Clouds and a full moon are seen at dusk above the lit Reichstag building, in Berlin, on Nov. 13.JOHN MACDOUGALL/AFP/Getty Images
For the European Union, and Germany in particular, Donald Trump’s election victory is so bad it’s good.
By which we mean that the Republican sweep of the White House, the Senate and the House of Representatives represents such a grave threat to the EU’s wealth-creation machine that the EU – again, especially Germany – has no choice but to get off its aging, flabby buttocks and fight back to preserve all that is still fine and beautiful on the clapped-out continent. Mr. Trump’s arrival, and his threats to hammer EU exports with punishing tariffs – he once called the bloc a trade “foe” – are the kick the EU needs to reinvent itself. Like fast.
But don’t count on it working. The EU’s problems are structural, not cyclical, and will not be easily fixed. The headline economic figures tell the story. The bloc’s per capita GDP is 30 per cent less than America’s. The GDP of the euro-zone countries (the 20 EU countries that use the common currency) is expected to expand by 1.2 per cent in 2025, according to the International Monetary Fund; the U.S. economy will grow next year by almost double that rate.
Germany is the EU’s economic engine and manufacturing hub and has been living on borrowed time since the 16-year era of chancellor Angela Merkel ended in 2021. She left behind the foundations for economic malaise, even crisis, that could make the country a sitting duck for a Trump barrage.
She ran small fiscal surpluses (at least until the pandemic hit in 2020) at the expense of public investment, which as a share of GDP has been in steady decline for decades. There is no doubt German GDP would have been stronger if the federal and state governments had not been utterly wedded to the thrift philosophy that underpinned the country’s debt brake. “Deficit” is still a bad word in Germany. Productivity and infrastructure suffered.
Ms. Merkel and her predecessor, the Vladimir Putin-loving Gerhard Schroeder, made Germany utterly dependent on cheap Russian gas at the expense of sensible energy diversification. What could go wrong? Russia’s invasion of Ukraine in 2022 is what went wrong. Mr. Putin, the Russian President, was quick to cut off gas supplies to Germany as punishment for Berlin’s support of Ukraine, triggering a crisis that swung like a wrecking ball through energy-intensive industries such as steel, autos, chemicals, smelters and bakeries. Today, Volkswagen, Germany’s biggest employer, is closing factories partly because of the energy-related squeeze on profit margins.
At the same time, Ms. Merkel coddled the automakers and their diesel technology to the virtual exclusion of climate-friendly models. Her gambit backfired. In 2015, the Dieselgate scandals tarnished the German car makers, notably VW. Worse, their devotion to the old technology put them well behind in the electrification race. Tesla set the pace with its battery-powered wonders, and today, Chinese EVs are coming on strong.
There’s more. Ms. Merkel handed Germany’s fleet of nuclear plants a death sentence after Japan’s Fukushima nuclear disaster in 2011. At the same time, coal-fired plants were to be phased out because they were incompatible with net-zero goals. That meant renewable energy – wind and solar – would have to fill the gap. They did not, far from it, and the virtual elimination of Russian gas made a bad situation worse. The last three German nuclear plants closed a year and a half ago under the now-collapsed coalition government of Ms. Merkel’s successor, Olaf Scholz, whose failure to reverse the nuke-elimination plan was a foolhardy exercise in self-sabotage.
Now comes Mr. Trump and his rage against the EU export machine. He has mused about blanket tariffs of as much as 20 per cent on imports, not just those from the EU. While they may not be that high, targeted tariffs seem likely and European automakers would almost certainly get hit. “I want German car companies to become American car companies,” he told a rally in Georgia in September, implying that only foreign companies that produce autos in U.S. factories would receive merciful treatment – God help the ones that do not.
Germany has ways to Trump-proof itself.
The first is to scrap the debt brake, which limits new debt to no more than 0.35 per cent of GDP. Doing so would allow Germany to fix the country’s shabby infrastructure, ramp up military spending (Mr. Trump has threatened to pull the United States out of NATO unless Europe spends a lot more on defence) and help meet its net-zero pledges.
Reviving the nuclear plants is another option. The cost would be high but maybe not atrocious, since the plants were fairly modern and never suffered a major accident.
Germany can afford to spend, even though the economy is in shallow recession. Its debt-to-GDP ratio is only 62 per cent, less than half of Italy’s, and its borrowing costs are the lowest in the EU. Mr. Trump’s energy mantra is “Drill, baby, drill.” Germany’s might be “Spend, baby, spend.”
While the EU in general and Germany in particular are terrified that U.S. protectionism will wreck their export-driven economic model, there is no guarantee that they will move fast enough to defend themselves from a Trump-driven onslaught. Friedrich Merz, the leader of the conservative Christian Democratic Union and the front-runner to replace the doomed Mr. Scholz, is a debt hawk who may not open the spending spigots to jolt the economy back to life. It was hobbled by Ms. Merkel. Mr. Trump could cripple it.