Germany faces twin evils in price and cost competitiveness

German Chancellor Friedrich Merz was partially right when he stated that Germany is losing 300 to 500 jobs every day as companies are shuttering their doors. But the full weight that he ignored is, over the falling price and cost competitiveness. More:

Facts

Once the engine of European economic growth, Germany is fast becoming a second-rated manufacturing power. The litmus test is how automobiles and manufacturing general play their respective roles:

1. In the automobile sector, China is outpacing Germany by rolling out affordable Evs about 30% discount to the German price range

2. Low cost manufacturing in consumer durables and other light industrial machinery of China is almost 35-40% discount to German cost of production.

Analysis

a) Cost competitiveness

1. High energy cost after Germany fell-out from the Russian energy routed via pipelines of natural gas and oil

2. High labour cost prevailing within Germany is above 25% to the European average.  Countries such as Bulgaria, Czechia, Hungary, Poland and Romania, enjoy cheap labour and overhead cost than Germany. In fact, today Germany is too expensive a nation in industrial manufacturing

b) Price competitiveness

1. German industry is energy intensive with more power consumption in terms of electricity generation using fossil fuels of coal petroleum

2. Sluggish labour productivity bedevils her as unit of manufacture in a German factory is fairly lower than that of countries in the Eastern Europe

3. Concentration over export driven economic growth tends to ignore realistic pricing.  Whereas domestic consumers get subsidy on price, the export is jacked up to in price.

4. Supply chain snags affect more on the export sector where deadlines that are previously agreed cannot be met resulting in either loss of goodwill and/or cancellation of new orders.

Synthesis

What is needed is structural reforms as regard to both price and cost effectiveness instead of cosmetic touches here and there. The German administrators have so far harped on stop-gap measures. Re-negotiating export price, offering discounted price, cutting overhead expenditure are most avenues resorted to. Sometimes drastic measures are taken to reduce the labour force as well. The end result is Germany is losing terribly in her reputation as an industrial power as well in her geoeconomics clout.

My Direction

Germany must pursue right policies that enable her navigating strategy amid geoeconomics to achieve cost and price competitiveness once again!

 

Cheers!

 

Muthu Ashraff

Strategy Adviser

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Strategy Adviser

 

 

 

Why Bismarck hated colonies?

The most remarkable characteristic of the “Iron chancellor” Otto Von Bismarck is his mastering of, what we now call as “Realpolitik”. Indeed he was the only German in history who demoed the art of the possible. Yet he hated acquiring colonies.  Why?

Bismarck was the only person who understood that in geoeconomics, having colonies is a drain of national resources. Annals of history showed him how colonies which were attractive at the beginning became bricks around the neck of the colonising nations. Portugal that became the pioneer was soon out of business as the Dutch over-run them in Asia & Africa.

Dutch stayed for a while and their colonial empire was overshadowed firstly by the French and thereafter by the Brits. That gave both French and the British to continue as big time colonisers. Bismarck foresaw that one day both these empires would be crushed by the burden of migration from the colonies to the land of the masters. Bismarck is proven right on this score as today the threat to both French & British culture emerges from the largest immigrant population residing within these countries.

Analysis

Here is the main thrust of the argument, Bismarck levelled against acquisition of colonies:

1. Colonies bleed the host country finance in terms of geoeconomics and present threats of stability within and without to the colonising powers in geopolitical terms

2. As a distraction, colonies demand attention and assistance that would lead to neglect of domestic priorities

3. Colonies mop up the already limited human resource availability especially in the area of civil administration, military security and funds needed for domestic industrial and commercial development

4. The opportunity cost works adversely to the coloniser as the efforts put in for managing colonies give lower returns and that too at the expense of urgent domestic needs being delayed in the short term and postponed in the long term

5. Bismarck also foresaw the chances of getting into friction with France and more than that with the British in international waters. The Chancellor knew about the weak points of German navy in and around Baltic Sea that could possibly be exploited by the British at will.

Synthesis

Today colonies are not big game. But European integration is. Germany is wasting limited time and resources in expanding her control and influence in the West European Heartland. The opportunity cost of European integration to the domestic economy and Germany’s position in geoeconomics power spectrum has never been looked at seriously by the German administrators.

My conclusion

The urgent task facing German government today is how to navigate strategy amid geoeconomics so that Germany remains a great power.

 

Cheers!

 

Muthu Ashraff

Strategy Adviser

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Strategy Adviser

 

 

 

 

Germany leaving EU is possible now

Germany is on fast track in considering the so far bitter pill of leaving the European Union often called as “Dexit”. Although most Germans so far believed in continuing within the Union are getting a push back by the rising support for AfD which vouches for Dexit. Read for more:

“The shift towards Right wing party Is Inevitable", declares AfD Co-Leader Alice Weidel who sees the trend towards her party forming the next administration in Germany crystallising. It is crystal clear that each and every day EU high officials make unpopular decision preceded by even more unpopular declaration. The case of point is Kaja Kallas who is responsible for foreign relations announcing that  EU should impose sanctions against Iran under the pretext of violating freedom of maritime navigation thru Hormuz Strait.

Analysis

1) I have analysed the pros and cons of Germany Leaving the Union in a previous blog post and found it feasible. Read:

https://strategyadviser.blogspot.com/2026/04/brexit-happened-what-about-dexit.html

2) About existing sanctions by EU endorsed by Germany I have presented the case for a re-assessment. Read: 

https://strategyadviser.blogspot.com/2026/05/germany-must-rethink-over-iran-sanctions.html

Synthesis

As regards to geoeconomics, Germany must chart a course taking into account of her interest and not of other power blocs including EU and/or America. Besides, Trump is on course to reconcile with Iran which is emerging as the fourth power centre after USA, Russia and China. As they say in Latin Carpediem, Germany must catch the day of speedy reconciliation with Iran!

Direction

Therefore, it behoves the present CSU/CDU/SPD coalition to navigate strategy amid geoeconomics by leaving the European Union ASAP.

 

Cheers!

 

Muthu Ashraff

Strategy Adviser

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Strategy Adviser