Edit Article The Green Key to Germany’s Economic Recovery

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Talk of recession abounds, and it is no secret why. US President Donald Trump’s erratic,&nbsp;<a href="https://www.project-syndicate.org/commentary/stephen-miran-trump-adviser-bad-argument-for-restructuring-global-trade-by-raghuram-g-rajan-2025-03">beggar-thy-neighbor policies</a>&nbsp;have cast a cloud of uncertainty over US and global markets. Making matters worse, some countries were nearing or undergoing a contraction even before Trump returned to the White House.One of the largest is Germany, which has been in a recession for&nbsp;<a href="https://www.theguardian.com/world/2025/jan/15/german-economy-shrinks-for-second-year-in-a-row-2024">two years</a>. While there is&nbsp;<a href="https://www.project-syndicate.org/commentary/addressing-german-economic-underperformance-requires-eu-innovation-by-michael-spence-2025-01">no one-size-fits-all cure</a>&nbsp;for Germany’s malaise, most of the biggest challenges facing the&nbsp;<a href="https://www.dw.com/en/bundestag-elects-merz-as-german-chancellor-in-2nd-vote/live-72443927">new government</a>&nbsp;have a common denominator: a lack of cheap power.The new US energy secretary, Chris Wright (a former fossil fuel executive), devoted much of his first official speech to&nbsp;<a href="https://insideclimatenews.org/news/13022025/inside-clean-energy-chris-wright-calls-germany-energy-transition-unreliable/">criticizing</a>&nbsp;Germany’s energy transition (Energiewende). As he sees it, Germany was wrong to spend some $500 billion, equivalent to the US spending around $3 trillion, on clean-energy deployment. “Think of how much poorer we would be.” This perspective reflects a fundamental confusion: Wright seems to think that running a country is the same as running a company. It is not.Government spending in this case is not some&nbsp;deadweight loss. The economy needs affordable power, and such spending will be factored into GDP (though the Trump administration apparently wants to&nbsp;<a href="https://apnews.com/article/trump-gdp-economy-government-spending-lutnick-7414ba1bd441bd4bf64620bfd66923b2" target="_blank">change</a>&nbsp;how this metric is calculated in the United States). Investment in energy infrastructure is just that: an investment, whether the spending comes from the private sector or from the&nbsp;government. Almost everyone already accepts that the government has a significant role to play in providing cheap, clean, reliable power.Far from spending too much, Germany’s problem is that it hasn’t been spending enough. One of the most obvious and important prescriptions for its economy is to relax the constitutional “<a href="https://www.project-syndicate.org/commentary/germany-breaking-taboos-on-debt-and-monetary-financing-of-investment-by-katharina-pistor-2025-03">debt brake</a>” that limits borrowing to 0.35% of GDP. The prior government, with the support of the new chancellor’s party,&nbsp;<a href="https://www.economist.com/europe/2025/03/20/the-bundestag-approves-the-biggest-fiscal-expansion-in-post-war-history">did so</a>&nbsp;in a big way for&nbsp;<a href="https://apnews.com/article/germany-ukraine-debt-brake-economy-military-spending-74be8e96d8515ddddd53a99a69957651">defense</a>, with a smaller tranche going to&nbsp;<a href="https://www.bloomberg.com/news/newsletters/2025-03-12/germany-s-greens-emerge-as-rare-powerbrokers-in-historic-deal">climate priorities</a>, while anchoring its 2045 net-zero goal in the constitution.That said, Wright did have a point when he criticized Germany’s electricity pricing. German power prices have tripled over the past 15 years and now stand at twice the average rates in the US, and&nbsp;<a href="https://www.dw.com/en/high-electricity-prices-a-threat-to-germanys-industry/a-71644198">higher</a>&nbsp;than in most other European countries. The reasons are complex, as are the solutions, but one major factor is Russian President Vladimir Putin’s invasion of Ukraine three years ago. That caused fossil energy prices to&nbsp;<a href="https://gwagner.com/heatmap-fossilflation/">spike</a>&nbsp;worldwide, but especially in economies like Germany, which had become increasingly dependent on cheap, piped Russian gas.High power prices have their uses. They tend to drive more investment in efficiency, which is partly why Germany now consumes&nbsp;<a href="https://www.statista.com/statistics/383650/consumption-of-electricity-in-germany/">around 10% less power</a>&nbsp;than before the start of the&nbsp;Energiewende. Its&nbsp;<a href="https://www.theneweuropean.co.uk/brexit-news-europe-news-what-its-windows-say-about-germany-7963302/">famously well-insulated windows</a>&nbsp;and other energy efficiency measures are strengths to be celebrated.But price spikes like those that occurred in 2022 after Putin’s invasion are debilitating, not least because of higher overall inflation linked closely to “<a href="http://www.gwagner.com/heatmap-fossilflation">fossilflation</a>.” Such spikes sour voters to the green transition, and they hurt industry and the economy.Green-shoring IndustryGermany and the rest of Europe need more power, not least to build more infrastructure for electrification. Burning less gas, Russian or otherwise, often means using more electricity. Reducing reliance on petroleum implies greater use of electric vehicles, which creates the possibility of using vehicle batteries to&nbsp;<a href="https://gwagner.com/vtg">help provide grid stability</a>. However, the overall power demand will go up regardless.Moreover, the decarbonization of industry has only just begun, and it will be a major piece of the economic puzzle. However, reducing Germany’s climate footprint through “deindustrialization” would be a recipe for disaster. Not only would Germany’s economy be left more vulnerable in the future, but much of its industrial production would simply migrate abroad to places with less robust climate regimes.

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