Germany is the ‘sick man of Europe’ — and it’s causing a shift to the right, top economist says
Germany is once again the “sick man of Europe,” according to Hans-Werner Sinn, president emeritus at the Ifo institute, and the challenges that poses, particularly in terms of the country’s energy strategy, could serve to benefit increasingly popular right-wing parties.
The “sick man of Europe” moniker has resurfaced in recent weeks as manufacturing output continues to stutter in the region’s largest economy and the country grapples with high energy prices. The label was originally used to describe the German economy in 1998 as it navigated the costly challenges of a post-reunification economy.
“It is not a short-term phenomenon,” Sinn told CNBC’s Steve Sedgwick at the Ambrosetti Forum in Italy on Friday.
It “has to do with the automobile industry, which is the heart of the German industry and many things hinge on that,” he said. Cars were Germany’s main export product last year, accounting for 15.6% of the value of goods sold abroad, federal statistics office data shows.
Germany reported a foreign trade deficit for the first time in decades in May 2022, totaling 1 billion euros ($1.03 billion). The country had briefly shifted from a trade surplus to importing more than it exports.
Germany has since returned to a trade surplus, which came to 18.7 billion euros in June 2023, according to the federal statistics office, but exports remain sluggish.
Plunge in business sentiment
Sinn said investor doubts about the feasibility of Germany’s sustainability goals also play into the description of the country as the “sick man of Europe.”
One target currently in the sights of the German government is becoming carbon neutral by 2045. These plans came into sharp focus as Europe looked to detach itself from Russian gas supplies following the Kremlin’s full-scale invasion of Ukraine, and prices shot up.
Some described Germany’s ambitions to move away from Russian gas as “wildly optimistic,” particularly in light of the country’s climate targets.
Rain falls over the finance district and the European Central Bank (ECB) in Frankfurt, Germany.
Thomas Lohnes | Getty Images News | Getty Images
Speaking at the Ambrosetti Forum, Sinn said a reliance on renewable technologies such as wind and solar would cause a “volatility problem,” which could pose issues for businesses.
“You need to fill [those gaps] with conventional energy so it’s very difficult to have this double structure which we will have to sustain in the future. On the one hand the green volatile energy and on the other hand the conventional energy to fill the gaps,” he said.
“This is double cost. This is high energy cost and this is not good for industry. It is a difficult course.”
Germany could lose 2% to 3% of its current industrial capacity as companies move operations to countries where gas and electricity are cheaper, such as the U.S. or Saudi Arabia, according to a research note released in August by Berenberg.
Uncertainty about energy prices has likely contributed to a “plunge” in business sentiment, Holger Schmieding, chief economist at Berenberg, wrote in the note. He added that “the current policy uncertainty and the dismay about half-baked government plans are not structural factors that look set to hold back the German economy for long.”
There is a backlash clearly … The population is now moving to the right.
Hans-Werner Sinn
President emeritus at the Ifo institute
But there are growing signs of public disenchantment in the shift to a more sustainable Europe, with a so-called “greenlash” emerging as people feel the cost impacts.
Sinn suggested there would be political ramifications as a result of the focus on sustainability.
“There is a backlash clearly … The population is now moving to the right,” Sinn said, referring to the popularity of the right-leaning Alternative for Germany party, which won a district council election for the first time in June.
“I am not moving to evaluate anything here, but … the policies which were, for ideological reasons, completely overdrawn … Pragmatism is a little bit missing in current policy,” he added.
Germany’s Federal Ministry for Economic Affairs and Climate Action did not immediately respond to CNBC’s request for comment.
Environment
Wait, Rivian (RIVN) could really save the Volkswagen Golf? The next-gen EV promises to deliver
The iconic hatch may have found its saviour. Volkswagen confirmed that the fully electric Golf is already in the works and will be one of its first EVs to feature Rivian’s (RIVN) advanced software.
Rivian tech will power up the Volkswagen Golf EV
Can Rivian help the hatch find its place as an EV? That’s what Volkswagen is betting on. The next-generation hatch, set to arrive as the ID Golf, will feature an entirely new platform and software.
In November, Volkswagen and Rivian officially launched a new EV software alliance, “Rivian and VW Group Technology.” The German auto giant plans to invest up to $5.8 billion into Rivian and the new joint venture by 2027.
The partnership will build upon Rivian’s current electrical architecture and software stack, used in the R1S SUV and R1T pickup, for its next-gen “software-defined” EVs.
Rivian’s midsize R2 will be one of the first to feature the new platform, while Volkswagen plans to launch a series of next-gen “high volume models that are fully capable of advanced automated driving functions” built on the stack.
The first will be the production version of the ID.EVERY1, VW’s entry-level EV which will start at under $22,000 (20,00 euros) when it arrives in 2027.
After that, the Volkswagen will launch the electric Golf based on Rivian’s EV software stack. Volkswagen’s tech boss, Kai Grunitz, said “The ID 1 will be the very first vehicle with that architecture and will be the frontrunner on our side for the ID Golf.”
Grunitz added that starting with ID.1 “reduces the risk” because it requires less functionality than what the ID. Golf requires.
Since Rivian’s software system is much simpler with just a few ECUs compared to its current models (which run on way too many different units), VW can offer various levels of functionality.
“Vehicles in lower price segments will just need one zone, while a premium vehicle might need three or four, depending on functions,” Grunitz explained.
Rivian’s software and EV architecture are “highly flexible and highly updatable,” VW’s tech boss explained, adding, “We see it already on the road with Rivian today,” with regular OTA updates adding new capabilities.
This is “the next step” for Volkswagen so it can “offer new functions to customers even after they have bought their car” without even touching them.
According to Autocar, the electric Golf will also be one of the first vehicles built on its new SSP platform. With an 800V architecture, the next-gen platform will significantly improve charging times and efficiency.
Volkswagen’s head designer, Andreas Mindt, confirmed to Autocar that the team is officially working on the ID.Golf. “The Golf is a special thing within Volkswagen, and you have to stay true to the Golf,” he said, but he was tight-lipped about the design.
The upcoming electric Volkswagen Golf is expected to arrive around 2028 and be sold alongside the current gas-powered model.
Electrek’s Take
Although the Golf has historically been one of Volkswagen’s top-selling vehicles and is still popular, it’s starting to lose ground to new, more advanced electric models in the same segment.
Volkswagen already tried to revive the Golf as an EV. Remember the e-Golf? The electric car was retired to make way for the more advanced ID.3.
With Rivian’s help, the next-gen Volkswagen Golf EV promises to deliver much more with advanced tech and software.
Meanwhile, Rivian plans to launch an even smaller and more affordable R3 crossover and sporty R3X model. Will it compete with the electric Golf? We’ll find out more soon. Check back for the latest.
What do you think? Can Rivian preserve the Golf’s legacy as an EV? Let us know in the comments.
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