Germany is making all the wrong economic choices, over and over again

No, the Germans don't always win, as in football. Germany has long functioned as the economic locomotive of Europe, but will have to give up that role, Oh Shame, in favour of France, its former Bête Noire, which will also gain politically. That Germany has feasted on the Russian gas trunk for too long, we already knew. It had also, in a radical response to the Fukushima nuclear disaster, decided to withdraw completely from nuclear power in 10 years, Merkel's Atomausstieg, leaving it with little choice today but to fall back on its old coal plants. France, on the other hand, remains fully committed to nuclear power, making French energy prices about half as low as German prices. And French energy prices, in turn, are a multiple of US prices. Germany's energy-intensive industry gets the full brunt. Germany is rapidly building out alternative energy capacity, but a full Energiewende will still take decades. Its intentions are noble, the energy transition necessary, but this way the opportunity cost for Germany is immense. On October 21, the German parliament approved a €200bn support package to ease the energy woes of German companies and households after it had previously abandoned the constitutional debt brake. Financial markets, which have long had blind faith in German government bonds, are starting to get nervous. October's auction of seven-year German government bonds was a disaster. The German Treasury found a buyer for less than half of the offer, the worst result ever and unprecedented for what was until recently Europe's top debtor. In contrast, the French Treasury managed to place new issues smoothly.

Germany seems very adept at making all kinds of wrong choices. It is - or was - addicted not only to Russian gas, but also to Chinese capital and the Chinese market. China is Germany's most important trading partner. In 2021, trade between the two countries accounted for 246 billion euros. Germany also accounts for almost half of European investments in China. German luxury car brands, in particular, are betting heavily on China, building massive production capacity there. Merkel's love affair with China has spilled over to Olaf Scholz, who did everything he could to push through the deal by which Hong Kong-Chinese Cosco Shipping Group managed to buy into the port of Hamburg, Germany's largest seaport and Europe's main port for trade with China, on October 26. However, Germany is again betting on the wrong horse. The inevitable annexation of Taiwan sometime within the next 5 years will take deglobalisation to light speed and hurt the German economy badly. Germany also shares a major demographic problem with China. China's demographic implosion, in which its working-age population will fall by 70 per cent, is mirrored in the sharp decline of Germany's. Germany's working-age population peaked at 51 million back in 1998 and is steadily dipping towards 33 million. Demand for its cars, accounting for 5% of German GDP, will go the same way. And not just in China. Electric cars last up to 1 million kilometres. That, plus autonomous driving and car sharing, means far fewer cars will be needed in the future, German and otherwise.

France is far less affected. Not only does it have a significant energy advantage, it is much less dependent on China and has better demographic prospects. Germany may have three UEFA Cups of football in its showcase and France only two, but in the future Germany will have to cede the economic growth cup to France.

Jan Longeval is owner of Kounselor Consulting and Senior Advisor to Eurinvest Partners