The CEO of Germany’s Commerzbank says Germany needs structural changes and modernization. The prescription from Manfred Knof, which boils down to digitalizing the German workforce to reduce the costs for capital and increase profits, is symbolic of where Germany is headed as industry declines and finance (with a heavy American presence) takes full control of steering the direction of the country.
The recent story of Knof and Commerzbank – one of Germany’s largest lenders – is illustrative of the trend. From Euromoney:
Commerzbank’s new chief executive Manfred Knof is nobody’s idea of Mr Nice Guy, which probably explains his appointment.
A profile of Knof last year quoted a former colleague from insurer Allianz saying that Knof’s favourite tool when negotiating with unions was the crowbar.
This reputation as a human lever may have earned Knof his new position as chief executive of Commerz, after big shareholder Cerberus, the US private equity firm, helped to force out his predecessor Martin Zielke for cutting costs too slowly….
The German state is the largest shareholder in Commerzbank, which plays a key role in financing the nation’s small and medium-sized businesses. But an American private equity firm is effectively calling the shots, pushing for digitalization, aka, job cuts, and increased profits.
German industry is in decline due to the loss of cheap, stable Russian energy. Meanwhile, Germany is the biggest real estate investment market on the continent with the property sector makes up roughly a fifth of economic output. Financial and Insurance services constitute another four percent. Manufacturing accounts for about 27 percent of its economy, and that is shrinking.
BlackRock has replaced Allianz and Deutsche Bank as the most central shareholder in the ownership network of Germany Inc. Vanguard is now no. 2.
➡️Age of (passive) asset manager capitalism
Figure by @dustin_voss
h/t @PGolka pic.twitter.com/8fJvjgoTz4— Jan Fichtner (@fichtner_jan) September 14, 2023
With a pervasive neoliberal ideology and industry in decline, the FIRE sector is strengthening its chokehold over the German economy pushing right-wing neoliberal ideology. As Michael Hudson writes, “An industrial economy’s decline usually provides a grab bag of opportunities for financial predators and vulture funds.”
So it is in Germany. This is showing up in corporate profits in Germany, which reached a record high of 234.15 billion euros in the first quarter of 2023.
It’s on display in German budget plans for 2024, which impose deep austerity everywhere except the military.
It’s evident in the growth of Germany’s private equity and venture capital industry, which tripled in size from 2012-2021, and that trend is picking up steam. According to Reuters, International and U.S. law firms continue to invest in Germany, with international mergers and acquisitions, finance and private equity hires driving legal market growth in the country:
Reed Smith is the latest to add to its Munich office, roping in two partners from U.S. rival McDermott Will and Emery, including its German private equity group leader, Nikolaus von Jacobs, the firm said last week.
Other U.S. law firms have also grown in Munich, most notably Morgan, Lewis & Bockius, which opened its second German office there in March with a 19-attorney group from rival Shearman & Sterling, including its country head and M&A leader Florian Harder.
Kirkland & Ellis, McDermott, Dechert, DLA Piper, Allen & Overy, Ashurst and Dentons all added transactional partners in the Bavarian capital this year. Goodwin Procter, which launched a Munich office last year, called the city “a private equity hub.”
The financialization of Germany is also showing up in how the German people are getting squeezed and are increasingly angry. From Reuters:
Some 80% said they considered the economic situation in Germany as unjust, up 32 percentage points from 2021, and 60% of Germans said they saw society as divided – principally between rich and poor – up 20 percentage points compared with May 2022, according to the More in Common research organization.
On Monday, a study by economic institute Ifo showed Germany’s middle class had shrunk between 2007 and 2019 to 63% of the population from 65%, falling behind 13 European countries in its share.
Low and middle income households have been generally hit harder by inflation, Florian Dorn, a researcher at Ifo told Reuters. Workers in Germany, Europe’s biggest economy, lost around 4.1% of their purchase power in 2022, research by the WSI institute published in July showed.
Although higher energy import prices initially drove inflation in Europe and Germany, companies were also putting up prices beyond their cost inflation, WSI analysis showed. Companies’ profit inflation rose by 7% in 2022 compared to an only 3.3% rise in labour costs.
Unfortunately, it’s all about to get worse as the government works to shift more costs from public to private. The German government presented its 2024 budget to the parliament last month, with Finance Minister Christian Lindner’s draft budget coming in roughly €30 billion less than in 2023. While the military spending grows, cuts are proposed nearly everywhere else.
Healthcare
The starving of the German national healthcare system is beginning to mirror similar efforts in the UK to wreck the NHS. The 2024 budget will continue to build upon these efforts, such as last year’s plan that closed departments and hospitals and led to increased wait times for those without private insurance. The argument was such measures were necessary to deal with funding shortfalls due to the pandemic, the energy crisis, and inflation in medicine prices.
This year’s budget continues to starve the public system. From WSWS:
Some of the cuts in social spending are drastic. This is most obvious in the health budget, which will drop from €24.5 billion this year to €16.2 billion next year. In 2022, it had amounted to €64.4 billion. This 75 percent cut is partly due to the fact that the government has almost completely cut funding for monitoring and combating COVID-19, even though the pandemic continues to spread and generate ever new variants. There is also hardly any money for research and cures for Long Covid, even though hundreds of thousands suffer from it.
