Straight to the point

For decades, Germany was a beacon of centrist political stability. During her 16-year leadership, Angela Merkel led a succession of grand coalitions which neutralised the political extremes, and piloted her country through an era of steady economic growth.

Today, that political settlement has dissolved. Germany’s reliance on Russian gas has devastated its industrial economy, while the surface tranquillity of the Merkel era is a distant memory. Alternative für Deutschland, a far-Right populist party, has been the beneficiary of this chaos, surging in the polls to become the second-most popular party in Germany.

To understand this reversal of fortunes and what it means for Europe and the world, Freddie Sayers spoke to Wolfgang Munchau, former co-editor of FT Deutschland, and founder and co-director of Eurointelligence. Below is an edited transcript.

 

Freddie Sayers: Does the rise of the AfD represent a return to Germany’s far-Right past?

Wolfgang Munchau: If you look at the European far-Right parties, the AfD is quite special. Most of the far-Right parties are led by strong leaders: Le Pen, Meloni, Geert Wilders in the Netherlands. They’re shaped in the image of their leaders. That’s not the case with the AfD. So if you wanted to draw some historical parallels with the Nazis in particular, they are very different in that respect. I often forget the names of the leaders — they have joint party chiefs — and they keep changing. There are lots of internal rebellions against them. This is a party that’s been very insurrectionary against its own leaders.

But they are on the far-Right: they have goals that I would consider incompatible with constitutional law. For example, one of the goals they recently pronounced was not only Germany’s exit from the EU (which is legal), but the disbandment of the EU, which is obviously not something that a country can do. Some members of the party have been outwardly antisemitic. I wouldn’t call the party officially antisemitic; it’s not like this is an antisemitic platform. But it has neo-Nazis in it.

FS: Fringe parties always attract fringe figures. Is it fair to judge a whole party — or in the case of the AfD, 20% of the general population who say they might support them — by just those few characters?

WM: No, I don’t think you can. It’s not helpful to characterise any party with a word or adjective. They are on the far-Right, that is clear. They’re not a conservative party. Would I call them fascist? No, and I don’t call Meloni a fascist either. She obviously has roots in the far-Right, in the fascist movement in Italy. But she has moved away and from what we see she governs from the centre-right. The AfD is different in the respect that its policies are very different from someone like Meloni, if you take Meloni as the other far-Right party, the one that actually succeeded to get into government. They want Germany to leave Nato, they want Germany to leave the EU — and the euro, of course.

FS: The original energy for the AfD came out of the immigration issue, particularly in 2015 when Angela Merkel accepted over a million refugees. How has the party’s support developed since then?

WM: 2015 was the moment when its support first grew. But by the 2021 election that had already ebbed away and the party was mostly occupied with internal strife and power struggles among party members. It only ended up at 10% at the 2021 election, which is only two years ago. What happened between 2021 and today is that the party doubled its vote, not much in West Germany, but dramatically in East Germany. To go from 10% to 20% in all of Germany means it had to do extremely well in East Germany, and in some parts of East Germany it is now the largest party. It has won its first mayoral election. It has won its first regional election. Previously, with a system of proportional representation, when you are 20% and nobody wants to form coalitions with you, you can have a lot of MPs and councillors sitting around, but you’re never in power. That is now starting to change — they now have their first people in office.

FS: You’ve previously written that East Germany is the German parallel to flyover country, the industrial heartlands that have been suffering over recent decades in places like the US and in Britain and other countries. That suggests that economics is a big part of the AfD’s appeal.

WM: This is the reason why the AfD is now gaining support. Germany’s economic performance is weak at the moment, for reasons that have to do with Germany’s economic model. The general storyline is that Germany did really well until recently and now it’s doing really badly. But the roots of that date back a long time ago. Germany made itself dependent on Russian gas and, as a result, it also made itself dependent on industry, because that was its strongest sector. It had huge export surpluses — Germany had a current account surplus for many years of 8% of GDP, which for a large industrial country is just mind-bogglingly large.

FS: That was made possible, is it fair to say, by the European Union?

