Europe, stumbling into a stagflationary abyss, is gearing up for a déjà vu dance with the austerity demons that nearly sent the entire continent spiraling into chaos a decade ago – of course the magnitude is different, but still. One can almost hear the ghostly laughter of Angela Merkel echoing through the bureaucratic corridors, as her cherished fiscal rules come back to haunt the very architects of Germany’s economic strategy.
In a move that left Olaf Scholz do another one of his perplexed semi-grins, the German court, with all the subtlety of a neon sledgehammer, struck down the ambitious scheme to shift €60 billion from pandemic funds to the “Climate and Transformation Fund”, a name that would make Orwell jealous. The high inquisition of Karlsruhe caught Scholz in the act of a fiscal heist, leaving him with a frozen budget and his narcissistic dreams of an eco-utopia dissipating like smoke rings at a political stoner’s convention.
The court ruling, more cryptic than Scholz’s attempts at explaining his political stance and economic vision on live TV, widens the economic gap between the sluggish European engine and the debt-turbocharged US machinery (and even its regional neighbors), leaving Scholz looking like a hapless DJ at a wedding no one wants to dance at.
Meanwhile, as energy prices refuse to drop as fast as a politician’s promises post-election, Germany’s economic ship, captained by the beleaguered Scholz, faces choppy waters. You can’t navigate a ship in a storm solely with virtue-signaling flags.
And speaking of storms, the court’s cold shower on Germany’s spending spree comes at a time when political chaos is brewing, with anti-establishment sentiment gaining ground. Unaccountable military spending in Ukraine, over-generous outlays on refugees and draconian fiscal treatment of citizens have been feeding the latter.
While career politician and finance minister Christian Lindner keeps his rose-tinted glasses on for the near future, he seems to have missed the memo put out by Germany’s industry leaders: Germany is expected to face a second recession in 2023, characterized by a 0.2% decline in gross domestic product (GDP) in the quarter through September and a predicted additional 0.1% fall by the end of the year. Persistent industrial weakness is the key factor, with sluggish export demand and an energy crisis setting Germany apart from its regional peers. Structural problems might lead to weak economic growth for several years.
As the German ship sails through choppy waters, the court ruling is a stark reminder that even the mighty can fall. The echoes of a bygone era, with its economic upheavals and political turmoil, are ringing louder than ever in the corridors of European capitals, perhaps with the exception of Hungary. Welcome to the carnival of chaos, where politicians are the clowns, and the only certainty is uncertainty.
