Jan
Feller
Managing
Director
AHK
Finnland | German-Finnish Chamber of Commerce
Finland
AHK Finnland | German-Finnish Chamber of Commerce
Finland
friedrich.vonderhagen@dfhk.fi
It is November 6, 2024. Donald Trump has just been elected U.S. President, and the next day, Germany's "Progress Coalition" government breaks up over economic and financial policy disputes. Germany faces tough times, caught between economic stagnation and growing global competition, especially from China and India, while its transatlantic partner, the U.S., is getting a president pushing for tariffs and trade wars. Meanwhile, in Eastern Europe, Russia is waging an imperial war against Ukraine to sever its political ties to the West. Europe’s democracies are under pressure: economically, militarily, and politically. Germany, as Europe’s largest economy, is particularly in the spotlight.
Transformation and “Zeitenwende”
Chancellor Olaf Scholz famously described this development as a “Zeitenwende” (turning point) in late February 2022, especially in response to Russia’s war of aggression. It is about whether power will override law, deals will override a rule-based world order, and whether Europe’s democracies have the strength to resist this trend. The Zeitenwende follows a series of global crises: the climate crisis, the COVID-19 crash, subsequent global supply chain disruptions, and rising inflation. Then, as a result of halted Russian gas deliveries: the energy and price crisis in Germany and most parts of Europe.
It is important to view German economic data in this context. And the data shows: German economy has shown resilience. The DAX stock index companies for example are paying record dividends the second year in a row. Germany is in a transformation towards digital business models and a sustainable economy and has already made some remarkable steps: Being a pioneer of the “Energiewende” (energy transition), renewables powered 58% of Germany’s energy consumption by mid-2024, up from 41.5% in 2021, driven by significant vertical integration in the wind industry, where mergers have streamlined supply chains and increased market professionalism.
German economy: Transforming traditions
Germany’s traditional sectors, including the automotive, steel, and chemical industries, illustrate the scale of this transformation. Leading car makers are introducing more electric and hybrid vehicles, financing their development with margins from combustion engine car sales. This shift to electric vehicles will lead to major changes for German auto suppliers, as electric motors are simpler to construct and produce than combustion engines. At the same time, hydrogen cars are being announced for 2028. Suppliers, too, are focusing on digitalization: Engineering company Bosch is nowadays employing over 10.000 software developers. Overall, business models are moving toward lifecycle revenues, with a significant portion generated through software features sold throughout the product’s lifecycle. The current poor sales figures of German manufacturers are mainly due to the softened Chinese market. However, industry experts currently see a recovery in the global car market, and Germany’s car production rose by 17% in October 2024 (year on year) while exports are up a stunning 51%. This will help German manufacturers continue to push forward their transformation.
Baltic Sea Region as Europe’s Green Powerhouse
The energy-intensive steel and chemical industries are also undergoing transformation where the green transition is a business reality rather than a question of politics: China is rapidly increasing its green steel capacities, and it is unlikely we’ll see import tariffs on Chinese green steel to protect European grey steel.
As an immediate reaction to the energy crisis, Germany has rapidly built LNG terminals to meet demand. Germany’s long term energy transition—moving away from coal-fired and nuclear power, the latter long opposed by a majority in Germany due to unresolved nuclear waste issues—relies primarily on renewable energy. The German economy is aligned with and supportive of this green transformation. But current energy capacities are insufficient. Therefore, the country is planning medium- and long-term imports of green hydrogen and -derivatives from renewable sources. This brings the Baltic Sea region into play.
Studies show that Finland has by far the most potential among Baltic Sea countries for green hydrogen production. According to most estimates Finland will have large surplus capacities if it continues expanding especially offshore wind power. Even as we expect new foreign investments consuming green energy, the country will likely be able to produce much more green energy than needed for its own industries - becoming a powerhouse for Europe’s decarbonization. Planned investments in hydrogen projects have already reached over 13 billion euros. The Finnish grid operator Fingrid has received applications for over 400 GW of renewable energy connection capacities, while Finland currently has under 8 GW in wind power.
Germany’s transformation in a European context
So, will Europe still be able rely on Germany’s economic strength in the future? Despite recent “polycrises,” economists view Germany as merely stagnating, not in decline. For Germany’s European partners, it makes much sense to support the competitiveness of their most important export market, e.g. with Finland’s energy sector providing Germany with clean hydrogen from green wind energy. German investors see potential in the northern Baltic Sea and are already financing many Finnish wind farms. In the coming years, Finland could become a system-critical partner for Europe’s largest economy—this has security implications as well. Since Germany is Finland’s most important trading partner, boosting Germany’s competitiveness would simultaneously strengthen Finnish trade and security interests.
One thing is certain: Germany’s Zeitenwende is also a European turning point. Together, the countries of the Baltic Sea region can play a central role as a driver of European competitiveness and improve their own economical and security situation at the same time.