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10 October 2023

Where has Germany gone wrong?

Every twenty years or so since the second world war, Germany hit a crisis that often looked insurmountable: in the late sixties, in the early-to-mid 1980s, in the early 2000s, and right now. These past crises looked bleak at the time, but were usually resolved by a change of government or reforms. Today's crisis is more fundamental. It is about Germany's role in the world and about its economic growth model. There is no obvious reform agenda that will get Germany through this. Nor is there an alternative government or coalition waiting to try something new. This time is really different.

Russia's invasion of Ukraine is not the deep cause of anything, but the trigger of everything. Until a year ago, Germany revelled in its role as a geopolitical fence sitter. It was a country that was simultaneously of the east and of the west: dependent on the US for security, on Russia for gas, and on China for exports. 

Russia's invasion exposed the unsustainability of diplomatic fence-sitting. It also exposed Germany's over-dependence on old gas-guzzling industries, and its lack of industrial modernisation. My sense of the debate in Germany right now is that the appetite for deep change is not all that big. We may instead be looking at a scenario very similar to what happened to Italy after the introduction to the euro - a long period of economic depression, a weakening of the classic political centre and a rise of extreme parties. 

This summer, the far right Alternative for Germany firmly established itself as Germany's second largest party nationwide - larger than any of the parties in Olaf Scholz' three-party coalition, including his own Social Democrats. 

We know from Tolstoy that unhappy families are unhappy in their distinct ways. The AfD is east Germany's unhappy family, and it is like no other. It started as a movement of west German economics professors who were opposed to the euro. The party was later infiltrated by nationalists, opposed to immigration, EU membership, and anything foreign. Its centre of political gravity shifted from the west to the east, and in the process it became progressively more extreme. I would not call the party fascist, but some of its members have been tolerant of neo-Nazis, and participated in Neo-Nazi protests. 

According to the latest polls the AfD currently enjoys support from around 21-22% of the electorate nationwide. In east Germany, the AfD polls between 29 and 35%. In four out of five east German states it is the largest single party in the polls. 

The trigger behind the most recent upsurge of the AfD is Germany's support for Ukraine after Russia's invasion. Most East Germans oppose weapons deliveries to Ukraine. Is this a leap back to the old thinking?

Those who look at Germany from London, Washington or Brussels, were initially impressed by Olaf Scholz' now famous speech in March 2022, in which he announced a Zeitenwende, a change of era that would bring Germany into the security architecture of the west. I am more cautious. I don't think Germany will revert to its cosy relationship with Russia. But the promise of a change of era in German foreign policy and especially for more investment into defence will remain unfulfilled. Germany will continue to struggle to meet the Nato defence spending target of 2 per cent of economic output. Many Germans, especially in the east, are not on board. 

Russia's invasion triggered this new division, but tensions have been brewing under the hood in other areas for some time: East Germans are the least Green, the least woke, the least globalist among the Germans. They don't see themselves as part of a US-led western world. 

For post-war West Germany the US became the main political and cultural reference point. For east Germany, the main partner was, of course, Russia. Unification did not end the division. Economically, it was a takeover, not a merger. What reconnected east and west in later years was Russia. When Gerhard Schröder became German chancellor in 1998, one of his priorities was to foster business ties with Russia. When Schröder left office in 2005, Angela Merkel, the first east German leader of united Germany, took over. She was personally not as close to Putin as Schröder, but pursued the same policies. And like many east Germans, and unlike Schröder, she was a fluent Russian speaker. During her long reign, Germany cemented its position as an industrial powerhouse, and increased its reliance on Russian gas and oil further. German industry became one the main economic beneficiaries of industrial globalisation and integrated global supply chains - and Russia gradually turned into a strategic partner for unified Germany. Eastern eastern German politicians, other than Angela Merkel, suddenly had an important role to play. They knew the Russians better than the west Germans. 

That world ended at a stroke on February 24 last year. The first strains of that model already became visible towards the end of the last decade. The German car industry doubled down on old diesel engines, and failed to invest into the infrastructure needed to build electric vehicles. The Nord Stream pipelines were an attempt to tweak the playing field in favour of German industrial companies. All this happened while China and the US invested in artificial intelligence, electric cars, and other 21st century technologies. The German economy was still doing well in that period. But what many observers did not see is that it was still stuck in the analogue age of diesel engines and copper telephone cables. 

All this came crushing down with the pandemic and the war. The most visible end-of-era symbol was the explosion of three of the four Nord Stream pipelines in 2022. We don't know for sure who did this. There have been reports in the German media that a Ukrainian commando was behind the bombing. 

Whether true or not, the attack created facts. When the debris of the pipeline at the surface of the sea marked the end of era. Denial is usually the first of the stages of mourning. Merkel herself is still in denial. So is her party and much of western Germany. It was all Putin's fault. Nothing to do with us. So the story goes. 

East Germany, meanwhile, has already transgressed to the second stage of mourning - anger. They know that German-Russian relations will not reset to the status quo ante, even under a new Russian leader. The war created new facts. Germany imposed economic sanctions on Russia, along with the rest of the western world. According to figures by the German Eastern Business Association, trade with Russia has collapsed by 76 per cent since the outbreak of the war. To replace the Russian gas, Germany rushed to build port terminals for liquified natural gas, which can be transported on large sea vessels, which require a special port infrastructure to unload. Today, Germany buys its gas supplies on world markets. The gas pipelines will never be rebuilt.

The AfD is the main beneficiary of the geopolitical, economic and social shifts. It is in east Germany where this already plays out in full. But as the most recent state elections in Bavaria have shown, they are getting stronger in the west as well.

A longer version of this column first appeared in the New Statesman on October 4

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