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Tue, 05 May 2026 19:38:09 -0700
marlon from private IP, post #18181797
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Germany’s Economy Is Spiraling. Can War Fix It?
https://www.wsj.com/podcasts/the-journal/germanys-economy-is-spiraling-can-war-fix-it/f9f361d1-fbf9-45a2-84c3-e3abb9bee2d8
Germany’s Economy Is Spiraling. Can War Fix It?
After years of industrial decline, the Germany economy is stagnant. Government officials now hope an audacious plan, to pivot from consumer goods to weapons,
will kickstart growth again. WSJ’s Bojan Pancevski explains how the same factories built to make German car parts are now gearing up to supply the defense
industry. Jessica Mendoza hosts.
Further Listening:
- The Global Scramble for Patriot Missiles
- Germany’s Economy Is Broken. There’s No Plan B.
Sign up for WSJ’s free What’s News newsletter.
Full Transcript
This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.
Jessica Mendoza: Germany is well known for producing high quality vehicles. Its luxury car companies are the crown jewel of the country's manufacturing sector.
But recently, those companies have been flashing warning signs.
Reporter 1: After years of roaring down the Autobahn, a speed bump for Porsche.
Reporter 2: Volkswagen and Mercedes-Benz posting year-on-year declines of over 40% in net profits.
Reporter 1: The iconic sports car maker notched up a spectacular third quarter loss of almost one billion euros.
Bojan Pancevski: There is sort of a creeping sense of panic.
Jessica Mendoza: Our colleague, Bojan Pancevski, covers Europe, and he's been reporting on the pain being felt throughout Germany's economy.
Bojan Pancevski: Germany is basically losing roughly 15,000 jobs from manufacturing each month.
Jessica Mendoza: Wow, wow.
Bojan Pancevski: This is a striking figure.
Jessica Mendoza: Per month.
Bojan Pancevski: Yeah, it's a striking figure. It's a bloodbath.
Jessica Mendoza: Yeah.
Bojan Pancevski: And obviously it's a situation that requires urgent action, both on behalf of the businesses, on the enterprises, and the government who is
desperate to help them and stop the bleed.
Jessica Mendoza: German officials and companies have been feverishly looking for a way to inject life into the economy, and that led to a big aha moment. While
luxury car brands have suffered, another kind of precision manufacturing shows some real promise, weapons.
Bojan Pancevski: There is money to be made in the arms industry, which is one of the very few branches of the economy that's actually booming. And they seem to
have coalesced around the idea of going into the defense industry, which is now kind of crucial in Europe.
Jessica Mendoza: So they're pivoting basically from the car business to the business of war?
Bojan Pancevski: That's right. They're pivoting from cars to canons.
Jessica Mendoza: Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Tuesday, May 5th. Coming up on the show, Germany
is reinventing itself as a weapons factory. Bojan, how would you describe the role that the German economy plays in Europe?
Bojan Pancevski: Oh, Germany is this giant sort of beating industrial heart of Europe and smack in the middle of the continent. Essentially, a lot of countries,
if not most countries in mainland Europe, are entangled in the German supply chain. And when German manufacturing is stuttering, these countries are also losing
growth. I mean, one example is Austria, one of the richest countries in Europe, and it's completely embedded in the German supply chains. It's the same is true
also for countries like Hungary or the Czech Republic. So everyone suffers if Germany suffers.
Jessica Mendoza: And Germany is not only a major economic force in Europe. It's also deeply important to the continent's security. After the US, Germany
contributes the most money towards NATO. When Russia invaded Ukraine in 2022, it both threatened Europe's stability and hurt Germany's economy. Russia had been
Germany's biggest supplier of natural gas and a major supplier of other energy resources.
Reporter 3: Russian gas firm Gazprom is scheduled to switch off its largest natural gas pipeline running to Germany today.
Jessica Mendoza: The war in Ukraine sent energy prices skyward, and those price increases rippled throughout the manufacturing sector. That was devastating to
the German car industry, which was already facing stiff competition from overseas.
Bojan Pancevski: China, once basically a customer of Germany has turned into its most fierce rival and is producing things that are as good or cheaper than what
Germany has to offer. I mean, their electric cars are in part better than the German cars, which is unheard of so far. The Germans were always comfortable as
being the best on the market.
Jessica Mendoza: Combined, all of these headwinds have stalled Germany's economy.
Bojan Pancevski: The economy hasn't effectively grown since 2018. It's the longest period of time of stagnation since the Second World War, so it's alarming
essentially at this stage.
Reporter 4: Chancellor Schultz announced last week he would call a confidence vote and trigger snap elections.
Jessica Mendoza: In February of last year, Germany held a big election. And in the run up, it was clear that voters were looking for a change.
