The AfD’s victory is the result of a far-reaching economic and political crisis. The Merz government is gambling with Russia, but this is the wrong path to take
Sergio Cesaratto, former full professor of European Monetary Policy and International Economics at the University of Siena
This article appeared originally in Italian at Il sussidiario
On 7 September itself – the day after the election in Saxony-Anhalt – the Federal Statistical Office announced a fall in manufacturing output in July: -1.1 per cent. This decline has been ongoing since the first quarter of 2023. How do these economic figures – let’s face it: the industrial recession – ‘relate’ to the election in Saxony-Anhalt?
Well, I suppose that Germany’s economic difficulties overlap with the chronic depression in East Germany, which was politically driven at the time of reunification. My thoughts turn to my friend Vladimiro Giacché’s book “Anchluss” (Diarkos 2019), which examines the disastrous economic circumstances surrounding the Federal Republic of Germany’s annexation of the GDR in 1989: a hasty monetary unification that led to the industrial decline of East Germany. In the book the example of the “Anchluss” served as a case in point of the consequences that European monetary unification would later have on the Italian economy. But that is another matter, of course, even though both monetary unifications are legitimate components of the current European economic and social disaster. Naturally, there are other causes which, I believe, we shall return to later.
But what is the German economy struggling with today? A lack of supply or a lack of demand?
Until a few years ago, I would have answered in the affirmative. Particularly in the sense that mercantilist Germany based its success on exports rather than on the domestic market – in Europe during the years of the European Monetary Systen and, above all, in the first 10 years of the euro, and then in non-European markets from 2010 onwards. In both cases, Berlin enjoyed exchange rate advantages – hidden within the euro, more explicit against non-European currencie – with the result that German policies proved destabilising for its partners. Of course, there was also the quality of German products, cars in particular. Now it is this very aspect that is in crisis, and the causes are well known: Germany’s technological lag. It is a mystery to me that, despite having factories in China, German companies failed to recognise China’s technological advances, which are now practically irretrievable. If, instead of being obsessed with fiscal austerity – brutally imposed not only on its European partners but also on itself – Germany had paid more attention to growth, whilst being careful not to take its own prosperity for granted, perhaps we would not be in this situation now. And if Germany sneezes, Italy immediately catches a cold.
In what way and why does an economic policy based on supply rather than demand:
i) fail to grasp the German problem and prove incapable of diagnosing it, and
ii) have it contributed to the AfD’s victory?
Paradoxically, the problem in Germany now is also one of supply (as we said, the demand-side issue had been resolved within the framework of its mercantilist model). It seems to me that it was the German companies – despite their presence in China – that failed to identify the problem. Or perhaps the Chinese were very good at concealing everything.
Merz responded to the AfD’s victory by saying that ‘reforms’ are needed. He accuses Germans of having excessively high wages and pensions and is preparing to take action on the latter. How would you describe the Merz government’s economic policy?
These people really haven’t understood a thing. Yes, in Germany there is also talk of cuts to healthcare and social welfare spending next year. The vote in Saxony-Anhalt is, after all, indicative of the unease felt by a large part of the European population, whose social security – and, like it or not, their sense of identity – has been undermined. Europe is, moreover, utterly unpopular – and how could it not be, having betrayed every connection to social achievements in the name of a hollow form of liberalism that has now become warmongering as well.
What is the link between the ECB’s monetary policy and the crisis in Germany – and, consequently, the AfD’s victory?
Perhaps we should talk about the resurgence of inflation from 2022 onwards, when the conflict with Russia began; the ECB is simply doing its job (we can discuss that separately). It is this disastrous war that we need to be talking about.
On the subject of war, I quote from *Il Sole 24 Ore*: “In the draft of the latest German federal budget approved by the Government for 2027, total expenditure on defence and armaments will reach 110 billion euros.” What lies ahead? Further impoverishment of the public and a rise in support for the AfD?
There is no doubt that Germany’s ruling class regards rearmament as a means of revitalising demand and production. An external enemy can provide some breathing space. This is confirmed by the well-informed Eurointelligence. The idea that this alone will suffice is illusory. No matter how many tanks you produce, they cannot replace millions of unsold cars. German rearmament is, however, a cause for concern, not only for Russia but also for France. Let us draw a veil over the collaboration with Israel on missile defence systems (using Israeli technology). German support for Israel is hypocritical (in an attempt to pretend to atone for past genocidal crimes, they are collaborating with the one currently taking place).
