MNI INTERVIEW: German Carmakers To Be Green Economy Champions

Massive investment by Germany’s big car manufacturers will maintain the country’s industrial powerhouse status as the world moves towards a greener economy, but government borrowing curbs threaten to undermine infrastructure spending and dampen growth, the chief economist of one of the country’s biggest labour unions representing two million members told MNI.

While employers’ organisations and political parties ranging from the liberal Free Democrats to the Christian Democrats have sought to present Germany as nearing catastrophe - citing loss of global competitiveness, labour market issues, high taxes and the need for pension reform - ver.di’s Dierk Hirschel said the country’s outlook remains promising.

“Germany is still an export champion within Europe, so there is not a lack of competitiveness. We had a decline in exports, but that is due to the decline of global demand after the pandemic. The surplus went down, but it's still a surplus,” he said in an interview in which he pointed to how Germany’s biggest firms are working hard to remain world-beaters.

A DIFFERENT VOLKSWAGEN

“Have you seen the investment agenda of Volkswagen? By 2027 this company is going to invest 180 billion euros, mainly in electrification and digitalisation. I can't imagine that they will not be successful,” he said. (See MNI INTERVIEW2: Germany Must Balance Green Drive-Ex 'Wise Man')

“In the next three years we will see a different Volkswagen, and the same is true for BMW, and other German car manufacturers . On the other side, what's the market share of Chinese electric cars in Europe? Something like 8%. Maybe this is going to increase towards 10%. That’s not market dominance.”

Hirschel attributed sluggish growth to private consumption weakness prompted by high inflation and declining real wages, a construction industry crash caused by record-high interest rates, and lower government spending. Germany’s seasonally- and calendar-adjusted factory orders slid by 11.7% in July, while the economy is expected to shrink by 0.4% this year before adding 1.1% in 2024.

With Berlin having already announced a EUR 31billion cut to 2024's federal budget, lack of public investment poses a danger to energy generation, education and health, infrastructure in general and housing, Hirschel said.

“The cause of that is the debt brake,” he said. “If the government is not willing to put more money into the system [via borrowing or tax increases] I don't see how employment and wages will increase in education and health services to overcome the current crisis of these sectors.

“If so, we’ve got real problems, even regarding economic growth, because investment in infrastructure is essential.”

WAGE GROWTH LAGS

While an 11% average increase in public sector wages has provided some support for consumption, German unit labour costs have increased less than in France, Italy and the UK over the last two years, he noted, adding that there was “no hint of a wage-price spiral or anything like it.” (see MNI INTERVIEW: Pricey Energy Means Tough Decade For Germany)

“The problem is that the coverage rate of collective bargaining is only at 50%. That means that in spite of the success of collective bargaining, the unions are not able to steer the general wage development in this country anymore. We still have the problem that in a lot of services real wages are still going down,” he said, pinning the blame for Germany’s August’s harmonised inflation of 6.4% - 1.1 percentage points above the euro area average – on growing corporate profit margins.

Still, Germany’s companies require help with high energy costs during the transition to green power generation, in return for guarantees, he said.

“If we're talking about subsidies for energy costs, that’s not something my union opposes. But we say that if we do that, we also have to make subsidies for consumers, for social institutions, for hospitals and kindergartens. And if industrial firms get subsidies they have to have collective bargaining agreements. They have to have work councils. They have to pay decent wages.”