Bojan Pancevski: Polls are showing that people have a very dim view of the future. The majority thinks that their children will be worse off than their
parents.
Reporter 5: The stagnation of Europe's biggest economy has been one of the burning issues of the campaign. Others have been support for Ukraine, the future
of...
Jessica Mendoza: The election proved to be a major turning point. Incumbents were voted out. The far right and the far left surged. The party that got the most
votes was the Christian Democratic Union with a conservative and business-friendly platform. They vowed to turn around the economy with investment and
deregulation. And the face of that turnaround is the new minister of the economy.
Bojan Pancevski: And the minister of the economy is a woman called Katherina Reiche. She comes from business herself. She used to be in energy, in the energy
trade, she dealt with gas and so on. And she's very, very much attuned to the mood inside the business community.
Katherina Reiche: We need speed and investments and we need private capital. And that will be another topic I will take care of.
Jessica Mendoza: With the ongoing security threat from Russia, Reiche bet that there would be higher demand for weapons across Europe and that Germany could
make them.
Bojan Pancevski: So Katherina Reiche, the economy minister, figured that out and realized we need to onshore manufacturing for these things. We need to start
making these things ourselves in Germany, but also in Europe, or then start exporting them to our partners elsewhere.
Jessica Mendoza: Reiche and the new government spearheaded a change to the German constitution that unlocked billions for defense manufacturing. Berlin has
since pledged to spend more than half a trillion dollars on defense over the next decade, and the government didn't stop there. Reiche also launched a program
that encouraged existing German companies to connect with new defense customers.
Bojan Pancevski: So she came up with this idea of setting up a platform, matchmaking platform where businesses from across the manufacturing economy can log in
and offer their services in manufacturing things that the defense industry needs.
Jessica Mendoza: Say you're a manufacturer that makes screws. You could get matched for the company that makes drones, learn their needs, and start making
screws for them too. And for these manufacturers, there's another benefit to getting on board with defense.
Bojan Pancevski: Once you enter that zone, the defense industry, you are no longer exposed to the competitive pressures from Asia and elsewhere because it's
just the way it works. Allies buy from allies. They're not going to buy from adversaries.
Jessica Mendoza: In the years since Reiche and her party were voted into office, there's been even more reason for Germany to lean into defense. President
Trump's tariffs have further squeezed German exports, piling pressure onto the auto industry. Trump has also pulled back on US support for NATO. And more
recently, he's announced the withdrawal of around 5,000 US troops stationed in Germany. In the face of this US retreat, Germany is anticipating Europe will need
their weapons more than ever. I'm wondering, was there any pushback at all to making weapons the focal point of Germany's industrial economy? Is there any
stigma still attached to this idea?
Bojan Pancevski: I think there used to be a stigma because Germany is a very pacifist nation for obvious reasons of history, and has until the war in Ukraine
being extremely restrictive with government contracts for weapons, factories, with exports, now all that is gone. Now with Russia becoming super aggressive,
with America becoming detached, I think the mentality has basically fundamentally shifted.
Jessica Mendoza: So is this big pivot working? That's next. So the German government is encouraging manufacturers to go into defense, but how hard is it exactly
for a company or a factory to make that switch from making a part for a consumer good like a car to a part for a weapon?
Bojan Pancevski: Apparently it's not that hard at all. Obviously depends on what they're doing, but in terms of engines and board systems and computer systems
and electric engines for drones, for example, it's very much the same thing.
Jessica Mendoza: Bojan talked to one company that's already making the switch. It's called Deutz. Deutz is one of Germany's oldest engine makers.
Speaker 9: (German).
Bojan Pancevski: Well, one thing you need to know about Deutz is not just any odd engine company. It is the oldest engine company in the world.
Jessica Mendoza: Bojan recently interviewed the company CEO, who actually used to work in the defense industry.
Bojan Pancevski: And he decided, "Now we need to transform the company. We can't go on as we used to, and so we need to look farther than just the car industry.
So what do we have?"
Jessica Mendoza: And what Deutz had, the CEO found, were products that could be adaptable.
Bojan Pancevski: The engines they sell to car makers, they can be used also with modifications. They can be used for tanks and armored vehicles and other kind
of vehicles used in the defense industry. They can also be used for drones.
Jessica Mendoza: Deutz acquired a drone company in 2025, but otherwise, it's largely been able to supply new customers by retooling what they already had.
Bojan Pancevski: I mean, there's a minor kind of retuning. They have to reprogram some computers and robots. They have to retrain some of the workers, but
they're using existing production lines. This is the most important thing. They're not out there building new factories. That costs a lot of money. To build a
new factory in Germany is north of one billion in this business.
