Making Germany Resilient

  • April 29, 2024
  • William Payne

In the 2020s, Germany has found itself beset by the effects of four major economic and social shocks that have afflicted it over a period longer than a decade. While the NextGenerationEU programme is explicitly intended to address the 2019-20 Covid-19 crisis, it is no secret that it was aimed as much at rectifying the economic shocks of a decade earlier, as can be seen by the allocation of funds across the continent.

Germany was hard-hit by the global crisis of 2009, with its economy suffering profound aftershocks that continue to this day. Moreover, its solution to the economic crisis of 2009, which created a lasting impact on labour and industrial asset productivity within Germany, was to ease industrial asset productivity through cheap Russian oil and gas, and to offshore as much R&D and industrial production to China as possible. Such a strategy, which worked up to the 2020s, relieved the country of the need for a wholesale industrial modernisation and workforce reskilling.

The Covid-19 crisis provided another major social and economic shock to Germany. It disrupted demand in Germany’s export driven economy. It exposed weaknesses in Germany’s healthcare system, particularly in terms of under-manning and lack of primary and lower secondary tier medical technology.

The Covid-19 crisis has been succeeded by the Ukrainian war. This, together with rising international tensions with China, has upended Germany’s recent economic model. It has created the need for a new energy infrastructure, alongside a need for urgent modernisation of Germany’s non-tertiary healthcare exposed by the Covid-19 crisis. Both Covid-19 and the Ukraine war have raised the need for a revitalisation of Germany’s industrial chemicals and pharmaceuticals sectors.

Germany is faced with multiple demands for renewal in industry, energy, healthcare and social infrastructure. The Covid-19 crisis, the Ukraine war, and a breaking China relationship, means that Germany must pursue a digitalisation, modernisation and reconstruction of multiple sectors.

The NextGenerationEU programme has offered Germany the opportunity to address many of the needs that these multiple shocks have exposed.

Germany’s initial National Recovery and Resilience Plan predated both Russia’s second invasion of Ukraine and worsening tensions with China. The initial plan, drawn up in 2021, addressed itself to continuing effects of the 2009 crisis, the 2020 Covid pandemic and a green transition agenda.

The country applied in 2021 for €28 billion of grants from the EU’s recovery and resilience fund. The main targets for spending are digitalisation and modernisation of industry, including small and medium-sized Enterprises, transitioning to cleaner and renewable sources of energy, digitalisation of education, and a major modernisation effort in healthcare, especially outside the major university hospital centres.

Since Germany submitted its initial recovery and resilience plan, the economic and strategic landscape for the country has shifted substantially. Russia invaded Ukraine, requiring a major shift in the country’s energy, gas and oil infrastructure away from the East and towards the north (Norway) and west (UK and Spain). The need to transform both its energy infrastructure and industrial infrastructure shifted from ambitious goal to urgent necessity. Escalating tensions with China have placed even greater urgency on the need to modernise its industrial infrastructure and up skill it’s workforce.

In September 2023 Germany requested an additional €1.5 billion, to be allocated to energy transformation.

Broadly, the country already has the funds it deems it requires in the principal buckets of energy, industry and energy. However, how it directs those funds within those buckets is likely to change significantly as priorities have altered so significantly in the last two years.

Among the projects that Germany has initiated with funds from NextGenerationEU, it has launched a Europe-wide initiative in microelectronics and communication technologies amounting to €1.5 billion, and a Europe-wide initiative on next generation cloud infrastructures and services for €750 million.

It has launched a federal programme to provide digital devices for teachers across Germany. The funding is being distributed by the Federal Government in Berlin, but each of Germany’s states is organising their own programmes to allocate the federal funding and work with technology companies.

The country has embarked on seven pilot projects to upgrade and digitalise its entire rail infrastructure. The project includes digitalisation and modernisation of signals, computer and control systems and rolling stock.

In addition to the modernisation of the rail network, €7 billion is being channelled into making the transport sector greener by supporting electric cars, clean buses and rail; the plan will provide financial support for the purchase of approximately 960 000 zero- or low-emission vehicles.

Germany’s plan includes €3.3 billion for decarbonising the economy, especially manufacturing and industrial plant, with a focus on renewable hydrogen. €1.5 billion is being invested to support the German economy transition to renewable hydrogen at all stages of the value chain including production, infrastructure and use.

The country is also putting €3 billion to digitalise hospitals, and €814 million to modernise primary healthcare, in particular local physician offices.