(I’m aware others have made the same US defeats Germany point before this. Just becoming super obvious.)
Basically industries which have high energy costs are being crushed. In particular this means chemical and automotive, both big in Germany, but extends far further.
(Indeed, the chemical industry was essentially invented by Germany in the 19th century, and American industry exists because the patents were broken in WWI and not reinstated after the war.)
This has a lot of knock-on effects, not only in price increases (which are big), but shortages. For example:
The coronavirus pandemic showed how easily modern production processes can get out of sync. Supply chains interlock like the insides of a clock, and if one cog fails, the entire machinery can grind to a halt.
An example is a small company from Lutherstadt Wittenberg, Germany, which has made it onto the prime-time news broadcasts in recent days because its products are needed almost everywhere. “Our production has been halted completely,” says Torsten Klett, the co-managing director of SKW Stickstoffwerke Piesteritz. “And we will only be able to restart if the gas price drops significantly or if politicians provide us with massive support.” The chemical company is one of Germany’s largest producers of fertilizers and AdBlue. Natural gas has also become too expensive for SKW. If political help doesn’t arrive soon, the company could be forced to send its 860 employees into a work furlough program in October.
Few modern diesel engines can be operated without AdBlue – not those of the fire department, not those used in public transportation and, above all, not the 800,000 or so trucks that transport goods of all kinds across Germany’s roads every day. Should companies no longer receive the products they need for their own production, the result wold be devastating, and almost all sectors would be affected.
The national association representing the logistics industry has begun warning of potential bottlenecks, even though AdBlue is also manufactured by BASF and the Norwegian firm Yara. But BASF began cutting back on ammonia production last year due to increased gas prices. The world’s largest chemical company can still compensate for the shortfall by buying on the world market, though the costs continue to rise.
So, logistics crisis intensifies because of lack AdBlue.
Meanwhile increased energy prices are hammering every single business and homeowner just for electricity, heating and cooling, so much so that it’s causing many retailers to become non-viable. Employment is actually tight (whisper after me “Covid deaths and Long Covid”), so there’s pressure on wages, but prices are increasing faster than wages so consumers don’t want to spend.
Industries that Germany has been powerful in for over a century are being hammered.
Now a lot of Europeans hate Germany, and with good reason. The Euro has been less than Germany would have had given its own currency with their level of exports, but higher than it should be for most other European countries, meaning that German industry was subsidized and other nations like Italy and Finland were penalized.
Germany aggressively policed other European countries, making it near impossible for them to protect their industry thru other means like subsidies, generally under the rubric of “fiscal discipline” and when countries were in crisis engaged in a fair bit of looting.
Meanwhile Eastern Europe was never properly integrated into Europe, remaining primarily a source of cheap labour and not properly moving up value chains.
To Eastern Europeans Germany is a traitor who made deals with the evil Russians to keep their energy prices low and didn’t really share the ensuing prosperity. (Germans would mostly disagree, noting the subsidies. But countries want their own prosperity, not welfare.) To Western Europeans Germany has repeatedly abused its economic and political power to keep its industry strong, even as others lost theirs.
So Germany has a lot of power in the EU, but few true friends, and there’s a lot of resentment.
Still, whatever the causes, Germany is the industrial powerhouse of Europe and Europeans who are laughing at Germany’s loss of industry during this energy crisis are being foolish, because what’s happening is that Europe as a whole is becoming weaker.
But the beautiful icing on the cake (if you’re an American oligarch) is:
A big winner from the energy crisis in Europe: the U.S. economy.
Battered by skyrocketing gas prices, companies in Europe that make steel, fertilizer and other feedstocks of economic activity are shifting operations to the U.S., attracted by more stable energy prices and muscular government support.
As wild swings in energy prices and persistent supply-chain troubles threaten Europe with what some economists warn could be a new era of deindustrialization, Washington has unveiled a raft of incentives for manufacturing and green energy. The upshot is a playing field increasingly tilted in the U.S.’s favor, executives say, particularly for companies placing bets on projects to make chemicals, batteries and other energy-intensive products.
“It’s a no-brainer to go and do that in the United States,” said Ahmed El-Hoshy, chief executive of Amsterdam-based chemical firm OCI NV, which this month announced an expansion of an ammonia plant in Texas.
…
Some economists have warned that natural-gas producers from Canada to the U.S. and Qatar may struggle to fully replace Russia as a supplier for Europe in the medium term. If so, the continent could face high prices, at least for gas, well into 2024, threatening to make the scarring on Europe’s manufacturing sector permanent.
