A decline of the German economy may have unforeseen consequences

What could happen to Europe if the German economic model, which emerged after the regime change in Central and Eastern Europe, finally fails? American geopolitical strategist Peter Zeihan put this question in one of his video podcasts lately. This possibility is not only important in itself, but also because it directly affects the future of the Hungarian economy.

Three circumstances made Germany one of the world’s economic superpowers especially in the last three decades. The first is a strong value-added economy built on a highly skilled workforce.

The problem with this is that German society is aging at a rapid pace. Over the next decade or so, the vast majority of this workforce will retire, and the economy will lose the drive that comes from their work. This will not be replaced by the young people taking their place. There aren’t enough of them.

Retiring people take their pensions and use health services more than before, instead of strengthening the revenue side of the state budget with their income taxes and sales taxes on their purchases. These lost revenues used to contribute to the operation of the back-end infrastructure of the manufacturing industry.

Overall, the foundations of the German economic system are crumbling.

The fact that the second pillar of the superpower status of the German economy has crumbled to dust also adds to this. Namely, the relatively cheap Russian energy sources were lost. It is not only about the sanctions introduced due to the war in Ukraine, but also about the fact that the Germans significantly contributed to the operation of the Russian energy industry in the place of extraction, in Siberia.

After this was abandoned due to the war, there were reports that the Russians were having maintenance problems. Although these remote systems are not affected by the war and the Russians continue to extract and sell oil and gas, which would give them money to maintain their systems.

We don’t know when critical systems may go down in Germany, but it is certain that it will happen – said Zeihan.

The third factor helping the Germans is the role of the United States as a world power. The US, especially the Navy, ensures that the countries of the world can trade safely with each other. For this, they guarantee the safety of the vast majority of shipping seaways, for example.

The Germans used safe seaways mainly to deliver their products to the USA. In the past period, relying on this background, they boosted their trade with China. However, this country is also facing serious difficulties due to aging population. In addition, current US President Joe Biden and former US President Donald Trump are competing with each other as to which of them pursues a stronger protectionist economic policy towards China. Germany will follow that protectionist way.

Because of all this, the entire German system is in danger, expressed Zeihan.

Zeihan is not worried about Germany per se, but because the Germans are at the center of a European multinational manufacturing industry system. The German economy is the most important element of this, but it is far from the only element.

German technology, training, infrastructure and manufacturing supply chains are not limited to Germany. Belgium, Austria, Poland, the Czech Republic, Slovakia, Hungary and Romania are part of this system. It may be the second most important industrial base in the Netherlands and Denmark.

Therefore, if the German system declines, even if the mentioned countries are demographically fine – they are far from it – the entire Central European manufacturing system will be in big trouble. This can then have unforeseeable economic, political and strategic spillover effects.