cautionary tale for industrial societies who miss the writing on the wall: that our dependence on the fossil fuel economy is long overdue for revision; that not only Germany but the rest of us are too dependent on supply chains that run through China; that we are ignoring real changes needed to labour markets; and that we’re not really walking-the-walk on investment in entrepreneurship.
Germany has hit the wall on growth.
I fear so have we.
Germany has hit the wall on growth.
I fear so have we.
August 18, 2025
Kaput is an excellent introduction into the contemporary German economy and the barriers that keep it in the semi-stagnant state that we see it in today. I will note that I have not read the discourse around this book by the author's peers (economists, political scientists, etc.) so I would take this review with a pinch of salt and encourage you to do your own research (as I plan on doing).
September 4, 2025
Przesłuchałem całość pędząc volkswagenem po niemieckiej autostradzie. Trudno o lepszy anturaż dla rozdziału opisującego takie a nie inne decyzje związane z infrastrukturą cyfrową naszego sąsiada.
Książkę polecam każdemu kto chciałby zrozumieć obecne położenie Niemiec.
Książkę polecam każdemu kto chciałby zrozumieć obecne położenie Niemiec.
July 30, 2025
Excelente libro...!
Te da una radiografía de la Economía Alemana...
Tiene tintes hasta de novela.
El Autor es un valiente al escribir este libro de su propio país 👍
Te da una radiografía de la Economía Alemana...
Tiene tintes hasta de novela.
El Autor es un valiente al escribir este libro de su propio país 👍
July 9, 2025
acerbic!
February 1, 2025
Pünktlich zur BTW werde ich mal wieder ein paar Wirtschaftssachbücher lesen. Neben Münchau "Kaput" stehen noch Gross "Energy and Power: Germany in the Age of Oil, Atoms, and Climate Change", Jirmann "Blackbox Steuerpolitik", Krebs "Fehldiagnose", Sigl-Glöckner "Gutes Geld" aber auch Habeck "Den Bach rauf" auf meiner Liste. Mal schauen, welche Erkenntnisse vor der Wahl das bringen wird!
Münchaus "Kaput. The End of the German Miracle" ist eine schnelle Lektüre, die viele bekannte Thesen knackig auf den Tisch bringt. Der Blick eines deutschen Wirtschaftsjournalisten, der im Ausland lebt und für ein nicht-deutsches Publikum schreibt, ist auch eine erfrischende Perspektive. Münchau verzichtet dabei bewusst auf Lösungsvorschläge und Prognosen. Ein gewisser Pessimismus scheint dennoch durch: Nachdem in den 2010er die Merkel-Regierungen mit ihren satten Mehrheiten und freundlichen Rahmenbedingungen wie Niedrigzinsen alle Joker in der Hand hielt und dennoch keine Weichen für die Zukunft gestellt hat, bleibt nicht viel mehr als: Never bet against the German economy! Die deutschen Krankheiten in Münchaus Philippika sind Neo-Merkantilismus und Korporatismus mit ihrer Nibelungentreue zu Konzernen und "Familien"-Unternehmen im Auto-, Chemie- und Maschinenbausektor, das starre Bankenwesen (Landesbanken, aber kein Venture Capital), die drei goldenen Kälber Exportüberschuss, Wettbewerbsfähigkeit (durch billige Energie und Arbeitskräfte, nicht durch Innovationen) und Schuldenbremse, Technophobie und die dadurch verschlafenen Megatrends in allen Bereichen der Computertechnik und Digitalisierung, geopolitische Abhängigkeiten (Russland, China) und verfehlte Einwanderungspolitik für Hochqualifizierte. Höchstens am Rande thematisiert werden von ihm Sozialabgaben und Steuerpolitik, Rentenversicherung (fehlende Kapitaldeckung), demografischer Wandel (Fachkräftemangel, Altenrepublik), Vermögensungleichheit, Verarmung und Bürokratiefragen. Das kann man so machen, schließlich soll man über das schreiben, wo die eigene Expertise liegt. Gewünscht hätte ich mir dennoch, dass die Auswahl der Problembereiche kommentiert und begründet wird.