It’s not other Europeans who are going to win out of this, everyone’s being hurt to some degree and any gains are relative, not absolute. “Well this hurts the Germans so much more than us” is only a relative win. But it weakens Europe overall: the production mostly isn’t moving to other European countries This is the wrong way to deal with a real problem, in other words, and the right way was political and a rejection of neo-liberalism. But since neo-liberalism is religion to Eurocrats, that wasn’t possible. Dealing with Germany couldn’t be done rationally and sensibly, so instead it has been done stupidly and harmfully, so that no one benefits except the US.
As I have said since the start, anti-Russia sanctions primarily hurt Europe and help America. They make Europe weaker and re-enforce the European political position as American satrapies. Since they do very little harm to Russia, the rational course would have been to continue to buy Russian oil while only putting on targeted sanctions (no military or dual use sales), and spend the next 2-4 years gracefully moving to alternatives in a way that would not deeply damage Germany and Europe’s industrial base and wouldn’t cause a general economic crisis in Europe.
Longer term, my forecast is that Europe as a whole will move to second world status. Their decisions around Ukraine have made that a certainty, since they make it a virtual certainty they will also wind up going along with the US in the cold-war against China. Europe has less and less tech and industry that the world must have: there are other consumers available and they no longer have a military worth worrying about.
Europe’s massive living standard was based technological, industrial and military superiority which is going away. The rise of China ends that: there are now 4+ major industrial/technological powers and Europe isn’t needed. As China climbs the tech chain, there will soon be nothing significant they, or anybody else, must get from Europe (jets may be the last holdout, but even that will not last.)
Mishandling of Ukraine, the war and sanctions is Europe’s decision to go ugly into its twilight.
Dan Lynch
Agree with Ian and will only add that Europe’s downfall will foster the rise of extremists like the 1930’s all over again.
Soredemos
@Dan Lynch
Probably. But if most of that weird little peninsula of Asia becomes an industrial and military backwater, frankly who cares. France and its nukes would be the things I would worry most about (same goes for the UK, but let’s indulge their cute game where they pretend not to be part of Europe a bit here).
If the European governments are willing to commit mass suicide out of a combination of epic Russophobia (Russia is not out to conquer Europe, and any European who genuinely believes that is a moron) and being completely cucked by the US (I don’t think anyone can doubt the literal truth of the American Empire anymore. Even I’m shocked by the level of control the US can exert), well, that’s on them. If the citizens (peons) of Europe don’t like it, they probably should have thought about that before signing onto the anti-Democracy that is the EU.
Reap what you sow, idiots. I kind of genuinely don’t care if Western Europeans suffer. You morons collectively did this to yourselves. If you want to change things, start violently throwing out your governments.
multitude of poors
Definitely a global holocaust going on, almost certainly perpetrated by those who favor at least one temporary living estate (these people have no ‘patriotism’) in the United States as their political and Legal™ base, and at least one estate in a tropical or subtropical region, for sheer hedonism, tax evasion; and literally buying the impoverished human beings who’ve resided on those islands for centuries. (My take, given the stunningly cruel manner—deadly in the long and short runs—in which the United States™ increasingly treats its own lifelong, unable to escape, residents. No Fucking White Paper is needed to verify that reality)
elkern
This insanity only benefits US Oligarchs, and only in the short term (1 decade, maybe 2). In the medium term – this century – USA will need Allies AND Friends, to balance the rise of China; and so will everybody else!
China has been relatively decent so far; it has avoided the bellicose militarism which marked Germany’s rise in the late 1800’s. Western Neoliberal complaints about Chinese Debt Slavery are laughably hypocritical; sure, China will benefit from the New Silk Road connecting all of Mackinder Island, but everybody else will, too.
I have great respect for that, and the Confucian & Marxist frameworks that underpin Chinese actions.
But…
Stuff Happens. Murphy Rules. China don’t grok Godel.
Chinese Hegemony will eventually cause problems inside the Chinese NeoEmpirical Hierarchy (see: 5,000 years of Chinese History).
When that Stuff happens, the world will need an independent North America to still be there, not to fight China, but to show that Bugs Bunny still gets the Carrot, that The Dude Abides, that (good?) Cowboys get laid, that People – often mistakenly described as “individuals” – matter.
But current (and medium-recent) US Foreign Policy is destroying all of our Allies & and alienating our (former) Friends.
Our politics is dominated by donations from “our” Oligarchs. Our FP is based on a “consensus” of Think Tanks funded by a subset of those Oligarchs.
We have alienated most/all of Central & South America by supporting local Oligarchies who cooperate with [ostensibly] US-based Corporations to harvest resources from their countries.
