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Kaput

Kaput

Wolfgang Munchau
2024
T2 256 pages · about 4h 16m to read Open Librarygoodreads

The case that the German industrial model has run out of road.

Summary

Wolfgang Munchau, formerly of the Financial Times and founder of Eurointelligence, argues that the German economic model has ended and that its collapse was structural rather than the result of the energy shock that exposed it. His subtitle names the end of the German miracle, and the book is a demolition of the assumptions on which German policy rested.

His account of the model has three legs: cheap Russian energy, Chinese demand for German capital goods and cars, and American security guarantees that let Germany avoid defence spending. He argues that all three ended at once, and that German policymakers and business leaders spent two decades making the dependencies deeper while telling themselves they were diversifying. The industrial chapters cover the failure of German firms to establish positions in software and semiconductors, the diesel emissions fraud at Volkswagen, the Wirecard collapse and the regulatory failure behind it, and the automotive industry's late and unconvincing response to electrification.

Munchau writes as a polemicist and states his conclusions more strongly than the evidence in any single chapter supports. He gives limited credit to German strengths in specialised machinery and chemicals, and he treats the Mittelstand's engineering focus as a weakness without engaging the argument that it remains a genuine advantage. The account of Wirecard and of German financial supervision is the best-documented part. Read it as a forceful statement of the pessimistic case rather than as a balanced assessment.

Key takeaways 7

  1. The German model depended simultaneously on Russian energy, Chinese demand and American security, and all three supports failed within a few years.
  2. German industry's engineering culture produced excellence in mechanical products and left it unable to compete in software.
  3. Volkswagen's emissions fraud reflected an industry that chose deception over admitting a technology could not meet the standard.
  4. The Wirecard collapse exposed a supervisory system that treated an accused company as a national asset to be defended.
  5. German export success in the 2000s came from wage restraint inside a currency union, which is a policy other members could not simultaneously adopt.
  6. Munchau argues that Germany's fiscal conservatism starved public investment while the country reported budget surpluses.
  7. Electrification transfers value in a car from mechanical engineering to batteries and software, which reverses German comparative advantage.

Who should read it

Investors with European industrial exposure who want the strongest statement of the case that Germany's competitive position has structurally deteriorated.

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Where it sits in the reference 2

Geographies
Economics

Topics

EconomicsPolitics and GovernmentEurope, Britain and Russia