The Peter Zeihan Podcast Series - The End of Germany as a Modern Economy || Peter Zeihan

Episode Date: October 11, 2023

The future of Deutschland is not looking bright. Three unsolvable problems will lead to Germany's collapse as a modern economy in the coming 20 - 30 years.Full Newsletter: https://mailchi.mp/zeihan/the-end-of-germany-as-a-modern-economy

Hey, everybody, Peter Zine here, coming to you from midway through the Weston Mosquito Traverse. I'm coming to you from a low cliff band, about about 12,000 feet, just in the shadow of peerless, horseshoe, and Finback Mountains, all of them with 13ers. This is the Empire Amphithea down below, and over here you can see out towards the Point of Vista Valley, which has the best Mexican in the state of Colorado. Anyway, I think everyone who follows me from Germany has written in and asked me when Germany was going to end. So I figured today would be a good day. Germans like alpine environments, you know, maybe this will soften the blow a little bit. Germany has three unsolvable problems that are going to destroy it as a modern economy and maybe even nation state over the course of the next 20 to 30 years. The first one, of course, is its trade relationship with the Russians and the Chinese.

The Russians are the primary source for a lot of the raw materials that the Germans use, especially when it comes to energy, something like 40% of the coldly used to come from there. Now, the Germans have been very, very, very diligent and successful in cutting oil and natural gas from the Russian space out of their system, but it's come in an exorbitant cost, with energy prices being triple or more what they were before the war. and this is when Russian stuff is still making it to the international environment. If you remove that, prices are going to go up significantly more. And as a result, we're seeing a number of companies that are heavy into the energy space,

not energy producers, companies that use energy, whether it's in ceramics or steel or petrochemicals, simply moving out because there's nothing that they can do to bring costs down. The other part of the trade issue, of course, is China. The Germans are apparently needing to learn this. less and twice, that you don't rely on authoritarian, genocidal, dictatorial, warlike countries for your trade relationships. And so they're two big trading partners that matter, to where China in terms of selling machinery

to say the Chinese industrial boom could continue and Russia for raw materials. And the Germans have doubled down on the Chinese relationship in many ways in the first two years or first year and a half of the war in Ukraine. Now, there are some signs that that is starting to change, that the Germans are finally, finally, finally, finally, injecting some morality and some ethics, strategic thinking into their trade relationship for the Chinese. Usually it's just been moralizing versus the United States and some of the other European countries. They're actually applying it now to some of the absolute dick hats that they've been trading with for the last 20 years and making money off of. This is good.

Probably should have happened 20 years ago. I understand why it didn't. A little breezy. I understand why it didn't. in the end of the Cold War with the re-infirion of Germany, the Germans thought all things were possible, but they realized from their history how fragile everything was.

So they had this thing that they called Ostpolitik, which was the Germans leaving a door open for relations with the Soviets in the hopes of eventually calming relations down, and it contributed to the end of the Cold War very successful. They tried to do that in the post-Cold War era, both with the Russians and the Chinese,

and it hasn't worked. So kudos to the achievements when and where they've been happening, and you know, you've got to condemn them a little bit for just being overly naive in thinking that the United States was the evil power here instead of the ones that are actually murdering people in the tens of thousands. Okay. That's only problem one, unfortunately. And the Russian system, even if it survives, it's not going to be a significant commodity's exporter because they can't maintain their own infrastructure. And the Chinese system isn't going to survive because their demographic situation is so atrocious that they're in their final decade. So everything that has been a success for the Germans in trade for the last 20 years, that's going to go away. regardless. Doesn't matter what happens with policy. Second big problem is demographics in Germany. It is among the fastest age in societies in the world.

It has been on a downward spiral for over 100 years now. And by the time we get to 2030, the big pulse of people who are currently providing just huge masses of skilled laborers, because, you know, German labor is best in the world. They're going to be retired. And so the quality of the workmanship is going to go down. The size of the workforce is going to collapse. and the capacity of the Germans to raise funds within their own system to fund their own industrial buildout and to consume what they produce will pretty much end.

Some people like to look at Japan as a possible model for the Germans to follow because the Japanese have found a way to diversify their trade relations so that their demographics don't hit them quite as hard. The problem is that the Japanese have a very different model. Number one, they started this process 35 years ago. So then a long time to make the transition. Second, the Japanese don't just outsource the source. They keep the design in-house and they build all the manufacturing capacity, not all of it, but a lot of it in other countries,

particularly countries with good demographics, strong purchasing power, and a vested interest in Japanese security, mostly the United States. Germany doesn't have a partner like that. It certainly doesn't have the time. And because it didn't start 35 years ago, all of its industrial plant is in Germany or in countries that border Germany who only have marginally best. demographics. So the entire industrial base within a decade is going to break as well.