We are now destroying our [former] Friends in Europe, to extend the dominance of the PetroDollar for a few more years. Damn. (I have a strong Europhilic streak, despite their preference for robotic dance music).
We have already alienated anybody with any sense in the Middle East (which obviously excludes Israel, KSA, and other Gulf States, who have always known that we are manipulable buffoons, not really People That Matter).
Africa is perhaps lucky that we have mostly ignored it. China won’t/hasn’t – there are Resources there! A sensible USA/NorteAmerica would be able to make real Friends there, but that would cost Money & attention which our Lizard Overlords don’t want to bother with.
I’m glad that I’m free to write stuff like this. (not sure that a powerful China would allow it to be read). I’m sad that US Hegemonists have found ways to mostly prevent people like me from infecting others with views like mine.
Thank you again, Ian, for providing a space where this is possible.
VietnamVet
The destruction of Nord Stream 1 & 2 was not only a terror attack on Western Europe but it is also a strategic world turning point that creates a multi-polar world with the West now a part of the poor, badly run, and depleted Third World. Or, it will trigger a global nuclear war that ends human civilization. The attack was clearly meant to prevent Germany rapprochement with Russia to have the energy to keep its industry running, to skyrocket the price of liquid natural gas, and to aid the regime change campaign against the Kremlin.
I keep coming back to the Politico report “How Bill Gates and partners used their clout to control the global Covid response” that reported that four NGOs seized the West’s response to the coronavirus pandemic from WHO and the world’s governments. Public Health was trashed and for-profit mRNA vaccines became the sole response. As a result, over a million Americans died with the virus, it became endemic in North America, and now kills hundreds of Americans every day.
I’ve decided a small cabal of Oligarch NGOs for their own financial benefit hired Ukraine, Polish and/or UK private/public operatives and equipment to blow the pipelines. Perhaps the scheme was known other fellow government travelers, but they went along with the privatized operation in order to continue being a profitable Insiders — very similar to the relationship of the National Institutes of Health and Moderna/Pfizer. I doubt the White House or 10 Downing Street knew. The USA and the UK governments are just like Germany’s. They are so corrupt and stupid that they are unable to serve or protect their citizens or industry. Remember Barack Obama/Eric Holder gave “get out of jail cards” to all “too big to fail” corporations. Also, the ruling western cult believes that “Only money has value.”
The way the Ukraine Russia War is escalating, without an armistice and DMZ soon, and restoration of nation governments that are run by and for the people, a lot of lives will vaporize.
Tilen Kolar
Okay, this article is very well argued, but there are more things to consider. The author talks about global superpowers in a way that reinstates hegemonic thinking – through economic success and military power, which are indeed in the current era modus operandi that determines the power on the global stage, BUT!!! We live in the era that requires dramatic changes in our lifestyles, thinking beyond the language of superpowers and find a way to live well. The globe does not need Europe? Well, Scandinavian education model is innovative and being used as a model to implement in various countries that are leaving the club of developing world and entering developed era. Free public transport set in Tallinn Estonia is being copied elsewhere. Etc etc. just small examples. European role in the world might as well be setting standards for welfare states – which are not always centred around the country being immensely rich – I myself come from Slovenia, which was never a superpower and does not have an immense wealth, yet due to equitable welfare state I entered the UK higher education with an immense advantage in knowledge in comparison to other peers. So!!! Yes, EU might be loosing power in the context of industry and military etc. but long term Europe might as well be needed in determining welfare systems that are much needed! You know, it is not always the strongest man in the gym that we should all copy 🙂
Trinity
“But current (and medium-recent) US Foreign Policy is destroying all of our Allies & and alienating our (former) Friends.”
This is a feature, not a bug unfortunately. Global rule is the plan. Former friends are now vassals, and I’m sure there are still a few more trinkets to subsume, resources to privatize, and populations to exploit before it’s all over.
It looks like insanity and smells like insanity because it is insanity.
It’s also not sustainable over the long term, but it is over the short term.
Astrid
Apparently the areas of the NS blowouts were well monitored by the Danes and Swedes. They know who did this and they’re not telling. This isn’t a non-state actor or even a rogue part of the security state. This is all of it, with the complicity of the entire NATO/EU apparatus. I hope someone working in the bowels of this apparatus is courageous enough to disclose what was recorded. There’s a very convincing scenario mooted online pointing to the ship that did this but that’s just circumstantial evidence.
There’s no going back. I feel bad for the Euros (except for the Balts and Poles). They didn’t deserve it but then they mostly stood by for 3 decades while their neighbors to the south and east were being destroyed by American led imperialism. They thought it wouldn’t happen to them.
