Industrial Megapower Germany on Edge of Ruin Thanks to Energy War Against Russia

In 2022, Berlin dutifully followed the Biden administration’s instructions to cut Germany off from Russian gas and ramp up arms deliveries to Ukraine for NATO's proxy war against Russia. Two years on, alarming predictions of a major economic crisis and the wholesale deindustrialization of Europe's biggest industrial economy are coming to pass.

Germany’s industrial production has dropped for the seventh-straight month, reaching negative 1.6 percent in December, from negative 0.2 percent in November, according to data released Wednesday by Germany’s national statistics office. Among the sectors most heavily affected was the chemical industry, which faced losses of a whopping 7.6 percent – its worst showing since 1995. Construction suffered a 3.4 percent decline.

Business media took the data as a sign of serious problems in the German economy, with Bloomberg running a piece entitled ‘Germany’s Days as an Industrial Superpower Are Coming to an End’, and citing the energy crisis stemming from the loss of Russian energy supplies as the straw that broke the back of the declining European economic powerhouse.

“There’s not a lot of hope, if I’m honest,” Stefan Klebert, CEO of GEA Group AG, a Dusseldorf-headquartered special purpose industrial machinery company, told the outlet. “I am really uncertain that we can halt this trend. Many things would have to change very quickly.” The company Klebert manages is nearly 150 years old, surviving 20th century crises from the two world wars to the 1929 depression. Now, it and its 18,000+ employees face an uncertain future.

“Despite the motivation of our employees, we have arrived at a point where we can’t export truck tires from Germany at competitive prices,” Maria Rottger, head of Northern Europe operations at French-headquartered tire-making giant Michelin, said. “If Germany can’t export competitively in the international context, the country loses one of its biggest strengths,” he noted.

Some 5,000 of Michelin’s 66,000+ European employees are based in Germany, Austria and Switzerland. In late 2023, the company announced cuts of over 1,500 jobs to its German operations. Goodyear, the American tire giant, announced the closure of two plants in the country, cutting 1,750 jobs.

“You don’t have to be a pessimist to say that what we’re doing at the moment won’t be enough,” Volker Trier, the foreign trade chief at Germany’s Chambers of Commerce and Industry, said. “The speed of structural change is dizzying.”

Dozens of other major German businesses have been affected by the energy crisis, with European chemical giant BASF SE recently slashing 2,600 jobs, and Cologne-headquartered specialty chemicals company Lanxess AG cutting 7 percent of its German workforce.

German businesses have spent years sounding the alarm about problems with infrastructure, an aging workforce, bureaucracy, economic costs associated with the pandemic and falling investment in education and other public services. The crisis in economic ties with Russia, combined with efforts by Berlin’s transatlantic "ally" to pluck high-tech industrial manufacturers out of Germany using generous subsidies, and growing competition from China, have combined to create a perfect storm of unprecedented industrial malaise.

“We are no longer competitive,” German Finance Minister Christian Lindner admitted at a business event in Frankfurt on Monday. “We are getting poorer because we have no growth. We are falling behind.”

With Berlin cutting off cheap and reliable natural gas supplies from Russia in 2022, German businesses now have to pay among the highest energy bills in the bloc, with electricity prices for non-household consumers topping 22 cents per kilowatt hour, up from 15 cents/kwh in 2022 and just 9 cents/kwh in 2021.

“Industry remains a significant drag on growth,” Capital Economics economist Franziska Palmas said of this week’s industrial output data. “We expect his to continue throughout 2024.”

Systemic Problem

Opposition politicians have blamed German elites’ slavish dependence on the United States and “ideologically-motivated” actors in the government for the crisis.

The German government has not only demonstrated its “absolute incompetence,” but “shown that they are absolutely dependent on the United States…They’ve shown their status as a vassal,” Alternative for Germany lawmaker Eugen Schmidt told Sputnik on Friday, commenting on Berlin’s obstinacy in investigating the 2022 attack on Nord Stream – which robbed Germany over 100 billion cubic meters per year in capacity for the import of Russian gas.

Germany is ruled by “actual American agents of influence here in Germany,” Schmidt believes. “They pursue US policy in Germany.” On top of that, the lawmaker said, “they’ve recruited ideologically-motivated people who have no idea how the economy works or how to correctly implement the country’s policies, especially in economic terms, how to protect the country’s interests so that the economy works effectively,” with officials instead focusing on priorities like the climate agenda and immigration, according to the lawmaker.

The consequence is an economy “bursting at the seams, with businesses closing and moving abroad,” and Germany being forced to pay “crazy amounts of money for American liquefied natural gas at the same time that we’re imposing sanctions on [Russian] pipeline gas,” Schmidt said.

Adding insult to injury, despite the economic pain, Berlin has decided to continue pumping billions in additional euros into the NATO proxy war against Russia in Ukraine, committing over €7.6 billion ($8 billion US) in military assistance in the 2024 budget, on top of over €17 billion ($18.3 billion) delivered in 2022-2023, and the more than €40 billion in direct or EU-based economic support.

Russian President Vladimir Putin warned in May 2022 that European powers’ “suicidal” and “absolutely political” move to halt the purchase of Russian energy would boomerang against them.

“Rejection of Russian energy resources means that Europe will systematically become the region with the highest energy costs in the world…This will seriously – and according to some experts irrevocably – undermine the competitiveness of a significant part of European industry, which is already losing the competition to companies in other regions,” Putin said.

For Germany, these words have proven prophetic.

Last month, Putin pointed to a World Bank report stating that Russia had officially overtaken Germany in GDP PPP terms to become the fifth-largest economy in the world.