Germany: workers will pay the cost of the economic crisis

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The whirlwind of serious shocks to the global economy over the last two years, initially as a result of the corona-virus pandemic and the devastating environmental destruction, and now increasingly as a result of the wars, has put the German economy under severe pressure. While it was possible to keep the economy afloat during the pandemic, mainly thanks to gigantic rescue packages, the war in Ukraine and the associated global offensive by the USA have had a major on its impact at an economic level.

The impact of the war on energy supplies, growth and competiveness

The sanctions imposed on Russia as a result of the war have forced German capital to make major cuts to its energy supply and at the same time have caused huge and lasting price increases across the board, especially in the energy and food sectors. A gigantic programme of renewal and conversion of the energy supply has begun ... and shortly after its adoption, it has already encountered obstacles and difficulties getting the necessary funding.

The switch to new technologies (heat pumps) and the widespread provision of charging stations for electric vehicles, etc. is inconceivable without massive financial subsidies from the state. After initial promises of widespread subsidies, these and other subsidies have now been cut back considerably. Owing to inflation and the accompanying rise in interest rates, the banks are in a difficult position. The situation in the construction industry is most critical and there has already been a reported 30% drop in orders with many construction sites having to shut down.

While the defence industry is booming with a record numbers of new orders, production is collapsing in other parts of the economy, with the result that Germany is registering the lowest growth in Europe and has even slipped into recession. At the same time, inflation has weakened competitiveness,  particularly in the energy market, as the price of gas and electricity in Germany is up to five times higher than that in the USA.

The increased vulnerability of supplies

Furthermore, the Covid pandemic had already exposed some vulnerability due to the heavy dependency on suppliers of medical products from China and India. In an attempt to wrestle Russia to the floor economically, the entire energy sector has been turned on its head, and the new dependencies taking place only create exposure to the likelihood of blackmail and threaten to weaken competitiveness even more. The war in the Middle East and the spread of the conflict across the region has now created new bottlenecks in the supply chains on the Red Sea/Djibouti Strait as a result of the Houthi missile attacks (with ships resorting to longer and more expensive detours around the coast of southern Africa).

Germany's opposition to the US strategy against China and the intensification of US pressure

In addition to the sanctions package against Russia and the attempt to bleed Russia dry economically, the US has also strengthened its package of sanctions against China, both directly and indirectly, targeting all companies operating in China. At the same time, the USA has introduced the Inflation Reduction Act, which is intended to incentivise investment in the USA. This poses the threat of deindustrialisation in Europe. Also, US companies that invest in Europe are being hit by punitive measures from the US government (Ford, for example, has decided to cut back investment at its plant in Cologne, switching it to the USA, with 1700 redundancies). German capital knows that if Trump becomes president again, not only will the tone become harsher, but it also means that conflict between Germany and the US will intensify across many sectors.

The US-China trade war

While the USA wants to bring China to its knees, Germany is simultaneously being squeezed by China. From the global Silk Road project to the acquisition of companies and plants, Chinese competition is pushing further and further ahead. After Germany had gained a considerable share of the Chinese car market, with several German car manufacturers generating around 40% of their sales in China at peak times, China has for some time now been on the offensive in the e-car sector. Alongside Tesla, Chinese competition is the most dangerous for the German automobile sector.

On the one hand, the US threat means that German companies will withdraw from China, either completely or in certain areas, and some German car plants will be converted into (seemingly) independent units in China so it can maintain a local presence.

Should the West's economic war against China escalate, VW China, for example, has plans to separate itself from the parent company at some cost. "Consequentially, German investment in China has recently increased sharply, raising the German investment portfolio there to record levels. Economists admit that this effect of the Western economic war is paradoxical and not actually intended"[1].

In the event of an escalation, production "in China for China" should be able to continue by decoupling and taking advantage of lower Chinese wages. The plan of retaining production in Germany would only lead to dramatic job losses in Germany. This is why the most serious cuts in the automobile industry, which has long been a mainstay of the German economy, are now imminent.

In short, the intensified military offensive against China by the USA, together with the economic sanctions packages, is already putting German capital in a difficult situation.  And with China's dramatic rise over the years, it provided a large market and a workshop for the world, from which Germany was able to benefit for a long time. But this is all now rebounding detrimentally on Germany.

Even though Germany certainly has a common interest in working with the USA to weaken China, it does not want to be marginalised in the process. There will inevitably be more conflicts between the USA and Germany and between Germany and China - and also within the German bourgeoisie in dealing with this problem (it is already a major bone of contention between the SPD and the Greens in the coalition government).

