Can Germany reinvent its economy?
Germany was once the economic powerhouse of Europe. But since 2019 its economy has barely grown. The country is now under new leadership—but is Friedrich Merz the man to pull Germany out of its perma-slump?
Hosts: Ethan Wu and Mike Bird. Guests: The Economist 's Christian Odendahl; Monika Schnitzer, chair of the German Council of Economic Experts; and Philippa Sigl-Glöckner, founder of Dezernat Zukunft, a macro-finance think tank.
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Telegraph
4 hours ago
- Telegraph
Germany's crisis-hit car industry is the key to its rearmament
Once the pride of the nation, Germany's car industry is reeling from an annus horribilis of poor sales, job losses and the threat of unprecedented factory closures. But defence firms have found a silver lining in the decline of the 'auto' trade: rehiring skilled workers to build equipment for a new German army that may soon have to defend Europe from Russia. Sources in the European defence industry, which will play a critical role in German rearmament, say they are eager to snap up engineers who have been let go by car companies so they can be put to work producing tanks and infantry fighting vehicles. Discussions are also being held in Berlin about repurposing car factories to produce military equipment. 'Let's put it this way: there's a similarity in the jobs, which means teaching an expert to weld vehicles other than cars takes less time than [training] a new person,' said a defence industry source. 'Thus, job offers usually work quite well for those who left the car industry.' It comes as Friedrich Merz, the German chancellor, seeks to turn his country into a major European security power, after decades of Berlin taking a back seat on geopolitical issues. Mr Merz, the centre-Right Christian Democrats (CDU) leader, has vowed to increase German defence spending to 5 per cent of GDP and transform the Bundeswehr, the German armed forces, into the 'strongest conventional army in Europe'. The CDU chief has created a special €500 billion (£430 billion) fund to rebuild Germany's crumbling infrastructure, a key requirement for the rapid transit of Nato troops and tanks to its eastern flank. His coalition government is also mulling a possible return to conscription, and last month unveiled the deployment of a new brigade of soldiers in Lithuania to defend the border with Russia – the first permanent military deployment by Germany since the Second World War. The dramatic shift in German defence policy, known as the 'Zeitenwende' or turning of the times, has created unprecedented opportunities for the German arms industry, which used to be a pariah in the country due to its Nazi past. At the same time, years of economic stagnation, Donald Trump's tariff war, poor electric car sales and fierce competition from China have all wrought havoc on the once mighty German car industry. A recent study by the Institute for Economic Research (Ifo) said the German car industry is facing its worst slump since the pandemic, with two fifths of businesses struggling with a shortage in orders. 'Intensifying competition, especially from outside Europe, seems to be increasingly taking its toll on the German automotive industry. The crisis in the German car industry is continuing,' the Ifo said. Another study by EY, an audit firm, found that the German car industry suffered 19,000 job losses in 2024 and now only employs around 760,000 people in Germany, the lowest figure since 2013. But Mr Merz's rearmament policy could come to the rescue. Rafael Loss, a German security expert at the European Council on Foreign Relations, said discussions were under way to convert German car factories, which might otherwise have closed down, so they can be used to build weapons, such as one Audi factory in Brussels. Volkswagen, which is Europe's biggest carmaker but losing sales to China, is also understood to be looking for alternative uses for its factories in Dresden and Osnabrück. 'In cases where you have a car factory that already has skilled workers and is equipped for production of heavy machinery, that is one of the stronger arguments for the defence industry getting involved to prevent job losses,' he said. Mr Loss added that electricians could also have a valuable role to play in developing military technology that has similar design features to civilian cars. 'This could be applied to micro-electronics, the sort of electronic devices you see in automated cars such as proximity sensors for parking,' he said. 'They are not too different from the sensors being used in military vehicles.' Germany's 'Zeitenwende' policy began under Olaf Scholz, the previous chancellor, who announced the concept in a major speech in 2022 responding to Vladimir Putin's illegal and full-scale invasion of Ukraine. He vowed that Germany would no longer be a bystander on issues of European security, as he created a €100 billion special fund for the Bundeswehr, in addition to giving billions of euros in aid to Ukraine. Mr Scholz was initially reluctant to provide German military support, due to fears of angering Putin, but eventually sent tanks, infantry fighting vehicles, air defence systems and huge quantities of ammunition to Kyiv. His successor, Mr Merz, wants to take German support even further, having swept to victory in elections last February and formed a coalition propped up by Mr Scholz's Social Democrats. 'Germany is back,' he has declared. Now there is speculation as to whether Mr Merz will finally agree to send powerful long-range Taurus missiles to Ukraine, a step that the government of Mr Scholz always maintained was a step too far that would drag Berlin into open conflict with Moscow. Mr Merz's government maintains a policy of secrecy on the nature of arms supplies to Ukraine, which it says is to keep Moscow guessing, although critics wonder if it really means that he has developed cold feet about the Taurus system. The coalition is also hampered by doveish figures in the Social Democrats, who hold many of the same views about Russia as their former leader Mr Scholz. At the same time, the rise of the Kremlin-friendly far-Right Alternative for Germany (AfD) party – which came second place in the last election – is putting pressure on Mr Merz to temper his actions against Russia. Some German officials have been slightly taken aback by the highly positive response to Mr Merz's rearmament policy, fearing that expectations have been set too high for his government. 'We know expectations in Europe are high, and we view this defence reform as an important and necessary step,' one source said. 'But buying tanks, building tanks, this is not something that Germans are enthusiastic about,' they added, citing Germany's previous and far more infamous attempt to build the biggest army in Europe.