WM: That’s right. We have an internal market, and the currency also helps Germany, because what Germany always does when it is in a monetary union with others is it tries to obtain a competitive advantage by reducing wages, so that costs relative to others are lower, and they can’t adjust because the exchange rate is fixed. For Germany, the fixed exchange rates have always worked like a charm. Another huge factor was that this was the heyday of the fuel-driven car, of the diesel car, the heyday of oil heaters, and all the things that Germany did well. And it was also the time of massive globalisation, when countries like China and other developing countries needed equipment, machinery, and machine tools. And they bought them from Germany. Now that they’re in a much more mature phase of their economic development, they need them less. China has now for the first time flipped the trade balance in its favour.

FS: You mentioned energy. Obviously, Germany has been used to Russian gas and meanwhile, it’s been completely winding down its nuclear power. How much are these energy policies driving the AfD and the political instability?

WM: It is certainly one factor. The Greens insisted on the phasing out of nuclear power, and the other parties accepted that this was not something they wanted to fight because in Germany, you tend to lose these kinds of fights. Both Merkel and the SPD favoured the phasing out of nuclear power and it happened this year. The last power station was switched off in April. And it makes no sense. Because now all the Russian gas has gone and nuclear power is switched off and Germany has increased the share of electricity coming from coal — especially from brown coal, which is an incredibly dirty version — and CO² emissions are going up again.

FS: So by that account, voters can be legitimately angry — it feels like an own goal?

WM: It got worse earlier this year when the Government introduced the domestic heating bill. You’re going to have the same coming in the UK: the switch over from traditional gas heating and heating systems to heat pumps. And heat pumps work very differently from gas heaters. They’re more like air conditioning systems in terms of technology and the way they’re made. And the Government introduced an initial law that would force every homeowner to install a heat pump starting from January next year. I think there was a deadline for 2030 for existing homes, next year’s deadline was only for new homes. They’ve since watered it down a little bit, but still — how much does it cost to change your house’s heating system? Depending on the house, between £20,000 and £50,000, paid for by the homeowner.

FS: Who has £20,000-£50,000?

WM: Quite — especially East Germans, whose house values may not be much higher than £50,000. The government handled this terribly. And the rise of the AfD came in waves, and this was the last wave — the mishandling. That’s where it came from, from 15% or 16% in support to about 20%.

FS: Do you see this as a rejection of Left-leaning, idealistic but impractical, policies whose real-world effects are starting to be felt?

WM: I would say it is not fundamentally an issue of the Left vs Right. It is an issue of three incompatible parties in coalition trying to compromise — any two of them could have managed it better. For example, had this been Britain or the US they would not have given themselves the same fiscal constraints, which led to chronic underinvestment. This was a country that, when I grew up, was a high-tech country. Today, it’s a low-tech country. It’s struggling with digital technologies, it’s not investing in modern industries. Which is why its dependency on the old industries has become stronger, including its dependency on old diesel cars.

FS: That giant car industry is especially vulnerable now, because they’re not as good at manufacturing electric cars as they were at petrol cars. China has overtaken them.

WM: To put it mildly. The Germans were shocked to see that China came out of nowhere and within three years, China became the largest car exporter in the world. And German companies are struggling to sell their cars in China. That was a big surprise to them. The Chinese actually like their own cars. They are cheaper and they have features that the Germans cannot offer. And the reason for that is that China has the role in the electric car industry that Germany had in the old car industry, where Germany owned the supply chain.

It wasn’t just that the cars were made in Germany — that was almost the minor thing. Germany also owned the factories in the Czech Republic and Spain and many Eastern European countries, and bought them in Asia and then the United States. It was a giant network of suppliers. They championed just-in-time production and they owned the whole thing. Now, China owns the supply chain of the electric car. The batteries, the rare-earth magnets, and all the things that matter for lithium — the new gold. The Germans panicked and got Intel to build a factory for chips. But it’s still essentially geared towards cars. This is a country that had the facility and the ability to be a major player in the digital world and has given up on that.

FS: So where does the blame lie for this? Can we make the case that the whole settlement for those decades was inherently fragile, and Germany above all was naive to think it would last forever?

WM: That’s right — and at the root of it is a system of neo-mercantilism, a reliance on industry for exports and a government that follows the wishes of industry. You remember the diesel scandal where they introduced cheating devices — the reason this came up in the United States and not in the EU was that the EU was looking the other way. The EU testing of cars was defunded, basically, compared to the United States.

