During the early stages of the sovereign debt crisis in 2008, Angela Merkel’s German government resisted bailing out the periphery countries of the eurozone, especially Greece and Italy. German commentary at the time suggested that the people of Southern Europe were lazy. Ultimately, however, Germany did support the European Central Bank’s rescue legislation. Why the shift?
Largely because Germany’s economy is export-dependent. Berlin wanted to sustain its export markets across Southern Europe. But it knew that the collapse of the euro would mean the reintroduction of the German deutsche mark. The value of the deutsche mark would have been significantly higher than the euro. Germany’s exporters would thus have been at a comparative disadvantage.
This history matters because now, Germany needs that region to agree to reduce its natural gas usage. Germany faces a cold winter because of its deeply misguided policy of relying on Russian energy. Germany trusted Russian President Vladimir Putin. Instead of listening to the echoes of Winston Churchill, Germany listed to the dead voice of Neville Chamberlain: cheap energy in our time. Yet Germany’s economy remains export and manufacturing-centric. Manufacturing accounts for 18% of its GDP. By comparison, manufacturing accounts for about 9% of GDP in France and 10% of GDP in the United States.
Germany’s problem: The price of natural gas in Northern Europe is 20 times higher than in the U.S. German manufacturers are already shuttering operations that are energy-intensive. The German chemicals giant BASF is shutting its ammonia-fertilizer operations. This winter, it will only get worse. German manufacturing will go into a deep freeze. By contrast, the U.S. is a low-cost producer of energy. Here, natural gas costs about $8.00 per 1,000 cubic feet. As noted above, in Europe, natural gas costs almost $200 per 1,000 cubic feet. The U.S. has an opportunity to create a manufacturing renaissance built on the back of low-cost energy and a retained confidence in capitalism.
It is our choice either to lead the world in manufacturing again or to listen to the false promises of the green lobby and liberals who would restructure our economy into a state-directed disaster — one that would ultimately lead to economic weakness and a continuing battle for crumbs.
The economic pie would be larger if we just played to our strengths: low-cost energy and global manufacturing expertise.
James Rogan is a former foreign service officer who later worked in finance and law for 30 years. He writes a daily note on finance and the economy, politics, sociology, and criminal justice.
