2024: the year in review

Dear Reader,

This was the year when the first (and most likely last) Olaf Scholz government collapsed under the weight of its own contradictions.

Formed at the end of 2021, the Ampelregierung (traffic light coalition) negotiated its legislative programme at a time when Europe was still a continent without war.

Two months later, Olaf Scholz would declare the Russian invasion of Ukraine to be a Zeitenwende in European history.

That speech to the Bundestag was to become Scholz’ most celebrated moment as chancellor. It is telling that it came so early in his chancellery. Everything he did subsequently was judged against those words. Few of those judgements were kind.

But few would dispute that the timing, from a German domestic perspective, was less than opportune.

Scholz’ legislative programme was written at a time when Germany’s intelligence agencies believed that the build up of Russian troops on the border to Ukraine was just sabre rattling. It was a time when Germany’s political class still believed that Russia would not risk its lucrative energy deals with western Europe.

As we now know, that was a drastic miscalculation - but the Germans were not the only ones who talked themselves into believing that war on the continent of Europe was a thing of the past.

For the next two years, Scholz’ top ministers had to limit the damage that the war unleashed, while simultaneously sticking to a legislative programme agreed upon in a completely different geopolitical climate.

The energy crisis squeezed the bottom line for businesses just at the time when Scholz’ government wanted to push through an expensive programme of rolling out low-carbon technologies and renewing decaying infrastructure. That programme should have been financed in large part through high corporation taxes. But the sudden surge in the costs of production led industry to warn of an exodus if the government didn’t cut the tax burden.

The mass arrivals of refugees from Ukraine came at just the time that the government wanted to raise welfare payments and relax penalties for the jobless. Hundreds of thousands of Ukrainians on jobless benefits would put a sizable and unexpected strain on the federal budget.

The gas supply shock drove up inflation, pushing central banks to respond by pushing up interest rates after years in which they had been set at zero, or were even negative. Suddenly, it was more expensive to borrow money, while the federal government’s debt repayment costs rose tenfold.

Conceivably, if Vladimir Putin hadn’t ordered his troops to cross the border into Ukraine on a cold winter day in 2022, we could be talking about a very different German government.

Each of the parties in the three-way coalition would have been able to show their voters that they had stuck up for their core beliefs.

The SPD would have abolished the hated Hartz IV dole system, which the party faithful blamed for election losses from 2005 onwards. The Greens would have been able to use state money to go on a spending spree for heat pumps, solar panels and electric cars. The Free Democrats would have been able to rebuild rail infrastructure and bring public services into the 21st century.

But, as is the case in many relationships, when money becomes tight, distrust and suspicion sets in. And, given that the Ampelregierung was an avant-garde polyamorous arrangement, the potential for distrust and suspicion was amplified to the umpteenth degree.

In particular, the romantic, spendthrift visions of Economy Minister Robert Habeck jarred with finance minister Christian Lindner’s anxious habit of counting every cent before he allowed a minister to spend it.

The theory that Putin drove a wedge through what could have been a blossoming partnership is one Habeck is particularly fond of. He has spoken wistfully of the “tragedy” of the collapse of the government and publicly mourned the breakdown in his relationship to Lindner, whom he remembered fondly for his great sense of humour.

And, whenever Habeck had to step in front of the press to explain why the country’s economy had once again shrunk, he would never fail to blame the crisis on Putin and say that the government had managed to avert the worst. For reasons out of his control, the past three years have been a blip, but things are about to get better, Habeck never tires of telling us.

For their own reasons, the CDU also like to put forward the “last three years as blip” theory. But in their version it isn’t Putin who is the bogeyman but Scholz. Dogged by allegations of sleaze from earlier in his career, Scholz is a man who lacks the character to lead a German government, they argue.

CDU leader Friedrich Merz scored one of his most memorable direct hits on Scholz when he called him a “Klempner der Macht” during a Bundestag debate in 2023. The insult, meaning a “plumber of power”, stuck. The implication (harsh on plumbers) is that Scholz knows how to screw together a coalition, but he lacks the vision of a true leader.

There is a solution though: a return of the CDU to their rightful place at the head of government and all will be right with the world again.

The problem with both these theories? Not only are they transparently self-serving, they miss out a very large chunk of reality.

In truth, 2024 wasn’t just the year when the Scholz government collapsed under the weight of its contradictions, it was also the year in which the modern German political consensus was revealed as a flawed construction.

Scholz and his crew were the ones driving the vehicle when the wheels fell off. But they weren’t the only ones who built it.

Construction fault 1: German governments have for years preached fiscal discipline while borrowing money like there is no tomorrow.

Germany’s official debt-to-GDP ratio may be fairly low in comparison with more countries like the USA or France. But Berlin signed up to the European Central Bank’s (ECB) policies of printing trillions of euros to ensure that Mediterranean euro members could pay their bills - a policy economists warned would stoke inflation.

What many people tend to forget is that inflation had reared its head before the Ukraine war started. When the Scholz government was negotiating its coalition agreement in late 2021, inflation had already risen to 5.3 percent. It was a number that the ECB brushed off as a temporary phenomenon - a characterization that would make them look very silly in the coming months.