So the German government helped companies — indirectly, maybe unwittingly — helped companies commit crimes. And it also adjusted its foreign policies according to corporate needs. The foreign policy of Germany was a business-driven foreign policy. It was not driven by geopolitical or other security interests, it was business-driven, and this has changed with this government. Germany’s model was dependent on globalisation, the type of globalisation which we had from 1990 to about 2020, and it was already fading in the years running up to Covid. Germany was dependent on the Russian gas flowing forever, and on globalisation lasting forever.

FS: These populist backlashes, the rise of parties like the AfD, are in some way understandable, angry reactions to decades of naivety and incompetence.

WS: That’s exactly what it is. It’s the result of a country’s economic model running into the ground. If you work for an industrial company that supplies the car industry, you know that your job isn’t going to be secure. There are a lot of fears about the future. And rightly so — if you’re trained to be a mechanical technician, you are right to be worried because the country may not be able to support enough jobs for this particular, highly specialised segment.

FS: What might happen next? Because the whole world order that we’ve been used to for all these decades is built on countries like Germany fulfilling these roles.

WS: The irony of the situation is, the stronger the AfD gets, the harder it is for governments, because under systems of proportional representation, it is difficult for centrist parties to form classic coalitions of the Left or Right. No one would ever go into a coalition with the AfD. So there’s the hard Right, and there’s also the Left Party, which might disappear. But there’s a prospect of another Left Party coming, which is specifically focused on the Russia-Ukraine war, a party of the Left that’s anti-Nato, anti-weapons deliveries for Ukraine. There is a lot of support for that in Germany. The country is really split on this.

FS: Do you have a sense of what proportion of the population shares those doubts about the policy in Ukraine?

WM: I think it’s about half? There was a recent poll asking about the next stage of weapons, deliveries of cruise missiles, and there was a strong majority against. Now that’s a specific question. The other polls that I’ve seen were in the 50/50 area and weakening. A bit like in the United States, it started with very strong support, and the support is still there, but it’s weakening, though it’s not flipped completely. But the longer this goes on, the harder it will become.

FS: Could you not make a similar argument there that voters are seeing the impacts of that policy — on energy prices, on dividing the world economy, on bringing in a kind of new Cold War situation with Russia and China — and they don’t think it’s worth it?

WM: Oh, absolutely, that’s exactly the reason. They are making the connection between the support of Ukraine and the fact that they know that Germany is dependent on China and Japan and Russia. And they see that this is a policy, or a change in the world environment, that is not in Germany’s favour. Voters are not entirely stupid. When they vote for the AfD or for parties that are opposing this, they may be dependent on that old structure, or they may have known nothing else. There is a sense that this is now interrupted, and it is interrupted due to politics, and the Government is doing something unreasonable by supporting Ukraine.

FS: So it’s rational whether you agree with it or not.

WM: The AfD captures a lot of that. But there may soon be a party on the Left led by Sahra Wagenknecht, a very sort of maverick politician, who has left or who is on the verge of leaving the Left Party, who may be forming a new party of the Left. And that party was also on opinion polls at potentially 20% of the electorate.

FS: What programme might a new party offer that might capture wider support?

WM: I think the least likely programme is the one that I would suggest, which is: we’re going through a transition and it’s going to be hard. We need to remedy the lack of investment in modern technologies and we should accept that the future doesn’t lie in machine tools. So we should deregulate our bureaucracy and let companies be companies, and deregulate their taxes, and while we may not subsidise them, we will certainly leave them to flourish. And the country has enough talent, so they should be able to figure this out. What I’m suggesting is very boring in many ways — I think it would work, but it’s not going to happen.

But if there were a Trump-like character with a “Germany First” approach to industrial policy, something like what Gerhard Schröder was. I always thought of him and Berlusconi as the first European populists. They were centrists and there was nothing extreme about them in terms of their political views. They were just very pro-business. And I think some characters like that could re-emerge, to say: “This has been a mistake, the support for Ukraine, our support for the United States.” I think it would start off with becoming more US-sceptic.

The Germans hated Trump so much that they thought anyone who came after him was good. And they didn’t quite see how dangerous for them Biden would be. First of all, there is the anti-China policy that is really not in Germany’s economic interest. The US Inflation Reduction Act is a massive programme of subsidies for companies to leave places like Europe to resettle in the United States. A programme like this is causing enormous difficulties for German companies. Volkswagen, instead of investing in a massive factory in Germany which they had planned, are now doing this in the United States. There’s an awful lot of stuff like that happening.

