In the first quarter of this year, the German economy fell short of expectations, ushering the largest economy in Europe into recession. In an attempt to quickly reinvigorate the German economy, the government initiated a massive investment into clean energies to alleviate the supply shortage of imported oil and gas triggered by developments in the Russo-Ukrainian conflict. However, the true challenge of this German economic recession lies in the slowdown of other European Union countries' economies, which are intimately connected and directly reliant on the German economy. This poses a significant issue across Europe, particularly for EU member states, establishing a delicate and crucial relationship between Germany and other European countries.

Economic Recession: A Hurdle for Growth

Despite a mild winter, which enabled Germany to bravely withstand the winter onslaughts that had previously brought it to its knees on the Russian front during World War II, the country struggles to escape the perilous circles of the economy. Despite this seasonal gentleness considerably mitigating the effects of the energy crisis, the German economy suffered a 0.3% contraction compared to the previous quarter. Business outlook indicators are sparse, while inflation maintains its high level, hitting a rate of 6.3% in May.

In this context, German households had to cut their spending by 1.2%, particularly on food, drinks, clothing, footwear, furniture, household items, and cars. At the same time, German industrial firms had to restrict their production due to the soaring energy costs. Indeed, Europe has turned to the pricier liquefied natural gas to compensate for the disruption in Russian gas supplies via pipelines.

However, the major dilemma Germany faces lies in its exports, which account for almost 35% of its Gross Domestic Product (GDP) - a percentage significantly higher than in most other countries, particularly in the automotive sector. Firms were forced to suspend delivery activities or even sell factories in Russia due to imposed sanctions. Meanwhile, in Asia, the growing popularity of Chinese-made electric cars has led to a drop in German profits. Volkswagen, the region's dominant industrial player, saw a decline of about 20% in its sales in China during the first few months of the year. In a grim prognosis, German industrial companies predict a continued decrease in their production, exacerbating the economic situation even further.

The Competition

Currently, the German economy is at a pivotal turning point, embarking on a stable transition period. It is banking on significant industrial and economic assets to overcome the recession and stimulate sustained growth. Germany, guided by a clear vision at all levels, is focusing on its industrial sector, enjoying continued government support for the economy. With substantial investments in innovation and development, it positions itself in a sector encompassing more than 7,000 industrial companies and employing nearly two million workers. The apparent objective is to gain a competitive edge in the manufacturing market of aircraft, electric vehicles, batteries, drugs, and more.

As the region's leading economy and the principal contributor to the EU budget, Germany finds itself grappling with a complex financial reality. Despite its privileged position, the country faces a decreasing ability to support European investments in the coming years. Indeed, the growth of internal investment needs limits its wiggle room to fully contribute to European projects.

Growing Concerns

The contributions of member states to the EU budget are closely linked to the size of their respective economies. Therefore, it is unsurprising to observe that the largest and wealthiest member countries pay higher amounts into the community budget than they receive back. These funds, received by the EU from its member states, are crucial to finance a multitude of programs across the Union, ranging from agricultural aid to research and development projects, and infrastructure. Yet today, Germany finds itself in need of the very assistance and programs it has been providing. Despite its considerable contribution, the country is grappling with growing internal needs, limiting its capacity to fully support European investments.

To better understand the significance of Germany's contribution, one only needs to examine the figures from 2022. For instance, Germany reached a record level of contribution, amounting to 25.1 billion euros, while its contribution for 2020 stood at 19.4 billion euros. These numbers underscore the extent of Germany's financial commitment within the European Union and highlight the importance of balancing national needs with European priorities.

Looking ahead

Despite the circumstances previously mentioned, there are no significant indicators to suggest that Germany plans to exit the European Union, an institution it has been a cornerstone of since its inception. There is no large-scale movement or major political party in Germany advocating for leaving the European Union. Given Germany's central role in the economic and political spheres within the European Union, any suggestion of a possible exit would have severe consequences for both Germany and the rest of the European Union.

To put it simply… Germany is feeling the weight of a considerable burden and aspires to lighten it.