Inflation and War: Why the Great Crisis in Germany Didn’t Happen – Economy


Anyone who thinks of the year 2022 rubs their eyes. Russia attacked Ukraine, prices climbed to record highs – and so did the German economy still grew stronger than in five of the past ten years? Yes, actually, contrary to all horror forecasts. The plus in a bad year secures income for the citizens. It has a lot to do with government, business, and consumers collectively acting wisely rather than being fooled by the crazy things that are happening. Now they should tackle a few challenges this year in order to maintain prosperity in Germany.

Consumers acted sensibly when they shrugged off the horror forecasts that the economy would collapse dramatically. Despite the high prices, they consumed more than in previous years, which provided enormous support for the economy. The citizens did not spare their fears because they trusted that they would keep their jobs despite the uncertainties. When a major (corona) crisis really broke out in 2020, the government secured the jobs through short-time work assistance. That creates trust.

The companies also did well in a difficult year. They navigated through the uncertainties. They saved gas or replaced it. And they agreed to pay rises in large industries like chemicals and metals that workers had to pay because of the inflation urgently need.

Despite some weaknesses, the new federal government has done some things right. It has stuck to sanctions against aggressor Russia, despite foolish warnings from the far left and far right that Germany must not anger the big energy supplier. And it relieved citizens of the high energy costs. At first too hesitant, but with the electricity and gas price brake now strong.

Industry should continue to trust Germany as a business location

This should encourage citizens to continue consuming this year despite the initially still high prices. It could help to understand that the Russian attack and the gas supply freeze were the main causes of record inflation – so it doesn’t have to be a permanent phenomenon, as long-term warners claim. After initial hesitation, the European Central Bank is demonstrating that it is curbing price increases. This should discourage citizens and companies from constantly demanding higher wages and prices, which would really perpetuate inflation.

It is to be hoped that industry will trust Germany as a business location. The German export model is not dead, even if Russia and China are increasingly abandoning globalization based on partnership. Industry has a future in Germany, even if this seems illusory in view of the expensive energy.

It is clear that the government needs to support companies more. Germany should forge new alliances in Asia, Africa and America with a strong EU in order to counteract deglobalization. The Mercosur agreement with South America and a trade agreement with the USA would be important for this. Greens and leftists, who themselves rail against free trade with liberal democracies like Canada, misjudge the basis of our export-driven prosperity.

When it comes to energy, the government must take complaints from some companies seriously that the gas and electricity brakes are not helping them. The problem goes beyond that. If energy stays significantly cheaper in the USA and Asia in the long term, companies will leave. The only thing that helps is to rapidly expand renewable energies and to make hydrogen mass use. In the transition phase, help for companies makes sense in order to reduce the cost disadvantages compared to other regions. It all costs money, but it helps the climate and jobs. At a time when China or the USA are active in terms of industrial policy, Germany would have to say goodbye to its industry without an industrial policy.



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