Moreover, German governments have hidden the true costs of exorbitant Covid furlough schemes, the rebuild of the moribund military, and roll out of low-carbon technologies in “shadow budgets” that escape the constitutionally enshrined debt-brake rule.

Even before the Russian invasion of Ukraine, spending commitments had spiralled to the extent that Scholz was only able to satisfy all his coalition partners’ demands by indulging in a highly risky financial trick: he took €60 billion from a shadow budget that had been agreed during the pandemic and transferred it into a green energy fund. When the constitutional court ruled in 2023 that that sleight of hand was illegal, Scholz was forced to concede that he didn’t actually have the funds to finance the rest of his legislative programme.

Construction fault 2: One of the central pillars of western liberalism, Germany became highly reliant on the world’s two most powerful autocracies to the point where it could no longer find a way out. There is little more that is left to be said about the political naivety that led Germany to source almost all its energy needs from Russia pre-2022. Angela Merkel still can’t see why that was a bad idea, but she (and Sahra Wagenknecht) are pretty much the only ones.

China is just as much of a problem. Political and economic shifts in the People’s Republic in recent years have exposed just how exposed Germany is to affairs in the world’s largest communist state.

State-backed Chinese car companies are currently pulling the rug from underneath Germany’s most critical industry threatening layoffs and factory closures, while everything from antibiotics and painkillers to the rare metals needed in wind turbines and batteries would hang in the balance if China decided to start a war against one of its neighbours.

Construction fault 3: a country with aspirations to be a global player thought it could do so with a military that only had enough ammunition to fight a three-day war. For decades, German orthodoxy held that a combination of deeper trade ties (Wandel durch Handel) and diplomacy were the only way to solve international crises. There was a strict taboo around supplying weapons to war zones, while German involvement in western “interventions” was largely tokenistic.

Certainly, this distrust for the militarism of the US or the UK wasn’t always misplaced. But, the belief that diplomacy could be effective without a military power to back it up was historically illiterate. And the belief in the power of trade to deter conflict was simply self-serving. When Barack Obama left the Germans to sort out the Donbas in the wake of the first Ukraine crisis in 2014, Putin rightly guessed that Berlin would bend over backwards to avoid a conflict.

Only in February 2022 did the penny finally drop. Now, Germany is so panicked about its lack of military deterrence that some influential voices have even been calling for the country to build its own nukes. Meanwhile, the resultant strain on the budget is leading to the type of conflict that the establishment managed to avoid for years: welfare or military spending - which is more important?

Construction fault 4: Germany claimed to be building the cheapest energy system in the world… and ended up with one of the most expensive.

The nuclear era ended in 2023 under Scholz. But the decision to prematurely switch off these suppliers of cheap energy was taken by a CDU government under Angela Merkel. It left the country without a reliable base supply of electricity. Germany is increasingly reliant on neighbours for electricity imports in the winter months. At the same time, construction of high voltage cables to connect the dots in its decentralised system is set to cost hundreds of billions of euros.

The uncertainty surrounding energy costs is one of the main reasons that German businesses are investing abroad at record levels, while questions remain over how to cope with the Achilles heel of the Energiewende: the dreaded Dunkelflaute.

Construction fault 5: the German establishment sees itself as a bulwark against the rise of populism, yet it has lacked the courage to push through reforms that will help bring spending under control.

Despite the demographic time bomb of the baby boomers retiring, the age of retirement was dropped for millions of highly skilled workers, something that has exacerbated labour shortages and driven up the tax burden for younger workers. Money has been injected into the health system and transport network without serious attempts to address the wastage of billions of euros every year. Instead of a sober analysis of the black hole that is the national rail system, governments threw money at it via headline-friendly ticket price manipulation that threatened to bankrupt local rail providers. German lawmakers are chronic fiddlers who take Brussels bureaucracy and make it even more cumbersome and costly.

Construction fault 6: governments have acted as if a more intrusive police state can solve the dark side of mass migration.

From the deadly attack on a Christmas market in Berlin in 2016 to the attack on a Magdeburg Christmas market this month by a deranged Saudi doctor, Germany’s police have failed to prevent mass killings by disturbed extremists who made little secret about their willingness to murder innocent people.

In so many terror incidents the attackers had repeatedly broken the law yet were allowed to stay in Germany. The man who drove through a crowd in Magdeburg this month had threatened to carry out terror attacks on several occasions before being given asylum.

For years, the reaction of the establishment has been to promise more powers for the police. But claims that authorities could have stopped these awful deeds if they had been able to use facial recognition technology ring hollow. Most of these terrorists aren’t crack spies, they are cranks who make little secret of their twisted world views.

The solution can only lie in resolving why the police aren’t able to keep track of these people with the powers they already have, or admitting that the chaos in the migration system is so pervasive that the police have been given an impossible task in trying to keep an eye on all possible extremists all the time.

Wishing you a happy New Year,

Jörg Luyken