Seltsam wird es aber bei der politischen Analyse. Münchaus Bild der politischen Lage in Deutschland ist schnell gezeichnet: Die Macht der SPD mit ihrem Einfluss auf Konzerne durch von ihr dominierten Betriebsräten und durch ihre Genossen der Bosse von Rau bis Schröder sei so überzogen groß wie schädlich. Die Abhängigkeit von Russland (die von Brandt und Schmidt durch ihre Ostpolitik eingeleitet und von Schröder, Steinmeier, Gabriel mit nur wenig Zutun von Kohl und Merkel zementiert wurde) und China (seit Schmidt) geht wie die Schuldenbremse und ihre Umsetzung in den 2010ern (durch Steinbrück, nicht etwa Merkel und Schäuble sowie später Lindner) auf die Kappe der SPD. Das Ende der Atomkraft geht natürlich aufs Konto ihres Juniorpartners, den Grünen. Das ganze gipfelt dann in der Einschätzung, dass die SPD mit der Ostpolitik die deutsche Einheit verzögert habe: Die Sowjetunion und ihre Satellitenstaaten wären ohne Ostpolitik womöglich früher zusammengebrochen. Die Union dagegen wird ganz anders porträtiert: Wirtschaftspolitik vor 1970 wird überhaupt nur einmal erwähnt, nämlich um Ludwig Erhard ein Riesenpauschallob anzudienen – der, wie man mittlerweile weiß, völlig überzogene Legendenstatus Erhards gehört wohl unausrottbar zur Folklore des deutschen Wirtschaftsjournalismus. Kohl sei zwar zu tadeln für die Fehlentscheidung Kabelfernsehen statt Glasfaser, aber da war er wohl nur ein schlecht beratener, aber eigentlich herzensguter Onkel. Die Rolle Kohls und seiner Regierungen in der Außenwirtschaftspolitik, der Währungs- und Arbeitsmarktpolitik, der Rentenpolitik, bei der deutschen Einheit und der europäischen Währungsunion usw. sind dagegen kein Thema. Merkel schließlich ist in Münchaus Narrativ zwar seit 2005 immer dabei und durchaus eine Machtfigur. Irgendwelche policy goals werden Merkel und ihrer Union jedoch anders als der SPD und den Grünen nicht zugeschrieben, so dass sie ihr von Münchau trotz ihrer Machtfülle nichts Konkretes zugerechnet wird. Wenn das wirklich Münchaus Position ist, sollte er diese Asymmetrie deutlich machen und verteidigen: Die SPD sei verantwortlich dafür, schlechte Entscheidungen umzusetzen, während die Union kein politisches Programm außer Machterhalt habe. Kurz: Die SPD ist der Brandstifter, die Union die Feuerwehr, die Öl ins Feuer gießt. ((Ich bin nicht der einzige, der diese Darstellung einseitig findet, siehe z.B. die Rezension von Howard Davies, https://literaryreview.co.uk/bumps-in...))
Münchaus "Kaput. The End of the German Miracle" ist eine schnelle Lektüre, die viele bekannte Thesen knackig auf den Tisch bringt. Der Blick eines deutschen Wirtschaftsjournalisten, der im Ausland lebt und für ein nicht-deutsches Publikum schreibt, ist auch eine erfrischende Perspektive. Münchau verzichtet dabei bewusst auf Lösungsvorschläge und Prognosen. Ein gewisser Pessimismus scheint dennoch durch: Nachdem in den 2010er die Merkel-Regierungen mit ihren satten Mehrheiten und freundlichen Rahmenbedingungen wie Niedrigzinsen alle Joker in der Hand hielt und dennoch keine Weichen für die Zukunft gestellt hat, bleibt nicht viel mehr als: Never bet against the German economy! Die deutschen Krankheiten in Münchaus Philippika sind Neo-Merkantilismus und Korporatismus mit ihrer Nibelungentreue zu Konzernen und "Familien"-Unternehmen im Auto-, Chemie- und Maschinenbausektor, das starre Bankenwesen (Landesbanken, aber kein Venture Capital), die drei goldenen Kälber Exportüberschuss, Wettbewerbsfähigkeit (durch billige Energie und Arbeitskräfte, nicht durch Innovationen) und Schuldenbremse, Technophobie und die dadurch verschlafenen Megatrends in allen Bereichen der Computertechnik und Digitalisierung, geopolitische Abhängigkeiten (Russland, China) und verfehlte Einwanderungspolitik für Hochqualifizierte. Höchstens am Rande thematisiert werden von ihm Sozialabgaben und Steuerpolitik, Rentenversicherung (fehlende Kapitaldeckung), demografischer Wandel (Fachkräftemangel, Altenrepublik), Vermögensungleichheit, Verarmung und Bürokratiefragen. Das kann man so machen, schließlich soll man über das schreiben, wo die eigene Expertise liegt. Gewünscht hätte ich mir dennoch, dass die Auswahl der Problembereiche kommentiert und begründet wird.
