Germany’s gross domestic product has been falling since the third quarter of 2022, causing fears of the first two-year-long recession since the early 2000s. German farmers are openly protesting new climate regulations that would raise the price of diesel fuel, vital for tractors and farm machinery. This discontent is mirrored by the general public, which is opposed to higher energy costs that drag down the economy. Recent polls show a significant shift in public opinion that’s increasingly opposed to the coalition government.
Unlike the U.S. House of Representatives or the Senate, where invariably one party secures a ruling majority, multiple German parties must form a coalition to reach the required 50%+1 majority threshold. Currently, the Green Party, the Social Democratic Party, and the Free Democratic Party comprise this coalition. The latest polls show all these parties polling far below their 2021 election results while the more right-leaning parties, such as the Christian Democratic Union and the Alternative for Germany, are surging in popularity.
The recent economic slowdown has resulted in widespread political discontent, and the core of the slowdown has been disastrous energy policy.
Instead of the government focusing on making energy affordable, it has continued its commitment to the “Energiewende”—the “Energy Transition”—a government project aimed at radically shifting from fossil fuels to renewable energy sources such as solar and wind. One of the project’s stated goals is to increase the use of renewable energy sources to 80% by 2030 and 100% by 2035. The end goal is to reach net-zero carbon emissions by 2045.
Germany’s closure of its nuclear plants in April 2023 has made achieving net zero targets significantly more challenging, given that nuclear power is capable of generating substantial amounts of carbon emissions-free electricity. The economic effect of these decisions is palpable for ordinary people, who feel it each month when paying their energy bills.
According to the most recent data published by the German Federal Statistical Office, consumers have been paying an average of 46 cents per kilowatt-hour for electricity. For comparison, the average price of electricity in the United States during December was just under 13 cents per kWh. Cost disparities can also be seen in the price of gasoline. At the fuel pump, German consumers pay an average price of $7.23 per gallon, compared to $3.33 in America.
These high energy costs are slowing other aspects of the economy, leading to dramatic losses in purchasing power for consumers and threatening to make production unprofitable for many companies. In addition, small businesses and farmers, which rely on electricity and fertilizers to operate, respectively, have been hit extremely hard by these recent price increases.
In addition, the slowdown in global trade is profoundly affecting Germany’s export-centric economy, exacerbating the overall economic decline. Unfortunately for Germans, recent economic forecasts do not offer much hope either. Economists predict the economy to grow only by around 0.2% in 2024.
Large German companies have already taken notice and acted accordingly. Around 67% of German companies have moved at least some operations abroad, citing high energy prices and inflation as their main reasons for leaving. This wide-scale deindustrialization is especially prevalent for the mechanical engineering, industrial goods, and automotive sectors—the backbone of the German economy.
The tipping point came in February, when the famous family-owned dishwasher manufacturer Miele announced that it would cut thousands of jobs and move production to Poland. Luxury car manufacturer Porsche initially planned on building a new car battery manufacturing plant domestically and then switched gears by announcing plans to open the proposed plant in America. Both the lack of future investment and deindustrialization create a snowball effect, worsening the situation.
Widespread dissatisfaction with Germany’s green policies should be a lesson for America. At the heart of the problem is Germany’s failure to allow for the energy industry to create affordable energy for its citizens. For years, the anti-business green energy agenda has decreased carbon emissions but increased the economic crisis. Germany’s experience shows that America needs a sound energy policy, not the arbitrary climate goals the current administration is pursuing.
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