Germany Enters the Global Economic Wars

(Bloomberg Opinion) -- With the U.S. and China increasingly competing rather than cooperating, Europe can’t stick to the old concept of globalization. A draft of Germany’s new industrial strategy, presented by Economy Minister Peter Altmaier on Tuesday, is all about surviving in a competitive world – an approach he wants to sell to the German public first and then to the rest of the European Union.

The competition, Altmaier told a press conference in Berlin, is between three major economic blocs: The U.S., Europe and Asia. In this struggle for dominance, Europe – and Germany in particular – is being relegated to the status of passive observer. That, he said, is due in part to the support for national economic champions in the U.S. and China. “There is hardly a successful country that relies exclusively and without exception on market forces to accomplish its tasks,” Altmaier wrote in his strategy paper. Germany and Europe, he argued, should move in the same direction, or they risk losing more than the economic competition:

If key technological competencies and, as a result, our position in the global economy were to be lost, this would have dramatic consequences for our way of life, for the capacity of the state to act and for its ability to shape almost all policy areas. And at some point also for the democratic legitimacy of its institutions.

This kind of rhetoric is surprising to hear from an associate of Chancellor Angela Merkel, an advocate of globalization who, despite her conservative party’s ties with big business, always insisted on letting German companies compete under their own steam. But now Merkel is a lame-duck chancellor, and Annegret Kramp-Karrenbauer, her successor as party leader, favors a more active industrial policy. Altmaier’s proposals lay the groundwork for a new electoral platform, one that puts support for the country’s “industrial and technological sovereignty and capacity” at its forefront.

Under this policy, for example, the government might have blocked Chinese appliance manufacturer Midea’s purchase of robotics firm (and German industrial jewel) Kuka AG in 2017. Altmaier said that in a similar situation in the future, the government could ride in as a white knight, make a better offer and become a temporary owner – after all, doesn’t it already hold shares in the post office, the biggest telecom operator, and the railroad monopoly? To Altmaier, “industrial sovereignty” means ensuring the survival of existing national champions such as Siemens AG, Thyssenkrupp AG, the country’s automakers, and Deutsche Bank AG.

Europe’s antitrust authorities need to look beyond the region when defining the competitive arena, Altmaier said in a clear reference to the opposition of EU trustbusters to Siemens and Alstom SA’s plans to merge their rail businesses. In this, he has the support of the country’s most powerful industrial lobby, the Federation of German Industries, which recently made public its policy proposals on dealing with an ascendant China.

The government, according to Altmaier, should support major projects that help keep added value, and thus jobs, in Europe – such as the production of batteries and software for electric and autonomous vehicles. And it shouldn’t stand by idly when local technology companies get funding from U.S. venture capitalists. “As a result, they become U.S. companies step-by-step,” Altmaier wrote; the examples he named included Munich-based data analytics specialist Celonis GmbH, translation engine Deepl and even Germany’s tech leader, SAP SE. Most of the latter’s shares are no longer in domestic hands.

Altmaier didn’t propose that the government should directly buy into promising startups, but he did say that ways must be found to make local private funding available. He suggested that “Germany must pool its entrepreneurial, scientific and political forces in the field of artificial intelligence.” That’s a clear echo of the “Airbus for AI” idea Altmaier publicly backed last year – reproducing the success of the European airplane builder by creating a national tech champion and ensuring “data sovereignty.”

If the above, with all the references to economic sovereignty, sounds surprisingly French, that’s not a false impression: Altmaier has found a like-minded thinker in his counterpart Bruno Le Maire. Where Germany was previously somewhat cool about France’s more protectionist instincts, two of the EU’s biggest economies now appear to be in harmony about the need to fight off U.S. and Chinese advances. In December, the two met at the “Friends of Industry” ministerial conference in Paris and agreed to cooperate on joint AI and battery projects.

At that meeting, representatives from 18 EU states, including Italy, Spain and Poland, agreed on some basic policy ideas aimed at keeping the bloc internationally competitive; these included changes to antitrust rules to make it easier to create economic champions. So if Altmaier’s strategy gets political support in Germany – which is likely, but isn’t assured given the left’s traditional distrust of big business – it should have legs on the EU level.

Political wheels turn slowly, and a shift toward a more competitive stance based on economic sovereignty won’t have immediate consequences. But Donald Trump, with his protectionist policies and trade wars, the U.S. internet giants, with their contempt for European regulation, and China, with its aggressive expansion into Europe, are doing a lot to make this shift inevitable. An EU more more focused on supporting local companies’ competitiveness will be a more difficult business environment for outside investors – and perhaps a tough rival, if the success of Airbus can be replicated in other industries.  

At least this time, though, the hostilities didn’t start in Europe.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Leonid Bershidsky is Bloomberg Opinion's Europe columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.

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