Seltsam wird es aber bei der politischen Analyse. Münchaus Bild der politischen Lage in Deutschland ist schnell gezeichnet: Die Macht der SPD mit ihrem Einfluss auf Konzerne durch von ihr dominierten Betriebsräten und durch ihre Genossen der Bosse von Rau bis Schröder sei so überzogen groß wie schädlich. Die Abhängigkeit von Russland (die von Brandt und Schmidt durch ihre Ostpolitik eingeleitet und von Schröder, Steinmeier, Gabriel mit nur wenig Zutun von Kohl und Merkel zementiert wurde) und China (seit Schmidt) geht wie die Schuldenbremse und ihre Umsetzung in den 2010ern (durch Steinbrück, nicht etwa Merkel und Schäuble sowie später Lindner) auf die Kappe der SPD. Das Ende der Atomkraft geht natürlich aufs Konto ihres Juniorpartners, den Grünen. Das ganze gipfelt dann in der Einschätzung, dass die SPD mit der Ostpolitik die deutsche Einheit verzögert habe: Die Sowjetunion und ihre Satellitenstaaten wären ohne Ostpolitik womöglich früher zusammengebrochen. Die Union dagegen wird ganz anders porträtiert: Wirtschaftspolitik vor 1970 wird überhaupt nur einmal erwähnt, nämlich um Ludwig Erhard ein Riesenpauschallob anzudienen – der, wie man mittlerweile weiß, völlig überzogene Legendenstatus Erhards gehört wohl unausrottbar zur Folklore des deutschen Wirtschaftsjournalismus. Kohl sei zwar zu tadeln für die Fehlentscheidung Kabelfernsehen statt Glasfaser, aber da war er wohl nur ein schlecht beratener, aber eigentlich herzensguter Onkel. Die Rolle Kohls und seiner Regierungen in der Außenwirtschaftspolitik, der Währungs- und Arbeitsmarktpolitik, der Rentenpolitik, bei der deutschen Einheit und der europäischen Währungsunion usw. sind dagegen kein Thema. Merkel schließlich ist in Münchaus Narrativ zwar seit 2005 immer dabei und durchaus eine Machtfigur. Irgendwelche policy goals werden Merkel und ihrer Union jedoch anders als der SPD und den Grünen nicht zugeschrieben, so dass sie ihr von Münchau trotz ihrer Machtfülle nichts Konkretes zugerechnet wird. Wenn das wirklich Münchaus Position ist, sollte er diese Asymmetrie deutlich machen und verteidigen: Die SPD sei verantwortlich dafür, schlechte Entscheidungen umzusetzen, während die Union kein politisches Programm außer Machterhalt habe. Kurz: Die SPD ist der Brandstifter, die Union die Feuerwehr, die Öl ins Feuer gießt. ((Ich bin nicht der einzige, der diese Darstellung einseitig findet, siehe z.B. die Rezension von Howard Davies, https://literaryreview.co.uk/bumps-in...))
September 17, 2025
Amazing book from start to finish. Very easy to understand the downfall of Germany and consequently Europe. A must read for everyone as this has direct impact in all european lives.
December 17, 2024
This is an absolutely fascinating book, probably one of the best ones on economic policy and the recent history of political economy within the European Union I have read in the past couple of years. Wolfgang Munchau is a veteran of reporting on European and German economy and politics in English-language media, and I devour his columns in the New Statesman every week.