The ‘Swabian housewife’ Merz & co. have failed to pull Germany out of stagnation. So let’s take a look at what the winners have to offer. Does the AfD’s programme represent a viable alternative to German ordoliberalism? Why?
Well, I very much doubt that. At the end of the day, everyone does what they can, and on the right, a few anti-immigrant measures (or the centres for immigrants that Germany deports in Albania) serve to mask a lack of ideas. In any case, the situation is objectively difficult for any political force in government. But the first thing is to put an end to the conflict.
What might the (horrible phrase) ‘combined effect’ of green policies, European rearmament, ‘existential’ hostility towards Russia and the German economic crisis have in store for us?
Green policies seem to me to be the big losers, and the climate situation is tragic. Unfortunately, the right continues to demonstrate its ignorance by exploiting the objective difficulties faced by green policies. If implemented seriously, these policies entail a radical change in consumption patterns and production methods. Achieving this without social costs is difficult. Once again, an inept Europe has failed to make any plans for a collective and equitable transition, preferring the free market and austerity. But let us turn to the war against Russia, which, along with other disastrous conflicts, is doing its bit to exacerbate the climate crisis.
The German government is on a dangerous slope…
The first thing to say is that there is a veritable witch-hunt against anyone who voices a reasoned dissent regarding the war that NATO – and now NATO and the EU – are waging against Russia. In Germany, those who simply seek to understand Russia’s reasons are disparagingly labelled ‘Putinversteher’, a Putin Sympathiser”, (living in Germany, one realises just how much freedom of expression has always been more restricted here than in Italy). Without this understanding – which does not mean agreement – peace will never be achieved. Of course, hybrid warfare also involves recruiting politicians and opinion-makers, but this is true of both sides; therefore, it does not justify aggression towards independent scholars. It is currently in the news (Eurointelligence) that a lone eco-terrorist has been arrested in Germany, guilty of repeated attacks on energy infrastructure for which Russia had already been blamed. NATO was also up in arms over Nord Stream 2 clamouring that it had evidence against Moscow (the truth later came to light rather by chance). So beware: falsehoods know no bounds.
Accusing dissidents of being pro-Putin is simply cowardly behaviour, into which even seemingly astute journalists such as Paolo Mieli fall – from whom one would expect better (but perhaps I am deluding myself and they really are ‘embedded’, which may simply mean that they know exactly what to say and write to please those with power and money). In my case, for example, my views do not come out of the blue (or worse), but from an encounter, twenty years ago, with one of the two major theories of international relations: political realism. Since the fall of the Soviet Union, political realism had been warning of the dangers of NATO’s eastward expansion in the face of Russian nationalism and that country’s deep-seated fear of being attacked by the West once again. According to Realism, the reasons for and guarantees of mutual security form the basis of peaceful coexistence. For the other school of thought, Liberalism, there are the ‘good guys’ (the West) and the ‘bad guys’ (the rest of the world); the ‘bad guys’ are aggressive and bent on conquest, and in any case illiberal. This thirst for conquest is generally unsubstantiated, whilst the West certainly does not demonstrate great democracy (dissent is now suppressed, the right is on the rise, crimes against humanity committed by Israel are tolerated, indeed supported, etc.). The villains are aggressive and hungry for conquest, and in any case illiberal. But even if we accept that we are dealing with illiberal states, does this justify waging war against them? The West does not realise just how much resentment towards us is smouldering in those countries. I am not defending regimes and religious ideologies that are indefensible to anyone who cares about democracy and tolerance. These are values that should unite us. But who are we to seek to impose them by force, like crusaders? The West has an indefensible colonial past in relation to much of the ‘rest of the world’. Let us, for the time being, safeguard democracy, tolerance and social rights here at home. Economic cooperation and peace based on mutual security – and certainly not aggression – are the way to advance democracy and tolerance, both there and here.
All right, Professor. But why do you see the German position as so dangerous?
