Last month saw the collapse of Germany’s government. Last week, saw the collapse of the French government after just 91 days.
In Germany, new elections will be held on 23 February next year, but are unlikely to solve the underlying problems that brought down the government.
In France, new elections can’t be held until the summer. So for the moment, it seems likely that a caretaker government will need to be put in place.
Germany is the world’s 3rd largest economy with GDP of $4.7tn. France is No. 7, with GDP of $3.2tn. They have essentially been Europe’s “engine” and led the development of the European Union (EU) for the past 60 years.
Today, they are both in political turmoil. And at a critical time, with Europe in the middle of its first land war since the end of World War II in 1945.
THE CAR INDUSTRY IS A MAJOR EMPLOYER AND IS ALSO IN MAJOR TROUBLE
French and German car makers used to be a great success story. Germany’s Volkswagen (now VW) and France’s Citroen/Peugeot brands (now part of Stellantis) led the development of Europe’s auto industry. Their unique European-style styling also led to great success in export markets. VW was the first international automaker to open in China, and its Audi A6 model became the top-selling car for government officials.
But both companies, like their American rivals, have been very slow in launching Electric Vehicles. And they have kept auto prices too high, to boost their short-term profits, even as the cost of living crisis hit home.
- VW’s profits have now plunged. They were down 60% in Q3. 2024’s operating margin has collapsed to 2%. And the company is having to shut plants in Germany for the first time
- VW is a massive employer with 684,000 people around the world, including 300,000 in Germany. As German news agency DW reports: “Many local economies depend on VW — it is the country’s biggest industrial employer. Slowdowns at the company will have knock-on effects on suppliers, dealers and choices for shoppers.”
- Stellantis has similar problems, with CEO Carlos Tavares fired last week as profit margins tumbled close to 5.5%, half the expected number
- As in Germany, the car industry’s problems are impacting the wider economy. S&P Global reported that the euro area’s manufacturing output accelerated its decline in November: “Germany recorded the fastest drop in output, Italy’s factory sector shrank at the fastest rate in a year, while France recorded the steepest contraction in 10 months.”
NOTRE DAME HAS BEEN RESTORED, BUT EUROPE’S ECONOMIES NEED MORE WORK
Notre Dame, one of the finest cathedrals in the world, reopens on Sunday after the fire that nearly destroyed it. It proves that it is possible to rebuild. And that is what now needs to happen to Europe’s economy and political system.
The question is whether this will prove possible. Will European politicians and citizens unite around a common goal, as France united around the need to rebuild Notre Dame? This will not be easy:
- The auto industry is the continent’s biggest manufacturing industry and it is clearly on a downward path
- It needs bold and visionary leadership that accepts the need for radical change, and will argue for this with the major stakeholders
- Similarly, the continent needs bold and visionary political leadership in the major countries
- Otherwise, Europe risks becoming the victim of its rivals’ “divide and rule” tactics
But Europe has been in this position before and risen to the challenge, as Jean Monnet, one of the EU’s founding fathers highlighted:
“I have always believed that Europe would be built through crises, and that it would be the sum of their solutions.“