This book deals with what he calls the end or a fall of the neo-mercantilist economic strategy, which arose from the ‘ordo-liberal’ social (and to some degree cultural order) in the later post-war era. This entails understanding Germany as a workshop of the world for advanced machinery, taking advantage of cheap Russian energy, American protection and Chinese markets for automobiles. One of the features of this paradigm is the constant presence of the discourse of ‘competitiveness’ in economic policy - not seen to that extent anywhere else in the Anglo-American world. He argues that Germany has traditionally defined itself through ‘productive national labour’ (Wertarbeit) and is unable to collectively produce an alternative to this economic system, as the whole German economic (and social) system is based on not making the necessary changes.
Muchau effectively puts the blame on the connection between the elite establishment in large businesses (primarily automotive and chemical industries - BASF especially) and the leadership of the three main German parties (CDU/CSU, SPD and FDP). He explains the problems of this firstly through the fall of the state banks (Landesbanken) and their use as political tools for individual state governments (off-sheets fiscal stimuli).
Muchau shows how German leaders repeatedly made bad bets in technology policy because they could not effectively imagine the world changing (inability to anticipate the rise of the digital). For instance, they cancelled the decision to abandon the rollout of fibre-optic cables in the 1980s under Helmut Kohl (every household was meant to be connected by 2015) and instead wired the country with copper wires (allegedly, and this is not in the book, because the ministry of infrastructure at that time has stocks in the copper business leaving the country). Even now, about 7/10 households are connected to the internet through copper cables. Optic connection is only at around 10% of connections - contrast that with France’s 51,4% and Spain’s 81,2%! A similar case was later in the 1990s with a bet on analogue HDTVs.
This later manifests in German logistical and cultural unpreparedness for the digital reality. Munchau shows that, for instance, the popularity of Manfred Spitzer, a crusading anti-digital neuroscientist, very popular on German TV, who fights against the broader and more thorough inclusion of digital education in schools, with the German Teachers’ unions being apparently extremely anti-digital. Accompanying this cultural antipathy is the lack of infrastructure. Mobile phone coverage is poor in Germany because the government prioritised revenue generation in auctions for licenses in the 1990s rather than complete coverage. Interestingly, Munchau relates the decline of the relative position of the German industry in digital to the loss of leading edge in quantum physics during the Nazi era, which led to the birth of semiconductors and other digital technologies on the basis of basic scientific discoveries, often done by German emigres in the United States.
But most blame is shifted on the top political leadership and particularly the SPD, the Social-Democratic Party of Germany (Munchau sees Merkel only as a complicit maintainer of the system - she had the majorities for reform but did not have any idea what to do). Gerhart Schröder (Chancellor between 1998 and 2005) was known as ‘autokanzler’, due to the influence of the industry on his policies and politics. For instance, Peter Hartz, who designed his 2003 labour market reforms (that were effectively an internal devaluation responding to German entry into the Eurozone with an overvalued exchange rate), was a former automotive executive. The automotive industry in Germany currently constitutes about 20% of the value added.
Even the debt brake was invented by Peer Steinbrück, an SPD (!!!) finance minister in the first Merkel grand coalition after the 2005 election (what Munchau calls ‘probably the worst fiscal rule by any government anywhere’ - and I wholeheartedly agree). Steinbruck was a member of the fiscally conservative clique within the SPD, which also included Schröder - overreacting to both 1970s policies as well as to 2003ms excessive-debt procedure that Germany had to go through as it violated the arbitrary Stability and Growth Pact. Munchau presents Scholz as not part of the SPD’s pro-Russian club but rather as a pro-Chinese and transatlantic politician.
The Free Democratic Party (Freie Demokratische Partei - FDP) and mainly its leader, Christian Lindner, are presented as being in the pockets of Porsche and Volkswagen. They campaigned on digitalisation and modernisation in 2021, promising new startup policies, but then wasted their political capital on following the absurdly strict fiscal rules (maximum 0,5% deficit per year).
