German economy: Don't be afraid of the winter

Unless the market is wrong, Germany needs to dress warmly this winter.

A megawatt hour of electricity, available in the first quarter of 2023, was traded for more than 1000 euros a few days ago.

That is fifty times more than last year and would be unaffordable for private customers and industry.

At best, this price signals concerns about supply bottlenecks in a few months.

In the worst case, it signals panic.

In the meantime, the price has fallen again, but the uneasy feeling remains: After two Corona winters, Germany is facing a dark season that could shake the country in a completely different way than the pandemic.

The danger of overcrowded hospitals and closed schools seems to have been averted.

Exorbitant gas and electricity bills are now threatening, a so-called demand shock because people have to keep their money together, and – as Foreign Minister Annalena Baerbock warns, for example – “popular uprisings” in winter.

Nobody knows today how bad it will be economically and on the roads.

One thing is certain: the mixed situation plays into the hands of those who would like to ignite anyway and would like to detonate social explosives.

AfD and Linke have called for mass protests and Monday demonstrations.

The situation is already emotionally charged, as angry letters from East German craftsmen to the chancellor show.

It is all the more important to take a sober look at the economic situation and the looming problems.

The credit side is still impressive

How resilient is the German economy?

There are three reasons to fear that she is not as well prepared for an endurance test as she was a few years ago.

First, the shockwaves are hitting a battered economy.

Unlike during the pandemic, it has not experienced a decade of growth, but rather a recession from which it has only just caught up.

Secondly, because of the increased interest rates, the state can no longer borrow for nothing.

The debt ratio is also ten percentage points higher than before Corona.

Third, the hands of the European Central Bank are tied.

During the pandemic, it was able to cushion the downturn with an ultra-loose monetary policy.

Now it has to fight the rising prices with higher interest rates.

Inflation has settled at a level that is far too high and has eaten up the citizens' corona savings.

High inflation will not go away any time soon.

So the situation is serious, but it is by no means as hopeless as some people now make it out to be.

Germany is neither the “sick man of Europe” that it was at the beginning of the millennium.

Politicians still have to freeze in fear and stand idly by as things go downhill.

On the plus side is the job market, which is intact.

Instead of mass unemployment, the lack of skilled workers, waiters and other employees is the dominant issue.

The statutory minimum wage strengthens the incomes of millions of low earners who are particularly in trouble because of the high prices.

And the middle class, which is larger in Germany than in America and Great Britain, for example, has been very stable for almost twenty years, contrary to all prophecies of doom.

That's a real pound for the federal government to protect.

Experience shows that social peace is threatened above all when the middle class declines.

Recent surveys are rather reassuring in this regard.

Although inflation is the greatest concern of Germans, most do not see the substance of their prosperity in danger, at least not for the moment.

More worrying is the low level of trust that citizens have in the federal government.

Not even one in six recently had the impression that the federal government had the situation under control.

That contains explosives.

Because a government that is perceived as incompetent is made to be scapegoated and openly attacked in the crisis.

For the question of how stable Germany will get through the winter, it is not only decisive how much gas flows and how many billions of euros the government distributes.

It must also appear united and act decisively.

And she must exude a healthy and credible optimism, the retreat in Meseberg was a start in that regard.

A recession is likely and painful.

But Germany can endure them without everything collapsing.