The German economic model is broken, but the government doesn’t know how to fix it

The German model, based on austerity and a lack of government spending, all offset by abundant foreign trade surpluses, is beginning to have problems.

Germany’s trade surplus fell to 20.4 billion euros in June 2024 from an upwardly revised 25.3 billion euros in June, lower than the forecast of 23.5 billion euros.

This was the lowest trade surplus since last October, as exports fell while imports grew. Exports fell 3.4 percent to a six-month low of 127.7 billion euros after a downwardly revised 3.1 percent drop in May. Shipments to the EU fell 3.4 percent, while shipments to non-EU countries dropped 3.5 percent; exports to the United States shrank 7.7 percent, while those to the United Kingdom and Russia fell 0.6 percent and 3.2 percent, respectively.

In contrast, exports to China increased by 3.4 percent. Meanwhile, imports rose 0.3 percent to 107.3 billion euros, recovering from a downwardly revised 5.5 percent decline in May. Imports from the EU grew by 1.0 percent, while purchases from non-EU countries fell by 0.4 percent, particularly from China (-4.9 percent), the United States (-6.5 percent) and Russia (-1.5 percent), while they increased in the United Kingdom (11.1 percent). For the first seven months of 2024, the country recorded a surplus of 239.9 euros.

Here is the related graph.

If we analyze this trend on the basis of monthly changes, the change is even more striking.

Germany is seeing such an increase in business bankruptcies that, in the first five months of 2024, the number of bankruptcies for all of 2023 has already been reached. Credit is becoming more expensive because banks have more risk and therefore charge more for loans.

The German system, based on punishing and repressing public investment and domestic consumption, cannot go any further, but the AmpelKoalition government cannot, nor will, understand this. It will have to lose the election and go home, or Germany will go into an ever-faster decline