Reuters
2 days ago
- Reuters
German military deems Russia 'existential risk' to nation and Europe, Spiegel reports
Berlin, June 20 (Reuters) - The German military deems Russia an "existential risk" to the country and Europe, according to a Spiegel news magazine report that cites a new Bundeswehr strategy paper. The confidential document warns that the Kremlin is aligning both its industrial and leadership structures "specifically to meet the requirements for a large-scale conflict against NATO by the end of this decade." Russia is verifiably preparing for a conflict with NATO, particularly by strengthening forces in western Russia "at the borders with NATO," the report cites the strategy paper as saying. As early as next year, Russia could have around 1.5 million soldiers on active duty, according to the paper. Germany can only counter this threat "with a consistent development of military and society-wide capabilities," the document concludes. Military personnel and experts developed the strategy paper over the past 18 months to serve as a guideline for the future direction of Germany's Bundeswehr, the Spiegel report said. The defence ministry did not immediately respond to a request for comment. German Chancellor Friedrich Merz recently backed U.S. President Donald Trump's demand to hike NATO's defence spending target to 5% of national GDP, a major shift made possible by a historic loosening of Berlin's constitutional debt brake.
The Independent
2 days ago
- The Independent
Erdogan vows to boost Turkey's missile production as Israel-Iran war escalates
As the war between Israel and Iran escalates, Turkish President Recep Tayyip Erdogan has said he plans to strengthen the country's deterrence capabilities so that no country would dare attack it. Erdogan announced plans this week to step up Turkey's production of medium- and long-range missiles. Erdogan discussed the Iran-Israel war with German Chancellor Friedrich Merz in a telephone call on Friday. He told Merz that the Iranian nuclear issue can only be resolved through negotiations, according to Erdogan's office. Despite Turkey's tense relations with Israel, analysts and officials don't see an immediate threat of the conflict spreading into NATO-member Turkey. Still, some see the move by Erdogan as a sign that the Israel-Iran war could trigger a new arms race in the region, with countries not directly involved in the fray ramping up their military efforts to preempt future conflicts. Ahmet Kasim Han, a professor of international relations at Istanbul's Beykoz University, said that Turkey was reacting to what he described as an unraveling world order. 'The Turkish government is drifting toward what is the name of the game in the Middle East right now: an escalation of an arms race,' he said. Israel and the U.S. have set a high standard in aerial warfare, creating a technological gap that Turkey and others are eager to close, Han said. Erdogan said following a Cabinet meeting on Monday that 'we are making production plans to bring our medium- and long-range missile stockpiles to a level that ensures deterrence, in light of recent developments." 'God willing, in the not-too-distant future, we will reach a defense capacity that is so strong that no one will even dare to act tough toward us," Erdogan said. In an separate address days later, the Turkish leader highlighted Turkey's progress in its domestically developed defense industry, that includes drones, fighter jets, armored vehicles and navy vessels, but stressed that continued effort was needed to ensure full deterrence. 'Although Turkey has a very large army — the second largest in NATO — its air power, its air defense is relatively weaker,' said Ozgur Unluhisarcikli, a Turkey analyst at the German Marshall Fund think tank. The ongoing conflict has reinforced the importance of air superiority, including missiles and missile defense systems, prompting 'countries in the region, including Turkey to strengthen its air power,' he said. Since the start of the conflict, Erdogan has been scrambling to end the hostilities. He has held a flurry of phone calls with leaders, including U.S. President Donald Trump and Iranian President Masoud Pezeshkian, offering to act as a 'facilitator' for the resumption of negotiations on Iran's nuclear program. There are deep concerns in Turkey that a prolonged conflict will cause energy disruptions and lead to refugee movement from Iran, with which it shares a 560 kilometer-long (348 mile) border. Turkey relies heavily on energy imports, including from Iran, and rising oil prices due to the conflict could aggravate inflation and further strain its troubled economy. Turkey has strongly criticized Israel's actions, saying Iran has the legitimate right to defend itself against Israel's attacks, which came as nuclear negotiations were ongoing. Once close allies, Turkey and Israel have grown deeply estranged, especially after the start of the war in Gaza in 2023, with Erdogan becoming one of Israeli Prime Minister Benjamin Netanyahu's fiercest critics. Relations further deteriorated following the fall of Syrian President Bashar Assad's government, as Israel grew increasingly wary of expanding Turkish influence in Syria. Earlier this year, Turkey and Israel however, established a 'de-escalation mechanism' aimed at preventing conflict between their troops in Syria. The move came after Syria's Foreign Ministry said that Israeli jets had struck a Syrian air base that Turkey reportedly hoped to use. Israel hasn't commented on Turkey's announcement that it plans to ramp up missile production, but Israeli Foreign Minister Gideon Saar responded to Erdogan's criticisms of Israel over its attack on Iran in an X post on Wednesday. He accused Erdogan of having 'imperialist ambitions' and of having 'set a record in suppressing the freedoms and rights of his citizens, as well as his country's opposition.' Erdogan's nationalist ally, Devlet Bahceli, suggested that Turkey was a potential target for Israel, accusing the country of strategically 'encircling' Turkey with its military actions. He didn't elaborate. Analysts say, however, that such statements were for 'domestic consumption' to garner support amid growing anti-Israel sentiment in Turkey. 'I don't think that Israel has any interest in attacking Turkey, or Turkey has any interest in a conflict with Israel,' Han said.
