How bad is the German Energy Crisis? – A different perspective

Germany energy crisis

A lot of people don’t really realize that Germany’s energy crisis is so bad it threatens the country’s future as a prosperous country. Let’s see how?

Germany has a very well-established social welfare system and provides pretty generous subsidies for the arts and many such areas. A lot of money is spent on free education in universities as well as subsidizing vocational training. Where does all the money come from?

A lot of people don’t really understand that part too but most likely they will put blame on big companies and rich people for being the bad guys. Germany makes things that people want to buy and that way they can afford dead-weight investment which don’t produce any returns.

Germany doesn’t have many natural resources (at least, that it is willing to recover), so those don’t bring in the cash. Germany’s exports are the main, nearly the exclusive, source of its wealth. Germany has much higher manufacturing costs than many other comparable countries, and the only way it can keep competitive is through a well-educated workforce, efficiency, high technology, and high quality that’s what generates enough value added to make it worthwhile to produce something in Germany, rather than in Hungary or China or the US or Russia, where all input costs are cheaper.

But the energy crisis has the potential to nearly or completely destroy this competitive advantage. When energy costs are merely three times what they are in a competitive country such as the USA or Romania or China (depending on the product), German efficiency and technical quality, and brand reputation can make up for that. When energy costs rise to *10* times or even *15* times those of competitive countries, and the markets become convinced this is a lasting situation, Germany becomes unsustainable. It becomes impossible to manufacture high value-added products for a profit within Germany.

They may be *designed* in Germany, but they won’t be made there. It will just be too expensive, period. There’s no way to make the numbers work. And this leads to long-term erosion of the tax base.

Gradually the money dries up for things which aren’t vital to the survival of the country. And what are those things vital to the survival of the country? Massive government subsidies *to make energy and food affordable to the average person*.

This is where much of the budget of many developing countries goes right now: to subsidies on diesel and wheat and rice which enable ordinary people to be able to pay their (artificially reduced) bills.

Half of the time you read about riots in places like Indonesia or Egypt, the cause is the government being forced to reduce subsidies on food and energy, often by a mandate from the IMF.

Now on energy crisis, once Germany reaches the point where it has to subsidize energy and food to prevent social unrest – something it’s about to start doing right now – then money for non-essential things dries up.

Those things include generous welfare, arts subsidies, free education, generous pensions, etc. There will be even more privatizations, and many arts institutions will simply go bankrupt.

Train travel might become something reserved (even more) for the well-off, since (1) subsidies which keep the Deutsche Bahn (even remotely) affordable will disappear; and (2) the average German consumer will not have enough disposable income to pay for a *non-subsidized* train ticket. Universities will gradually wither on the vine unless they introduce tuition fees, and even then, they’ll shut down entire degree programs which don’t channel graduates into well-paying jobs. Goodbye humanities, it was nice knowing you. Sorry regional symphony orchestra, we can’t afford you anymore. Bye-bye small museum, you’re becoming an Aldi. And sorry 2nd-oldest church in Hepperhausen, there’s no money to maintain you anymore.

We can just barely afford the 1st-oldest church, which we have to keep up because it’s a tourist attraction, and we are desperate for every tourist dollar. And all those state-funded “streetworkers” and “night buses” providing basic assistance to the growing numbers of homeless? Sorry, you’ll have to find money elsewhere and then Germany will find itself in the trap many developing countries find themselves in: It will lack the productive industries needed to support the subsidies which it must continue paying to avoid social chaos.

It will go further and further into the red, and will need help from outside entities. And those entities will point out that the only way out of the red is to cut the broad subsidies for basic survival.

Which Germany won’t be able to do without plunging millions of people into genuine, real, not-enough-food-to-eat poverty. Germany will survive, of course, but it will keep getting steadily poorer and poorer.

And that is very bad for a country’s psyche, since humans regret what they have lost much more bitterly than they regret losing a chance to get something they’ve never had. Deaths of despair will increase, as they did in Russia in the 1990s.

*This* is why the energy crisis poses a grave threat to Germany’s future as a prosperous country. There is still a way to avert it, but certainly not with the strategies currently favored by the administration. We’ll see whether the EU can pull a rabbit out of the hat.

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