Fascinating are also chapters and parts about Germany's inability to catch up with the US or advanced economies in general in the novel technologies. They have spent 10 billion euros on a subsidy for the Intel factory, which was only to help reshore the semiconductor industry for the car industry. Even the national AI strategy from 2018 (‘as everything in the Merkel era full of bloated claims and poor implementation’) relied on outdated AI technology from the 1990s, like expert systems, and not machine/deep learning. Responding to that, the SPRIND agency set up in 2020 (Federal Agency for Disruptive Innovation) - modelled on DARPA, but with a budget of only about 180 million (Munchau: ‘A German bureaucracy that manages disruption sounds like an oxymoron - like civil war or German diplomacy’.)
Great are also chapters on Germany’s relationships with Russia and China. A lot of blame again on Schroder (deservedly), but Munchau also shows how the energy crisis is only a part of the story of the decline of German industry (and how the modern Green party was born out of the anti-nuclear protests of the 1970s, with them now in government accomplishing this goal being the ultimate end of their efforts). He explains the surge in the appeal of AfD in East Germany in the past decade through the hit by the sanctions on Russia by smaller firms in the former DDR, historically dependent on exports to Russia.
Germany has a dilemma about China - it needs China to grow its outputs but not too much so that it doesn’t compete with Germany itself in its key sectors, like automotive or advanced manufacturing. Interesting was there the level of independent trade policy that the individual Landen (and even city-states like Hamburg under Scholz) do. Munchau also calls the German Eastern Business Association ‘the NRA of German business’ for its extensive influence and role in fostering bad economic policies of dependence on Russian and Chinese markets, which in turn perpetuate harmful economic strategy.
The last chapter of the book is interesting, as it presents the seemingly paradoxical aversion to high-skilled migration and openness to low-skilled one. Munchau recommends only a single policy in the end - a full European monetary union with a single sovereign asset (European bonds). I think this is sensible, but I am also quite fatalistic for Germany.
Much of what is described in this book is very relevant to other countries within the economic and political orbit of Germany - like my home, Slovakia, which is even more dependent on the automotive sector. The problem is that even if our political and business elites can be similarly connected, the economic policy is so random and badly implemented that even operating in the same neo-mercantilist paradigm (and some absurd affinity towards Russian energy), we are in reality organisationally unable to be so dependent on one type of policy.
Really insightful book on an extremely timely topic.
This book deals with what he calls the end or a fall of the neo-mercantilist economic strategy, which arose from the ‘ordo-liberal’ social (and to some degree cultural order) in the later post-war era. This entails understanding Germany as a workshop of the world for advanced machinery, taking advantage of cheap Russian energy, American protection and Chinese markets for automobiles. One of the features of this paradigm is the constant presence of the discourse of ‘competitiveness’ in economic policy - not seen to that extent anywhere else in the Anglo-American world. He argues that Germany has traditionally defined itself through ‘productive national labour’ (Wertarbeit) and is unable to collectively produce an alternative to this economic system, as the whole German economic (and social) system is based on not making the necessary changes.
Muchau effectively puts the blame on the connection between the elite establishment in large businesses (primarily automotive and chemical industries - BASF especially) and the leadership of the three main German parties (CDU/CSU, SPD and FDP). He explains the problems of this firstly through the fall of the state banks (Landesbanken) and their use as political tools for individual state governments (off-sheets fiscal stimuli).
Muchau shows how German leaders repeatedly made bad bets in technology policy because they could not effectively imagine the world changing (inability to anticipate the rise of the digital). For instance, they cancelled the decision to abandon the rollout of fibre-optic cables in the 1980s under Helmut Kohl (every household was meant to be connected by 2015) and instead wired the country with copper wires (allegedly, and this is not in the book, because the ministry of infrastructure at that time has stocks in the copper business leaving the country). Even now, about 7/10 households are connected to the internet through copper cables. Optic connection is only at around 10% of connections - contrast that with France’s 51,4% and Spain’s 81,2%! A similar case was later in the 1990s with a bet on analogue HDTVs.
This later manifests in German logistical and cultural unpreparedness for the digital reality. Munchau shows that, for instance, the popularity of Manfred Spitzer, a crusading anti-digital neuroscientist, very popular on German TV, who fights against the broader and more thorough inclusion of digital education in schools, with the German Teachers’ unions being apparently extremely anti-digital. Accompanying this cultural antipathy is the lack of infrastructure. Mobile phone coverage is poor in Germany because the government prioritised revenue generation in auctions for licenses in the 1990s rather than complete coverage. Interestingly, Munchau relates the decline of the relative position of the German industry in digital to the loss of leading edge in quantum physics during the Nazi era, which led to the birth of semiconductors and other digital technologies on the basis of basic scientific discoveries, often done by German emigres in the United States.