And then we get to the third problem, and that's just energy writ large. The German system is predicated on the bottomless supply of inexpensive, reliable, secure supplies of energy primarily from the Russians. That's gone. They're now getting liquefied natural gas from the United States from, you know, continental way. It's not that that's not reliable, but anything that can be put on on a ship as opposed to be a pipeline by default can go somewhere else if market and security conditions. Their crude is coming from the Middle East, you know, enough said, especially since the United States is no longer retrolling the Persian Gulf.

That leaves nuclear power, which the Germans have largely shut down. And so the only thing they have left is lignite coal, which lignite plus coal produces based on who's doing the numbers, and the Germans love to lie about their energy numbers, somewhere between 40 and 55% of their total electricity needs. Of these, the only bit that is sustainable is the lignite, because that is actually produced in Germany. And one of the great ironies of having the Green Party in the ruling coalition, and in previous ruling coalitions, is they have systematically dismantled a lot of the relatively low carbon

sources of energy that the Germans have had, nuclear, natural gas, in favor of coal and especially lignite. So under the greens, because of green policy, we've seen an explosion that will last decades in German carbon emissions, and there's really no way around that. Yes, yes, yes, yes, yes. They have spent something like $2 trillion now building up. But the sun doesn't shine in Germany in terms of reliable output when people actually use the electricity. Germany only gets about, I think it's 8 to 11, percent of their electricity from green sources. Now, they will tell you that it's 40 to 70 percent based on the season, but what they're not telling you is how they collect the data. So,

if you are in Germany and a little bit of electrons comes in from wind or solar that has to be fed into the system regardless of what the price point happens to be. And if you've got a lignite facility that you're leaving on, because it takes more than 24 hours to spin that thing up and down, and when the sun goes down or the solar goes away, the lignite has to be there to keep the light sign. Well, Well, you don't count the electricity that it generates during the day. You only count the solar and wind. And if you're in August when all the Germans are on vacation and the sun actually finally is shining,

all of those electrons have nowhere to go, so you dump them into France, Poland, and the rest. You count those two. If you actually count what power is generated and what is used when it is used, they're talking only about 10% green. So if something happened to those other supplies, Germany shuts down. Or it uses linknight. And so it's using link night. Put these three things together.

There's no way this is a sustainable system. We are looking at the end of Germany as an ethnicity this century for sure because of the demographics. We're looking at the end of Germany as an industrial power within 10, probably no more than 15 years, simply because of the trade relations and the countries I've chosen to partner with. And that assumes nothing else goes wrong. And remember, we still have the European Dimp crisis, which was never resolved, and we have the energy crisis on top of that. So I'm sorry, guys. I wish I had better news, but this is a really, really, really ugly story that's been a very long time coming.

And most of us are going to live to see the end of Germany. Oh, one more thing on Germany. Oh, yeah, other side of the ridge. This is the cliff band for Horseshoe Mountain, and that's Formal Canyon behind me. Go looking out towards South Park. Yes, that's South Park. Anyway, in a lot of my work, I've expressed a lot of concern that when the Germans really do feel the pressure from China,

from the Americans, from the Russians, from energy, all of it, demographics, that they're going to lash out because some of the things that they do need they can't achieve via military means. It would be ugly. A lot of those things are in Russia, and we know how that went the last time. But it's not impossible. I'm not as concerned about that. But one of the things that happened early in the Ukraine war was with Nord Stream on September 1,

the Russians shut down that pipeline. That's the one that was the primary source of natural gas for the Germans. And they told the Germans publicly, we're not going to turn this on unless you change your mind on Ukraine. Either you stab Ukraine in the back and make sure NATO can't function, in which case you could have your energy again and maintain your modernity, or we're going to leave this off and you're going to deindustrialize and you'll no longer be modern. So you can be Western or you can be modern. You can't both.

And the Germans chose to be Western. They chose the energy crisis rather than give in. And after the last 30 years of siding with the Russians on every energy and security issue that mattered, that was a big deal. That was not expected. Certainly not by me. I don't think that Germans get enough credit for that. But it does suggest that when the rubber hits the road,

the Germans may be really serious about choosing morals and ethics. both convenience and wealth. And if that's the case, unlike the Russians, the Germans may very well. Have us into this good night.