Carborundum
I don’t see it. We’ll see multiple inward looking blocs with relatively high costs of goods and taxation before we’ll see the major players drop that low. The Soviet Bloc configuration was a very particular thing of a specific time, trajectory and industrial basis – quite apart from the politics.
different clue
@Tilen Kolar,
If the current EUrogarchs who rule EUrope wish to destroy all the welfare-state equity that EUrope still has, then the peoples of Europe will have to tear down and destroy their EUrogarch Occupation Regime and all the physical individuals who make it up while they still have time.
anon y'mouse
wasn’t making the Euro welfare state go buh-bye at least half of the goal of all of this crap? too much overhead for the Int’l Oligarchy. a few things will survive, as their little playground and of course your PMC will be there to administrate over you and explain why all of this misery –must– be this way, for your own good. like a father that slaps you and tells you he hits you because he loves you.
watch how they’re dismantling the NHS. your trains are already privatized and your energy market is quickly going there, Eurosnobs.
in about 15 yrs, your people will be dying “deaths of despair” if they aren’t reduced to selling their bodies under train stations, as it was in the USSR collapse.
and no, i’m not particularly happy about it but you all have been looking askance as America falls down the slope and going “what is wrong with those people?”. you will soon find out.
anybody got some loose change so i can get a tooth pulled? my body is worth nothing to those shopping under the bridge anymore.
Tallifer
The September 23rd issue of The Economist has a grim article about German economic prospects in the short term. Germany recovered from the destruction of the second world war, so I have little fear for its long term prospects. Even if one mitigates that previous success by citing the Marshall Plan, Germany still did much better than most countries who have received foreign aid over the past century, since she did not squander said aid through corruption and white elephants.
Lex
The only addition I’d make is how carefully the US cultivated Eastern Europe, while the EU mostly used it as a source of cheap (and often migrant) labor. This creates a complication where there’s both resentment and dependency. Note recent Polish talk about WWII reparations from Germany. And mostly likely NS sabotage was the Poles working for the US.
I assume that the US wanted to knock the EU and Germany down several pegs in its Ukrainian plans but things have spun out of control. As for reindustrializing by importing German industry, how does that work without the skilled workers? Are we importing Germans too? Do we have the infrastructure capacity to absorb German industry? US heavy manufacturing is being hit by rising energy costs too, and the oil/gas majors shipping as much as they can to Europe at maximum profit is not going to bring domestic prices down.
The Toledo refinery burned about a week ago (I haven’t dug around for effects); the superior, wisconsin refinery burned almost four years ago and still isn’t back to full production. The US is not necessarily sitting pretty on energy unless it moves to nationalize it.
So I’m getting the feeing that the nomenklatura is simply looting as much as they can on the way down rather than it being any grand strategy.
StewartM
Astrid
There’s no going back. I feel bad for the Euros (except for the Balts and Poles). They didn’t deserve it but then they mostly stood by for 3 decades while their neighbors to the south and east were being destroyed by American led imperialism. They thought it wouldn’t happen to them.
In our Internal and external politics, that is the way it always goes. People cheering on others being crushed not seeming to realize those “others” are their proverbial canaries in the coal mine, and that the PTB always try these things out on the weakest and least popular before moving up the food chain.
And though I differ with you on Putin’s Russia, I concur with the Balts and the Poles. They are so vitriolically and mindlessly anti-Russian it’s appalling. True, they have suffered wrongs, but they (especially the Poles) seemed to have forgotten and forgiven all the greater wrongs done to them by Western countries yet hold on to a silly prejudice against Russians. Worse, they can’t seem to fathom how an objective appraisal of the course of events in Eastern Europe over the past 30 years would lead to the conclusion that it’s the West that has been the aggressor, far, far more than Russia.
multitude of poors
anon y’mouse,
?
My hear goes out to you, there’s no fricking way that anyone should endure the pain, and danger, of an infected tooth in a decent society, particularly in a country sovereign in its own currency.
If you’ve never tried it for tooth pain, I’ve found ibuprofen to help, far better than anything else, but if you’re on any blood thinners it’s never suggested to my knowledge, as it’s a blood thinner also.
I’ve taken the 800mg dose, (not suggested on the bottle) but Drs do sometimes prescribe that dosage for pain (presumably inflammatory pain).
different clue
One hopes anon’y’mouse can get that tooth pulled more sooner than later, because over time Ibuprofen and other NSAIDs damage and then destroy kidney tissue.
Several decades ago I was repetitive-motion injured over time at work and the employee health department people kept me “working-wounded” as long as they could till I had to go on medleave eventually because of progressive arm-hand destruction. I was put on Ibuprofen the whole time ( and the whole time-frame of Ibuprofen-eating lasted several years). I suspect all that Ibuprofen may have left me with the chronic kidney disease I have now. (50% function . . . in effect , two half-kidneys).