I never watch videos (by serious people), mainly because once you’ve formed firm opinions there’s no need to – I actually discovered political realism and the issue of NATO’s eastward expansion 20 years ago. A few days ago, however, I watched a video featuring John Mearsheimer – currently the leading exponent of political realism – and an influential Russian political scientist, Sergey Karaganov, who came across as likeable and sly. The two scholars agreed on the underlying causes of the conflict and, I suppose, on the validity of political realism. However, what the Russian representative said was significant not only for its analytical content, but also because this content resonated with sentiments that one might assume are widely shared, at least by a section of the Russian public. He used the word ‘morality’ very frequently; to me, this was very reminiscent of the Russian spirit evoked by the great writers; I am not passing judgement – for us, it may well be an irrational spirit – but we are not here to judge, but to understand and try to re-establish mutual trust, and to allay fears, which is the only prerequisite for a lasting peace. And trust depends on security guarantees. I wonder how anyone with any common sense could fail to regard the Franco-German leaders as fools when they discuss the deployment of European forces on Russia’s borders following a truce. But what truce are they talking about whilst they are rearming Ukraine and are even considering sending troops to the border with Russia? Truly a case study of ‘Quem Iuppiter vult perdere, dementat prius’ (Whom the gods would destroy, they first make mad.). The Russians perceive this attitude as an existential threat – yet another existential threat, as Travaglio wrote a few days ago. And if this threat comes from Germany… it must be neutralised, wiped out, destroyed, as Karaganov put it. One or two tactical nuclear bombs would also serve to remind Europeans of the logic of mutual deterrence which, like it or not, has ensured peace since the Second World War. The fear of nuclear weapons being used kept all the contenders in check. Europeans and Germans seem to have forgotten that nuclear weapons exist and can be used. Personally, I would expect them to be used against a German city; I really do not think the French would react, nor would the British, knowing they would be destroyed, and the Americans would stay out of it. Germany should be on its guard; after all, nobody loves it, not even in the West. Karaganov claimed, incidentally, to be a moderate when it came to the use of nuclear weapons.
Now there is renewed talk of negotiations between Moscow and Kyiv…
On the US’s initiative, of course. Let’s hope that Trump’s envoys secure a truce that can only be based on the borders established by the conflict and, above all, solid security guarantees for Russia – rather than European troops on its borders – and, of course, decent assurances of independence for Ukraine (guaranteed by third countries). The assurances given to Russia must also extend to other neighbouring countries, in particular the belligerent Baltic states which, even according to the moderate Eurointelligence, wield an unreasonable amount of influence over European decision-making. Subsequently, a process of peace and the resumption of trade with Russia must be put in place. Let me add one more thing…
Go on then…
The PD’s (the Itlaian Partito Democratico – Social Democrats) stance on these issues is unacceptable (as is its stance on others, such as the disgraceful proposal on anti-Semitism). A few days ago, the secretary of the Democratic Party, Elly Schlein, fully endorsed the proposal by 11 European countries to move beyond the principle of unanimity and limit the right of veto within the European Union. Fortunately, Italy did not sign. Is it possible that the banner of pacifism – or rather, of rationality – is being left to the right? This is, of course, merely opportunistic, or very cunning – just like its leader (and perhaps some of her allies; who knows, perhaps they’re on Putin’s payroll). The right knows, better than the pseudo-left, that Italians want nothing to do with a war against Russia (even the Russians recognise the wisdom of the Italian people, so much so that Karaganov excluded Italy from the list of countries perceived as mortal enemies).
But does Germany not feel itself to be in danger as well?
Meanwhile, by arming Ukraine, Germany is asking for trouble. Mearsheimer added that, with the US withdrawal from Europe, Germany in turn may feel defenceless and might even consider acquiring nuclear weapons. After all, one cannot expect France and the UK to react to a limited Russian attack, on pain of their total annihilation, let alone the US (who would make them do so?). But Russia would never accept a nuclear Germany (we have forgiven them for the holocaust of 50 million Russians, but only up to a point, as Karaganov said). The only way to respond to all this madness is through peace based on security and mutual cooperation. Some have suggested that Merz was attempting to conjure up the spectre of a Russian attack on Germany in order to rally public opinion behind the government against the ‘pro-Putin’ AfD. Even if this were the case, such an attempt has failed and, at least from this perspective, the decision to vote for the AfD should be viewed positively by anyone who does not share the madness of the European leadership.
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