The boomerang: From a beneficiary of globalisation to a period of growing instability

With the opening up to the East and the gradual integration of most countries into the EU, Germany gained many advantages: e.g. access to cheap labour. There would be no building site, no craft business, no delivery of goods without lorry drivers from Eastern Europe and no retirement home or hospital, no agricultural business without low-wage workers, especially from Eastern Europe. In this respect, the downward pressure on wages increased and maintained competitiveness alongside the well-known market expansion into Eastern Europe through the common market. The worldwide surge in globalisation, which had occurred with the integration of China and other parts of the periphery, and which then declined worldwide with the Covid pandemic, the Ukraine war and the attempt to contain China, is now noticeably impacting Eastern Europe. The Ukraine war has destabilised the whole region (for example, with the Poland-Hungary border blockades). The consequences of the war, the renewed dominance of national interests and the strong presence of populist forces throughout Europe are generating more areas of conflict and uncertainties in the economy.

From the mountain of debt to an avalanche of debt

The brutal intensification of competition and the global competition for investment opportunities is forcing every state to sink into spiraling debt, using massive subsidies to attract capital. Competition without gigantic subsidies, using taxpayers' money, is unthinkable. No project of modernisation and/or renewal/repair of infrastructure facilities can take place without injections of state money (billions of euros of support for investments in semiconductor  production facilities is one example). This combination of subsidies, state reconstruction measures and rescue packages had already been systematically introduced after 1989 following reunification, with the result that an astronomically high level of debt has now been reached. As long as interest rates were low or even zero, the cost remained "low". But with the rise in interest rates fueled by the war in Ukraine, a turning point has now been reached.

Unleashing a wave of attacks with the "budget crisis"

The latest "budget crisis" is only the start of the debt frenzy. The latest parliamentary-judicial fiasco has forced the government, or rather it has taken advantage of it, to implement a series of brutal price increases and cuts that will cost every family dearly. Gone are the phases of "temporary relief" and "cushioning the blow" after corona-virus and the "concealment" and cover-up of the costs of the war. A brutal downturn is now imminent. Even if Germany still has the most resources in the EU for the distribution of state subsidies due to its continuing superiority, the benefit is getting smaller and smaller for capital, forcing it to go on to the attack.

The initial consequences of the price increases for gas had already led to redundancies and relocations at the major chemical companies, as well as job cuts. Due to the "green" transition, massive job cuts are imminent in the automobile industry, while many department stores and shops are closing in the retail sector. The watchword everywhere is "cut labour costs"! The resulting shortage of housing and the collapse of investment in the construction sector will mean that tenants will have to spend an even higher proportion of their income on rent[2].

Labour shortage - a new feature of capitalist decadence in the phase of decomposition

Several factors are coming together:

- the demographic problem. As in many industrialised countries, the "native" population is shrinking (we will not go into the reasons here);

- as a result of years of merciless staff cuts and worsening working conditions (especially in healthcare, geriatric care, education and transport), many employees are worn out and suffering from burnout;

- at the same time, as elsewhere (from China to the USA), the motivation to work hard is decreasing, which is driving many to quit their jobs (see the OECD’s 2022 ‘PISA’ study;

- the level of education has fallen in many areas due to a state of decay;

- a lack of unqualified and, above all, qualified personnel (in the semiconductor industry alone, the shortage of skilled workers has risen from 62,000 to over 80,000), in other words, production is being held back due to labour shortages, while a lot of employees in other sectors are losing their jobs.

The crisis no longer has just one face - mass redundancies - it has several faces: redundancies and labour shortages.

At the same time, German capital is handicapped by political incompetence, xenophobia and populism, which is hindering even the influx of qualified labour. Finally, the unbelievable inertia of German bureaucracy should be mentioned. There is no effective management of immigration. All this restricts competivity, while at the same time a whole campaign against illegal immigration is underway and stricter deportation measures have been announced.

What lies in store for us?

As a result of the mounting costs of the wars, the costs of environmental destruction, inflation, the energy crisis, the costs of competition, the costs of debt and the price of decades of neglect - or the deliberate dismantling and decay of infrastructure - the cuts in the education system, the simultaneous incessant rise in costs for the accommodation and maintenance of the unstoppable number of refugees, German capital will have to resort to even more brutal action.

It will also have to avoid pressure from the USA and China. How will the situation in the USA affect the Ukraine war and its financing in particular? What will be the consequences of the worldwide unraveling of globalisation? Will Germany continue to reach joint agreements with the EU, especially with France? So far, the tendencies of every-man-for-himself have also increased here. Generally speaking, even in the Covid era, there was initially a dominant tendency to go it alone and corresponding chaos in dealing with vaccines and masks. No matter how the German bourgeoisie reacts, everything boils down to stepping up the attacks against the working class.

The situation and dynamics of the crisis in Germany are an expression of a global situation in which the entire burden is falling on the shoulders of the working class. We must not accept this and must unite to defend our living conditions at an international level. We will discuss what this means in another article.

TW 19.02.2024


[2] After the crash landing in the construction sector, 30% of all construction sites are at a standstill, with a shortage of more than 700,000 homes already. Many tenants spend 30-40% of their income on rent. The numbers employed in the construction industry has already fallen by 30,000.


Economic crisis