Soredemos
@Tallifer
“Germany still did much better than most countries who have received foreign aid over the past century, since she did not squander said aid through corruption and white elephants.”
The entire German economic model is epic corruption. The Eurozone is basically a giant plot to benefit German exports.
Jan Wiklund
I don’t remember where, but somewhere I read the contention that it’s not a war Ukraine against Russia, it’s a war US against Europe. Europeans have nothing to fear from Russia, but if the Russian are teased enough it’s the Europeans, not the Americans who have to take the punch.
I suppose it’s the same with the middle east. The reason why the US pays the Israeli military may be that they want to keep the middle east a powderkeg. Because the middle east is at the doorstep of Europe, not the doorstep of the US.
Altandmain
Hi Ian,
A few months ago, in your “winners and losers” article, I made a prediction that Europe would be a “loss” and maybe a “disastrous loss”.
https://www.ianwelsh.net/who-wins-and-loses-because-of-the-ukraine-war/#comment-140342
The economic realm I agree with here, with a few quibbles. The US Dollar is now gaining in strength. A high dollar is not good for exports – that’s partly why as well the Germans wanted a Euro – a high Deutsche Mark for Germany would have had similar issues.
In other words, the manufacturing is far more likely to go to East Asia rather than the US. Keep in mind that China can also buy cheap Russian energy and pass on the cost savings in their manufactured goods to their customers. Unless the US wants to lift its sanctions against Russia, that’s not an option for the US.
But for Europe, there’s an even bigger issue .Fertilizer and diesel are used for food production. Fertilizer is obvious – for modern food, but modern agriculture uses a lot of diesel fuel. There is no easy substitute for that. The farmers in Europe will have to either go out of business or pass on their costs to the customer.
Food prices will rise as a result and possibly squeeze the bottom out of not just the working, but middle class in Europe. Keep in mind that this is happening at a time of skyrocketing energy costs and unemployment. Europe will also become far more dependent on imported food products.
The loss of manufacturing the US caused by the “free trade” agreements and bringing China into the WTO played a major role in bringing Trump into power in 2016. I wonder what will happen in Europe as living standards fall and food prices rise.
Altandmain
Another matter that is worth considering – jet engines.
The Chinese are pouring hundreds of billions into this field. This has caused a lot of worry in various military publications and in the Pentagon.
https://militarywatchmagazine.com/article/china-fast-narrowing-fighter-engine-tech-gap-with-u-s-and-could-very-soon-lead-the-field-experts
Note the “could soon lead” part. There are still enormous challenges that China faces, but note the emphasis on the “enormous investment” part. This is literally “money and lots of good engineers” problem.
Military technology such as jet engines is very useful for civil aviation too. China is gradually working on its own aircraft.
https://www.bloomberg.com/news/articles/2022-09-30/china-s-rival-aircraft-to-boeing-airbus-jets-wins-certification
There’s a long way to go to make Chinese civil and military aircraft as good, then eventually better than their Western counterparts. Comac is very heavily reliant on its Western partners still for many of the key components.
However, this is one of those cases where throwing money at the issue is going to solve it with accumulated knowledge.
Actually, the situation is even worse for Europe than it may be willing to admit for another reason . Much like the failure to understand how much they need Russia’s natural gas, there is some failure (among politicians) to understand Airbus’ reliance on Russian titanium.
https://inf.news/en/world/e69841da627b68df90f255662cccda3c.html
This has been reported elsewhere as well. Russia is a world leader of titanium for those unaware.
https://www.mining.com/web/airbus-defends-russian-titanium-use-urges-against-sanctions/
https://eurasiantimes.com/us-europe-does-usual-business-with-russia-despite-ukraine-war/
So the reliance really goes both ways. There are of course titanium suppliers in the Western world, but it will not be easy to scale up this type of industry.
Yet another issue is that after this, Europe will not have as large a middle class that can afford air travel nor export as many planes (certainly Russia is one less customer, but China will also want to buy less foreign made aircraft). If this is not obvious, part of the reason why Europe gained so much power in aviation was because of the economies of scale, leading to lower unit costs.
That’s now being reduced due to loss of customers in the long run (yes there will be short term purchases still from China, but not in the long run).
Eventually they may have to compete with the Chinese aircraft makers on not just price, but also who has the better aircraft. For both reasons of national security (being able to make their own aircraft) and national pride (ever since the Boeing 707, China has coveted aircraft), China is not going to back down.
Ian – I think you can see where this is going.