But most blame is shifted on the top political leadership and particularly the SPD, the Social-Democratic Party of Germany (Munchau sees Merkel only as a complicit maintainer of the system - she had the majorities for reform but did not have any idea what to do). Gerhart Schröder (Chancellor between 1998 and 2005) was known as ‘autokanzler’, due to the influence of the industry on his policies and politics. For instance, Peter Hartz, who designed his 2003 labour market reforms (that were effectively an internal devaluation responding to German entry into the Eurozone with an overvalued exchange rate), was a former automotive executive. The automotive industry in Germany currently constitutes about 20% of the value added.
Even the debt brake was invented by Peer Steinbrück, an SPD (!!!) finance minister in the first Merkel grand coalition after the 2005 election (what Munchau calls ‘probably the worst fiscal rule by any government anywhere’ - and I wholeheartedly agree). Steinbruck was a member of the fiscally conservative clique within the SPD, which also included Schröder - overreacting to both 1970s policies as well as to 2003ms excessive-debt procedure that Germany had to go through as it violated the arbitrary Stability and Growth Pact. Munchau presents Scholz as not part of the SPD’s pro-Russian club but rather as a pro-Chinese and transatlantic politician.
The Free Democratic Party (Freie Demokratische Partei - FDP) and mainly its leader, Christian Lindner, are presented as being in the pockets of Porsche and Volkswagen. They campaigned on digitalisation and modernisation in 2021, promising new startup policies, but then wasted their political capital on following the absurdly strict fiscal rules (maximum 0,5% deficit per year).
Fascinating are also chapters and parts about Germany's inability to catch up with the US or advanced economies in general in the novel technologies. They have spent 10 billion euros on a subsidy for the Intel factory, which was only to help reshore the semiconductor industry for the car industry. Even the national AI strategy from 2018 (‘as everything in the Merkel era full of bloated claims and poor implementation’) relied on outdated AI technology from the 1990s, like expert systems, and not machine/deep learning. Responding to that, the SPRIND agency set up in 2020 (Federal Agency for Disruptive Innovation) - modelled on DARPA, but with a budget of only about 180 million (Munchau: ‘A German bureaucracy that manages disruption sounds like an oxymoron - like civil war or German diplomacy’.)
Great are also chapters on Germany’s relationships with Russia and China. A lot of blame again on Schroder (deservedly), but Munchau also shows how the energy crisis is only a part of the story of the decline of German industry (and how the modern Green party was born out of the anti-nuclear protests of the 1970s, with them now in government accomplishing this goal being the ultimate end of their efforts). He explains the surge in the appeal of AfD in East Germany in the past decade through the hit by the sanctions on Russia by smaller firms in the former DDR, historically dependent on exports to Russia.
Germany has a dilemma about China - it needs China to grow its outputs but not too much so that it doesn’t compete with Germany itself in its key sectors, like automotive or advanced manufacturing. Interesting was there the level of independent trade policy that the individual Landen (and even city-states like Hamburg under Scholz) do. Munchau also calls the German Eastern Business Association ‘the NRA of German business’ for its extensive influence and role in fostering bad economic policies of dependence on Russian and Chinese markets, which in turn perpetuate harmful economic strategy.
The last chapter of the book is interesting, as it presents the seemingly paradoxical aversion to high-skilled migration and openness to low-skilled one. Munchau recommends only a single policy in the end - a full European monetary union with a single sovereign asset (European bonds). I think this is sensible, but I am also quite fatalistic for Germany.
Much of what is described in this book is very relevant to other countries within the economic and political orbit of Germany - like my home, Slovakia, which is even more dependent on the automotive sector. The problem is that even if our political and business elites can be similarly connected, the economic policy is so random and badly implemented that even operating in the same neo-mercantilist paradigm (and some absurd affinity towards Russian energy), we are in reality organisationally unable to be so dependent on one type of policy.
Really insightful book on an extremely timely topic.
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