Wolfgang Münchau: "Germans have often believed that they have nothing to learn from others"

LondonBorn in 1961, Wolfgang Münchau grew up in the German town of Mulheim in the Ruhr. He now lives in Oxford, where he looks out over the world and his country, and from where he also directs Eurointelligence, an influential business commentary service he co-founded. He was previously a columnist for the Financial Times. Just published Kaput.The end of the German miracle (Plataforma Editorial), an analysis that destroys the image of efficiency of your country.

Why did you want to destroy the German myth?

— It is always good to debunk myths. I don't mean to say that the German miracle has never existed. And I don't mean to say that the German economy has always been bad. What I am saying is that the economy has been in decline for reasons that go far beyond the last seven years. My book tries to tell Germans that they need a different, much more diversified industrial model.

How many people in Germany agree with your judgment?

— The book has not yet been published in Germany. I have had generally very positive reactions from some people who have read the English version. But these readers were mainly entrepreneurs rather than politicians.

You are very harsh with the entire political class of your country. You leave no one straight.

— Everyone in Germany, left or right, wants to keep the old industrial model. Hardly anyone is talking about diversifying it. I am trying to challenge deeply held beliefs. Even the Greens, who are the somewhat more progressive party, still support the old industrial model, they just want it to be green. But the fundamental structure remains the same: an industry-driven economy with an export surplus. A country should not be defined by specific industries, whether it is cars, chemicals or something else. The priority should be to create an environment in which people can develop any industry. And in Germany the system makes it easy for people to produce cars, but very difficult to develop artificial intelligence, which leads to an unbalanced economy.

There is not enough digitalisation, either, and I discover in your book that some public services still use fax.

— It's stupid, there's no other way to put it. They'll give you legal justifications. They'll say, "You need a fax for legal signatures." But the government could introduce legislation to accept digital. The technology exists and has existed for a long time. The problem is that it wasn't invented in Germany. A lot of the resistance to progress seems to boil down to this: was it invented in Germany or not? There's a deep distrust of anything that hasn't been invented in Germany.

Is Germany the sick man of Europe, then?

— That's not the right way to put it. One problem is the structural decline that I describe in my book, and the other is the cyclical recession. Macroeconomic crises are usually resolved with macroeconomic policies. Now we are facing a structural crisis, and it affects the entire political spectrum, as I said before.

Also in Alternative for Germany (ADF)?

— Alternative for Germany even wants to rebuild the gas pipelines with Russia, and is perhaps emboldened by Trump's favourable attitude towards Putin. Indeed, the far right is largely disconnected from modern economics, but they do excel in their use of social media.

What reforms does Germany need?

— Opening up the economy to new investments from the private sector, which is in crisis. The public sector too, but the real problem is the private sector, which is no longer investing in Germany. The country needs a model that is not focused on generating surpluses (such as exports), but on creating conditions for internal investment. Germany needs the union of capital markets in Europe, the only way to generate the necessary volume of investment and that cannot be done through the banking system, because German banks are geared towards companies like Volkswagen. New technological giants like Google, Meta or Amazon cannot be created.

That's why the European banking union is key, right?

— Absolutely. And we say we have one, but in reality we don't. Our bank resolution system is ineffective, we lack deposit insurance and, most importantly, our banks are now more national than they were when monetary union began. The crises have made things worse, and we have failed to seize the opportunity to make our banks more European. They should be treated as European entities, supervised by European institutions. We could have created a genuine banking union, which would have facilitated the union of capital markets. But we have not done so.

Is the corporate regulatory framework in Germany working well?

— Only for large companies. The current system discriminates against small and medium-sized companies. I would suggest exempting them from most regulations for the first five years of their existence. If they are successful and grow, they can become subject to regulation, but if they do not grow, they should be kept out of the regulatory system. This would allow small companies to prosper without the burden of excessive costs that they carry.

What about immigration?

— Germany needs it to maintain its labour market. But the country has difficulties in attracting highly qualified labour, partly because of the language barrier. Also, Germans can be very formal in imposing the language requirement, and I don't think they should be. They should say: 'Look, if you want to come here, you have to learn the language.' But they don't need to impose serious consequences. If you don't learn it, it's your problem, because you won't succeed. You won't enjoy yourself here, as people generally don't speak English. So you have to be aware that learning the language is essential.

Would you and your family like to return to Germany?

— No. Germany has seen a lot of people leave, especially in the technology and entrepreneurship sectors, and they are not coming back. There is a significant problem of brain drain, which historically dates back to the Nazi period. There were difficulties in developing digital technologies, rooted in physics, which modern Germany did not adopt. The country was stuck in 20th-century physics and chemistry. And while Germany continued to do well in chemistry after World War II, physics and mathematics, which are key disciplines, became disconnected from mainstream developments. Many of the leading researchers in fields such as artificial intelligence have left the country.

If Germany is no longer a locomotive, is Europe in trouble?

— Europe has many problems, and there is no clear alternative to Germany. France is not exactly a powerhouse. And although it has its challenges, it can solve them a little more easily. Germany requires structural changes that need reform on a European scale. But right now no one in Germany is pushing for a capital markets union. The Germans have often been overly focused on their own exceptionalism, believing that they have nothing to learn from others. A mistake! Germany could learn a lot about the organization of its financial market from the United Kingdom, about the health system from Denmark, about how to balance the labor market and the welfare system from the Nordic countries. And the Baltic states and Finland in particular have a lot to teach Germany about entrepreneurship.

What challenges does Washington's new policy impose on Europe?

— America’s disconnection from Europe is inevitable, and it’s not just a matter of Trump. It’s a trend. If we had started working towards greater unity in 2018, when Angela Merkel recognised that Trump was a serious threat, we could have made progress. But we did nothing, and now we are paying the consequences. We should have increased our defence spending and, most importantly, restructured how we spend it. There are absurd duplications: we have twelve types of battle tanks in Europe, while the US has only one. And this extends to all categories of weapons, with redundant systems for air defence, aircraft, armoured vehicles, drones, etc. It’s an unsustainable inefficiency.

Is Europe at risk of irrelevance?

— The EU may be irrelevant as a global power. The meeting in Paris last Monday shows this. When the leaders tried to discuss a strategy on Ukraine, they failed to agree and Germany walked out of the meeting, angry at Macron’s proposals. There is no strategy, no leadership. That crisis was avoidable, but Europe failed to prepare. I am not predicting the end of the EU, but I see the possibility of the EU losing influence as a global power. I am not advocating political unification or anything so drastic. I am talking about a very modest federal union, a small capital markets union, banking union and a defence unit. With efficiency, defence spending should not be more than 2.5% or 3% of GDP. But right now, we are just following the path of others. We see it when Trump makes a statement about Zelensky, and we react in a hurry, but we cannot do anything.

Whatever the outcome of the German election, will everything remain as it is?

— There will probably be symbolic changes, but they will not lead to major differences. Companies will not become significantly less bureaucratic. The problem of bureaucracy is not just inefficiency; it is due to excessive legislation. A potential change could come from the reform of the debt brake, the fiscal rule. But to change it, a two-thirds majority in Parliament is needed and the far right and the liberals could block it.

Is there anything that still works well in Germany? Do they still make good beer?

— Beer is good, no doubt, but I don't think it's the future. And young people drink less now than we do.