In Germany, people with private health insurance account for 11% of the population. They tend to be wealthier and are prioritized by health care providers due to financial incentives for physicians who can charge higher fees for the same services. This effectively encourages more to purchase private insurance. Meanwhile, workers are expected to have to contribute a larger percentage of their wages to their mandatory health insurance payments next year.
International investors are seeing opportunities in the cracks in the system. International investment groups are buying up doctors’ practices in Germany. From Deutsche Welle:
A study published in May by the financial research collective Finanzwende found that private equity firms bought 174 German doctors’ practices in 2022, up from 140 in 2021 and just two in 2010. And, according to research by the public broadcaster NDR, such firms now own hundreds of practices across Germany, to the extent that single chains have a monopoly in certain regions and towns.
Housing
Germany’s 2024 budget plan, which still needs to be formally passed, also scales back housing benefits by 16 percent. The housing benefit is support for households that don’t have enough income to pay for adequate accommodation. It’s not a great time to be slashing the budget for housing assistance. Deutsche Welle describes the unaffordability crisis in the country:
Germany is traditionally a nation of tenants. While across Europe around 70% of the population own the house or apartment they live in, only 46% of people living in Germany do so. In major cities, that ratio is even lower.
If you want to rent a nice apartment in a good location in Berlin, you need a lot of money. A “wonderfully spacious 4-room apartment” in Berlin’s upmarket Charlottenburg district: 182 square meters, furnished, the rent is €8,190 ($8,947) per month. Plus heating, electricity and other incidental costs, that amounts to over €50 per square meter.
A so-called rental price cap was included in the German Civil Code in June 2015. According to this, when signing a new rental agreement, the rent may not be more than 10% above the local comparative rent. But in Berlin and other large cities, landlords have found a lucrative way around this: The cap does not apply to furnished apartments and contracts for short rental periods. So now, more than half of all apartments in Berlin are offered as “furnished.”
A rent level of €6.50 to €7.50 per square meter is considered socially acceptable in Germany. But for that price, you can’t even find an apartment on the outskirts of Berlin these days….
In Germany, the average net income — the amount that remains after taxes and social security payments have been deducted — currently stands at €2,165, according to the Federal Statistical Office. Around one-third of this income is spent on rent. But even that is often not enough. In Munich, a square meter now costs €19 in rent, in Stuttgart €18, in Dusseldorf and Cologne €12 to €13 and in Berlin €11.
As a greater share of salaries and pensions go to rent, poverty is soaring. Austerity measures similar to those coming from Berlin are likely be imposed across the EU soon. The European Central Bank is calling on governments to end subsidies intended to help people deal with high energy prices due to the West’s proxy war against Russia in Ukraine. The ECB argues that eliminating the subsidies will help prices stabilize. Sure, they might stabilize at an unaffordable level, but stable they will be.
Germany, which intends to cut its deficit to 2.0 percent next year from 2.5 percent, is still debating whether to keep energy subsidies for industry, but is facing strong pressure from the ECB to end them. An end to the German subsidies would almost certainly devastate the country’s industry, but the ECB and European Commission argue that keeping them would set a bad example for the rest of the bloc, which due to rules, must start imposing austerity. From Reuters:
EU law says budget deficits, if in excess of 3.0% of GDP, must shrink by 0.5% each year until they comply with the limit.
The European Commission has also promised to start disciplinary steps against those with budget gaps above 3.0% next year, which could in theory lead to fines.
Military
While austerity is pushed from Brussels, European capitols are also expected to start spending more on their militaries with Germany leading the way. In its current budget, Berlin will spend 85.5 billion euros for military purposes next year, the highest sum since the end of the Second World War. From WSWS:
The draft budget of the Defence Ministry only shows expenditure of €51.8 billion, 1.7 billion more than in the current year. But on top of that, there are €19.2 billion from the Bundeswehr’s “Special Fund,” as well as other expenditures hidden in other budgets. To Ukraine alone, Lindner has promised €5 billion in military aid every year until 2027. Together, the military expenditure thus amounts to €85.5 billion euros—the sum that Germany declares to NATO.
Firewall Against Alternative for Germany Breaking?
The German elite had remained opposed to the AfD. Germany’s business groups were unified in their opposition to the AfD whose immigration stance goes against big businesses’ desire for cheap labor. All of Germany’s main political parties say they are opposed to the AfD and are discussing an outright ban of the party, but that “firewall” might be breaking down. Last month, the Christian Democrats and the pro-business Free Democrats needed votes to defeat a regional government in a crucial budget bill. They turned to the AfD.
Together they were able to push a tax cut through Thuringia’s parliament against the wishes of the left-wing coalition.
Germany’s main opposition leader, Friedrich Merz who leads the Christian Democrats, had ruled out cooperation of any kind with the AfD. Merz, a former corporate lawyer who has sat on numerous company boards including BlackRock Germany, had been heavily criticized for previous comments after AfD election wins in Eastern Germany local elections. He said at the time that they were democratic elections that “we have to accept, and then of course ways have to be sought in local parliaments to organize the town, the countryside or the county together.”
All in all, it’s safe to say that the situation isn’t looking all that great, what with the ongoing support for and normalization of Nazis in Ukraine, an increasingly financialized economy and austerity leading to higher levels of poverty, an elite losing control, and increasing militarism.