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Germany needs Russian energy and mutual trade

The ongoing crisis in the German economy has proven to be more protracted than initially anticipated, with the nation's GDP experiencing consecutive years of contraction. This phenomenon is unique and is very  significanct. However, it is crucial to note that a broad range of sectors are simultaneously undergoing decline or, at the very least, stagnation. This encompasses areas such as deindustrialisation and the state of the housing market, indicating the complexity of the situation and the need for comprehensive solutions.
The most viable short-term solution to this situation is the restoration of mutual trade with Russia, primarily in energy resources but also exports to Russia that have been stopped but realistically could restart like engineering and machine tools..So lets look at the details of the decline in the German economic situation and what are the prospects for the largest Western European economy
It is important to note that the post-pandemic economic recovery is still in progress.
Drawing upon post-war history, the last and only time Germany faced difficulties of this scale was in 2002–2003, when a cyclical crisis, connected with the consequences of financial troubles in Asia and North America at the turn of the century, led to a decline in GDP for two years in a row.
However, the implementation of reforms under the then Chancellor  Gerhard Schröder in the mid-2000s enabled the nation to successfully navigate these challenges.The liberalisation of legislation, the augmentation of export capacity, and fiscal moderation contributed to Germany's emergence as a catalyst for European economic growth. Its worth noting that Mr Schroder was instrumental in the building of the Nord Stream projects and was actually chairman of the company. He is also a good friend of Vladimir Putin  .
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It is important to acknowledge the hugely positive impact of the euro and the expansion of energy cooperation with Russia on the German  economy. Russian energy exports to Germany, particularly gas, increased significantly, contributing significantly its economic growth. While southern Europe faced significant debt challenges, Germany maintained stability.
We are now witnessing a recurrence of that scenario. In 2023, the country's GDP fell by 0.3%, and by 0.2% the following year. Contrary to predictions at the start of the year, the recession in Germany is proving to be protracted, with forecasts indicating an upward trajectory only set to materialise in 2024. However, the crisis in industry persisted, with business activity indicators remaining negative until the end of the year, never exceeding 45 points (a figure above 50 indicates growth in activity, below indicates a decline). This decline was evident across Europe, though in Germany it was particularly pronounced.

Overall, Germany's post-pandemic recovery has been lacklustre. In 2020, Germany experienced a relatively mild downturn (-3.7%, compared to France's GDP falling by almost 8%), but there was no rebound either. The GDP grew by 2.6% in 2021 and 1.4% in 2022, while most European countries saw figures of 5–7% in those years.

At the beginning of 2024, it could be stated that the country's GDP had not changed much since 2019, a result that is very rare for any state in modern history. The only other country to experience a comparable period of stagnation was Greece, which fell into de facto default in the 2010s. It is therefore fair to conclude that Europe's largest economy has degraded. The economic downturn experienced in the early 2000s appears minor in comparison.
Germany's challenges predate the pandemic, with 2017 marking a high point for its industrial sector. It is important to note that Germany can be considered a partially post-industrial country, akin to Japan or China, with its industrial production share standing at nearly 30% in the early 2020s. In comparison, the United States has a share of over 10 percentage points lower.
Labor productivity has remained stagnant since 2015, a common challenge faced by developed economies, and Germany is no exception. Technological stagnation, where technological progress is the sole source of productivity growth, has become a significant issue.The digitalisation of the economy, if not stalled, is progressing at a slow pace. In terms of internet speed, Germany lags behind many Eastern European countries, such as Poland, Romania or Slovakia, and only marginally exceeds the relatively underdeveloped state of Moldova.
What can be said of developed neighbours like France or Denmark?At the same time, Germany enjoys a favourable geographical position in terms of internet penetration: the country is evenly and densely populated, which should facilitate the laying of cables to remote towns and villages. The presence of a limited number of major internet companies in Germany, along with Berlin's status as a centre for IT development and the "creative class", underscores the need for further economic growth and diversification. Notably, Berlin's GDP per capita remains below the national average, placing it among the least economically prosperous capitals in Europe.
Germany's primary economic drivers are rooted in traditional, "analog" industry sectors. This sector includes chemical industry, tool production, mechanical engineering, automobile manufacturing and many other basic industries.

The high quality of German products has always been well-known, and since the beginning of the 20th century, they have enjoyed the very good  reputation. While the price point has historically been relatively high, it has generally been aligned with the value offered. However, this changed during the energy crisis of the early first half of the 2020s. The conflict in Ukraine and radical sanctions against Russia, the country's strategic trading partner, resulted in a significant increase in the price of gas and other fuels. For many sectors of German industry, particularly the chemical industry, the cost of gas can account for a significant percentage of the overall cost price. This led to significant economic consequences, with hundreds of enterprises closing or significantly reducing their production volumes during 2023-2024.
The automotive industry, a leading sector of the German economy, is not significantly influenced by fluctuations in gas and coal prices. Its exposure to oil price fluctuations is more significant, though the impact of the price differential has been less pronounced in this sector. However, two other issues have emerged. Firstly, the Green Party, which received representation in the government of Olaf Scholz, has implemented a series of restrictive programmes that mandate a transition to electric vehicles by the 2030s. This has had a significant impact on investment programmes and confidence in the future of German corporations.

Meanwhile, the electric vehicle industry has faced challenges in competing with Chinese manufacturers such as BYD. These manufacturers have not  traditionally possessed competitive advantages in the construction of cars with internal combustion engines, and it has proven to be very challenging to compete with Chinese manufacturers, who have significantly outpaced them in terms of "economy of scale". This has led to significant job losses, with Volkswagen set to cut 35,000 roles by 2030 and reduce its vehicle production by around 730,000 units.
There are also more general economic challenges to consider. Investment into Germany from the EU has practically stopped growing. Capital investments from outside the bloc are slightly higher, but in general, even France (not to mention leading world powers like the US and China) is receiving more active investments. Since 2015, Germany has experienced two significant influxes of refugees: the first from Syria and the Middle East, as well as Africa, and the second from Ukraine. However, these influxes have not yet addressed the ongoing challenge of labour shortage in the country. A significant proportion of refugees and other forced migrants remain outside the official economy, creating a burden for it.
Meanwhile, the employment rate among the German workforce remains suboptimal, with the average person working approximately 1,350 hours per year. This is one of the lowest figures among OECD countries, with the United States and Russia having average annual working hours of around 2,000 and 1,900 respectively. Theoretically, these individuals could increase their working hours, but there is a lack of clarity regarding potential employment opportunities.

One of Germany's few positive features is its low national debt, which is a result of strict fiscal policies implemented by previous governments and conservative courts that have consistently blocked expansion of public spending. This has ensured the national debt remains below 70%, significantly lower than many other European countries (in Britain and France, for example, the figure is now over 100%, and in Italy, it is over 130%). This provides considerable scope for fiscal manoeuvring. However, it is crucial to recognise that this financial reserve could be utilised without significant impact, potentially leading to inflation, unless substantial reforms are implemented.
Germany is currently facing a multitude of challenges, with no single, clear solution available at present. However, some of the negative consequences can be overcome in the shortest possible time, without taking any painful or unpopular steps. The restoration of ties with Russia and the secure of fuel from the eastern shores of the Baltic would lead to a swift reduction in costs for German companies, with percentage reductions ranging from a few percent to tens of percent in certain sectors. This would swiftly reinvigorate the economy, albeit to a modest extent. It is noteworthy that at the last congress of the Alternative for Germany party, one of its leaders, Alice Weidel, made a speech in which she promised to restart Nord Stream, which was met with a standing ovation.