Germany has weathered the coronavirus pandemic strongly and managed to avoid a catastrophic industrial shutdown after Russia cut off gas supplies, but that hasn’t entirely dispelled fears that economic problems may lie ahead. The past two weeks have provided dramatic evidence that those fears were justified.
Elections in the eastern German states of Thuringia and Saxony earlier this month saw a surge in support for populist parties, dealing a new blow to Berlin’s coalition government and creating further uncertainty about Germany’s ability to attract investment.
Just a day later, Volkswagen AG, the country’s largest automaker, made the shock announcement that it might terminate decades-old labor agreements and close factories in the country due to slumping demand.
BMW then cut its full-year profit forecast, and UniCredit SpA surprised investors and caught the government by surprise with news that it had bought a 9 percent stake in Commerzbank.
“There is no point in whitewashing: Germany continues to lag internationally,” Tanja Göhner, president of industry lobby group BDI, said in the report, urging immediate action to make Germany more competitive and reform its industry-driven economy. Changing Germany “will come at a cost to the economy, politics and society, but not changing will come at a much greater cost to all of us,” the former lawmaker added.
Economic headwinds have been building for some time. Germany’s manufacturing sector, the backbone of the economy, has been hit hard by waning consumer demand in China, a major export market for Germany’s sleek luxury cars and cutting-edge machinery. Rising inflation last year hit households and helped fuel the rise of the far right and far left.
One of the manufacturers hit hardest by slowing demand in China is Volkswagen, which for decades has relied on China as a major source of sales and profits. While China remains an important sales region, the automaker’s market share has fallen in recent years due to fierce competition from more agile Chinese rivals and Tesla.
Competition is also seeping into VW’s home market in Europe, where demand for new cars has yet to recover to pre-pandemic levels and the company’s lineup of electric vehicles is struggling to attract buyers. Inefficiencies and high costs are hampering the industrial giant, which employs more than 600,000 people worldwide. The government’s abrupt decision to end incentives for electric-car buyers, one of many controversial concessions made in last year’s budget talks, only exacerbated those problems.
Still, VW shocked workers and German political leaders by announcing its intention to abandon collective bargaining agreements that have prevented the company from making forced layoffs for the past three decades. The company also said it would consider closing factories in Germany for the first time in its 87-year history.
The statement sparked an immediate protest from the powerful trade union, which has outsized influence at the company even by German standards, and could prove damaging for both sides in upcoming negotiations between management and worker representatives to find a way out of the crisis.
BMW has weathered the auto industry’s transition to battery-powered vehicles in a more pragmatic way, but VW’s smaller peers also contributed to a cascade of bad news this month. The Munich-based manufacturer was forced to cut its full-year profit forecast due to weak demand in China and a recall of 1.5 million vehicles for a possible defect in the braking system.
The systems were supplied by Continental AG, which had a reputation as one of Europe’s most efficient and competitive auto parts manufacturers until its rapid expansion took its toll.
While some of Continental’s businesses, such as its tire division, continue to generate healthy profits, other divisions have faced multiple painful restructurings and thousands of job cuts. Last month, Continental said it was considering spinning off its automotive division, a potentially transformative decision that previous management resisted for years. If it goes ahead, it would highlight just how profound the changes are in the auto industry.
“The mood in the auto industry is rapidly deteriorating,” Anita Woelfl, an industry expert at Germany’s Ifo institute, said in a report last week. “The outlook for the next six months is extremely pessimistic.”
German corporate woes are not limited to its core industrial sector: Early on Wednesday, UniCredit surprised investors by announcing it had acquired a 9% stake in Commerzbank, making it the bank’s second-largest shareholder.
Commerzbank was bailed out by German taxpayers following the financial crisis, and UniCredit’s move comes just a week after the government announced it would cut its 16.5 percent stake in the bank to pave the way for a more independent and competitive bank.
The lender’s sale announcement was a sudden opportunity for UniCredit Chief Executive Andrea Orsel. In a clever deal, Mr. Orsel acquired a 4.49% stake in Commerzbank and the government sold it to reduce its holding in the country’s second-largest bank.
The acquisition appears to have caught both the bank’s management and the German government by surprise, though Orsel insisted in an interview on Bloomberg TV that the German government was “fully aware” of the deal.
Italian banks will now have to find a compromise with key stakeholders, including German government officials, other shareholders and labor union representatives, who have already voiced opposition, saying strong banks are important to maintaining a strong domestic economy.
“German Finance Minister Christian Lindner must clearly commit to Germany as a business location and counter the threat of a takeover of Commerzbank by UniCredit,” Frank Wernecke, head of trade union Ver.di, said in a statement on Wednesday.
Chancellor Lindner, his pro-business Free Democrats and the federal government as a whole are facing growing frustration over Germany’s economic woes and turmoil in key industrial sectors.
This was clearly evident in regional elections in Thuringia and Saxony, where both states saw a surge in support for the far-right AfD and a new left-leaning party that was only formed earlier this year. The AfD defeated its governing rival, and the BSW emerged as a potential kingmaker in both states. The next elections are on September 22 in the German state of Brandenburg, which surrounds Berlin, where the AfD is expected to win or come in second.
With assistance from Zoe Schneeweiss.
This article has been generated from an automated news agency feed without any modifications to the text.