What I could see happening is that a character would come in opposition to the United States, and I think that would probably be the focus, in saying: “We’re not a geopolitical nation, we are not good at this stuff. Let’s trade, let’s do what we’ve always done, and let’s be friends with our companies and let the needs of our industry dictate where we stand politically.” A pragmatic view. And if the war ends, it’s not our business who runs Russia or China.

FS: That would have huge ramifications for the world, if a party became popular in Germany that was explicitly saying: “Let’s just be pragmatic. Let’s make friends again with Russia. Let’s make friends again with China. Let’s worry about our economy and our energy prices and our industrial heartlands first, and leave international adventures to one side.”

WM: Exactly. I think they would probably phrase it the way you do, not in the Trump language. It would be basically what Merkel did. It’s not fundamentally different. Merkel sort of dabbled in geopolitics, but ultimately, that was the policy she deployed. Her big shortcoming, for which she’ll be remembered historically more than anything else, is the fact that this economic decline that Germany’s seeing now has its root in policies that she undertook but that didn’t have immediate consequences. During the Eurozone crisis, we always talked about kicking the can down the road, and used metaphors of that sort. But that is exactly what happened. Everything they did resolved none of the problems. There was always a long timetable for everything.

FS: If this current decline trajectory continues, what do you think happens to Germany and to Europe, without a strong Germany at its centre?

WM: People often make the mistake when of thinking Europe will blow up. I always get questions from the Eurosceptic British media like “Does this mean they will leave? Is there going to be another Brexit?” The biggest danger to the EU is not that it blows up. It’s not going to blow up; we’ve seen with the UK how difficult it is to leave. And if you have the euro as your currency, it will be 10 times as difficult to leave. I don’t think any country can do it.

The much bigger danger for the EU is that it becomes toothless and ineffective.

FS: We talk quite often about the West being in decline, but it sounds like Europe in particular is going to face a tough future.

WM: It’s going to be a tough period, that’s for sure. These periods end and countries have gone through periods of decline and then recovered. The UK was an example in the Seventies and Eighties. I can’t exclude that we strike lucky at some point again. But this is going to be a difficult period, and what makes me particularly sceptical is that I don’t see anyone who has an idea, a bright idea, of how to solve the problem, even if that person was only a fringe political figure. Most of the political debate is between people who want to subsidise industry and want to subsidise green technologies, but there’s never somebody who tries arrest the decline to see how one could change and innovate this economic model, or reform this economic model. It’s all the same, again and again.

There is a decline in the Western dominance in the world. And the EU being very dependent on the US for its protection but also dependent for globalisation for its economic success is in an impossible position. And it hasn’t even started to discuss what it needs to do to survive in this new world.

FS: Hearing you talk about the likely trajectory of Europe, it puts the Brexit question into a slightly different colour. Big picture, at least in the UK we are at liberty to make a radical new economic pivot if we want?

WM: Except that you don’t! There would have been one valid and good Brexit argument that I would have accepted: “We will do Brexit because we can improve on the economic model. We can do this differently.” That’s not happening. I think this is the great tragedy of Brexit. The UK’s economic model was shaped by the government of the Eighties, with development zones, and it’s very much geared towards the Single European Market. You probably remember Heseltine, the Thatcher government, trying to position the UK as the prime location for international investors that were entering the European Single Market. The Blair administration continued this process of European business integration. And that was the business model: the City was the Eurozone’s banker in the UK. The UK didn’t want to join the Eurozone, but it wanted to be the bank of another currency zone.

One could have conceivably thought of a new age, a digital model, but the UK still has the same old rules— on data protection laws, for example, and many others. And that’s to do with the fact that British governments did not focus on this, given that the UK has a strong foundation in science and technology, just as Germany does, they could have used these strengths to forge a new business model around these ideas. That didn’t happen, and that’s why we’re reading stories of Brexit being a disaster.

FS: It is too late now?

WM: It’s not too late, it can be done. I said I don’t see anyone in German politics who actually focuses on the economic model, but I don’t see this in UK politics either. A prime minister who thinks he can reduce inflation, or an Opposition which basically wants to do the same thing as the Government is doing — but nothing that pertains to this debate. Whatever the differences are, it is not essentially about the economic model.

FS: If you were a betting man, which of Germany and the UK do you think will be in a relatively stronger position in 10 years’ time?

WM: I would say the UK.

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