Wolfgang Münchau, Kaput. The End of the German Miracle. London, 2024

Book review by Arnout Nuijt

Recently, when a German photographer based in the countryside had to send a large digital file of photos to a client as soon as possible, he decided to test what was faster: sending the pictures via the internet or sending the photos on a USB stick by horse. The horse won.

This story, one of many in Wolfgang Münchau’s latest and highly informative publication Kaput. The End of the German Miracle, shows that economic powerhouse Germany is far behind in the digital field. In fact, the country has a widespread dislike and fear of digitization. In 2020, at the beginning of the pandemic, it turned out that the majority of German schools did not have an internet connection. This was deliberate, because the internet is supposedly not good for children and even dangerous to the human brain, according to modern German teachers and education experts.

Wolfgang Münchau, who has been writing about Germany and the EU for a mainly British business audience for decades (among others as correspondent for the Financial Times), describes the extraordinary industrial decline of his country in detail. Various sectors that had turned the country in to an economic power, including the automotive and chemical industries, now seem to have lost their way. The author attributes this to the neo-mercantilist system that Germany has been applying since the 1950s: an economy focused on and driven by exports. This economic system is politically supported and promoted by both the center-left SPD and the center-right CDU (and the latter’s sister party CSU in the state of Bavaria) and is widely endorsed by the press and German banks. And that’s where the problem is.

Just about everyone, the government, banks, the media, and the largest companies, have been in bed with each other for decades and are blind to the future and new developments. Logically, because part of the banks, the so-called Landesbanken, are owned by the federal states. They are politically controlled and generally have close ties with large companies. The state banks, with their political interference, extended the existence of doomed traditional industries (such as the steel sector) in the past, or tried in vain to prevent the decline of, for example, the heavily subsidized shipbuilding sector.

But it is the all-powerful German car industry, still good for around 16% of German exports, that pulls political strings. Unfortunately this sector is losing ground steadily. First we saw the VW emissions scandal, followed by the industry largely ignoring the rise of the electric car. Meanwhile, the Chinese car industry embraced EV’s eagerly, ironically thanks in part to substantial government support. German car brands are also losing ground in China, their most important market, when it comes to fossil-fueled cars. Due to hubris and an iron grip on politics, a bureaucratic and union-dominated industry lost the initiative, according to Münchau.

But that’s not all. There is misery in just about every sector in Germany, Münchau tells us. Look, for example, at the lagging investments in infrastructure. Indeed, anyone trying to navigate the industrial heartland of the Ruhr area by car today will soon come to a standstill in the maze of broken-up highways, due to long overdue maintenance. The days of unlimited speeds on the German Autobahns are clearly gone. Although maintenance problems in infrastructure are not unique to Germany, it does make you wonder why a well-organized country like that has been able to lose control.

But it is not only the lack of investments in highways and bridges that is breaking the German economy. The blunders are almost too numerous to mention, we read in Münchau. Dependence on cheap Russian gas, dependence on trade with China, the phasing out of nuclear energy, the closure of coal-fired power plants, the lack of investments in fiber optics and the digital economy, the lack of financial infrastructure for start-ups (there is hardly any venture capital), a banking system with arteriosclerosis, it is all just too much.

Münchau does not come up with solutions and according to him there are hardly any bright spots. Yet he declines to mention the defense industry. With dynamic companies such as Rheinmetall, Diehl Defence, Krauss-Maffei Wegmann and many others, large and small, Germany is the only country in Europe that is capable of producing new tanks, armored vehicles, artillery, rockets and ammunition on a large scale.
According to the German Federal Ministry of Economics, the production value of the national defense sector is around 83 billion euros, or only 1.3% of the total production in Germany. But although that amount is in stark contrast to the turnover of the German automotive industry, that 1.3% is almost certain to rise rapidly. In addition to growing exports (for a record amount of 13 billion euros last year), the German government itself is planning a huge rearmament program as well as expansion of the armed forces. In fact, all of Europe urgently needs the production capacity of German arms manufacturers, now that investments in defense are rising sharply in most NATO countries.

Moreover, in a small ray of hope for the German automotive industry, Bloomberg reported in December 2024 that the Hensoldt, company, a producer of, among other things, military radar systems, was in negotiations to take over personnel from two suppliers of the automotive sector. The latter companies are struggling with a decreasing order portfolio, while the expanding defense industry is desperately looking for technically skilled personnel.

With federal elections set for next month, one may wonder if a new government will implement long-awaited economic reforms. Based on polls, Friedrich Merz, the leader of the center-right CDU-CSU alliance, has the best chance of becoming Federal Chancellor. But Merz will need the support of the social-democrat SPD and possibly the liberal FDP in order to form a majority coalition, which makes him vulnerable to traditional forces from the business community as well as trade unions.

At the moment, a clear victory for Merz is no foregone conclusion. The campaign is largely about immigration and not so much about much-needed economic reforms. And with the more vocal Alternative für Deutschland (AfD) on his right flank, Merz’s room for maneuver is limited. For the time being, no major reforms are on the horizon and the all-powerful automotive industry is set to continue dominating German policy in the next few years.

Arnout Nuijt is geopolitical analyst.

This article was abbreviated and translated from the original Dutch version, as published in Wynia’s Week of Amsterdam. A Portuguese language version of this book review was published by Observador of Lisbon.