Jessica Mendoza: Bojan says that German companies like Deutz also have a kind of cultural advantage when it comes to manufacturing. They're known for being
really nimble because they've had to respond to a demanding global market.
Bojan Pancevski: If you're a car part supplier in Germany, you have to be the best and you have to be quick and you have to be responding to the market in real
time. If you can't do that, you're gone. And there's a reason why some of these companies have been around for almost two centuries because they've been
responding to the market. So they're very quick to adapt, very quick to scale up.
Jessica Mendoza: That ability to adapt is what Germany's hoping to leverage in its nascent defense industry, and the war in Iran is opening up another big
opportunity. American defense manufacturers have dominated the global weapons trade for decades, but as the fighting continues, the US and its allies in the
Gulf have burned through their stocks of weapons, particularly things like patriot missile systems, which are used to defend against airstrikes, and American
companies can't move fast enough to replace them.
Bojan Pancevski: So in the near future, the United States will not be able to supply its own armed forces sufficiently, let alone the allies in Europe. And
they're not stupid. They know this. I mean, I think even Volodymyr Zelenskyy, the president of Ukraine, said, "We know that we're not getting the stuff from
America now that we need because they used it all up in the Gulf." In a weird way, that is a boost for European and particularly German defense manufacturers
because now they need to step up and fill in the gap.
Jessica Mendoza: German companies are stepping up. Deutz now supplies engines for patriot systems used by Saudi Arabia and Volkswagen is currently in talks with
the Israeli government to supply parts for the iron dome, their sky shield against missile and rocket attacks. So as you've been spelling out, Bojan, Germany
has a lot riding on this major pivot. Are there signs that the pivot to defense is the solution to their economic problems?
Bojan Pancevski: Well, we're talking about less than a year now. Depends. For some companies, some companies were pioneers in it. Others are kind of jumping on
the bandwagon now. So it's early days, but individual companies show that there is a very positive effect. I mean, we talked about Deutz. Deutz made the pivot
and the bet paid off. The company grew 15% in revenue last year.
Jessica Mendoza: Which is a stark contrast to what some of these other companies have been seeing, right?
Bojan Pancevski: Exactly. I mean, this is a company that supplies the car industry, so you would've expect them to be in a very tough spot, but actually these
guys are growing. They're very happy.
Jessica Mendoza: With some companies seeing growth, employment numbers are also showing positive signs. Many of the workers who lost their manufacturing jobs,
they're finding new jobs in the defense sector. If Germany is able to pull off this giant shift in its industrial economy, what could it mean for Europe?
Bojan Pancevski: Well, it could only mean good things for Europe because if they preserve the supply chains, if they preserve the workforce, if they preserve
the market and the factories, keep the factories running, then that means their partners across Eastern Europe and elsewhere will benefit from it. So Germany
coming back to growth is absolutely brilliant news. Because effectively, without Germany, the European Union economy is essentially an old people's home with a
huge mortgage.
Jessica Mendoza: Is this plan of Germany's kind of banking on a world with more conflict? So is that kind of the bet that Germany is making here?
Bojan Pancevski: Absolutely, they're making that bet, and I think they're quite right. I mean, you'll finally hardly find any geopolitical analysts who will
tell you there will be peace and prosperity in the world in the coming years. It's not looking like that. Russia is not going to stop being Russia the way it is
at the moment, and Russia is a huge menace on the European continent. It's very obvious that the war in Iran is not going to pacify the region in any
conceivable sense, and that Iran will then become a peaceful nation. It's very obvious that China is expanding and is flexing its own muscles, and America is
trying to frustrate those efforts. Essentially, they're not banking on war. They're banking on the anxiety and the fear of war, and it seems to be working so
far.
Jessica Mendoza: That's all for today, Tuesday, May 5th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this
episode from Shelby Holiday, Michael R. Gordon, and Vera Bergengruen. Thanks for listening. See you tomorrow.
Thu, 07 May 2026 06:44:27 -0700
whiteguyinchina from private IP
Reply #13426338
Japan too.
Thu, 07 May 2026 08:29:27 -0700
shithead from private IP
Reply #18702846
We are all fuck now
Thu, 07 May 2026 14:17:09 -0700
whiteguyinchina from private IP
Reply #16264197
So I work with a lot of industrial German machinery suppliers and they were always expensive but good quality and after service. Now they quality has down
horribly snd everything is handled by the China office.
This is the death of German industry. I believe they have had to lay off people to cut costs and this has decreased their quality.
Which means there is no reason to buy German anymore.
Thu, 07 May 2026 14:26:35 -0700
marlon from private IP
Reply #15943160
wonder why
outsourcing manufacturing to third world countries is bogus practice,
i wonder who the hell makes what these days. so what if a big brand name
is stamped on it, u know some monkey in some shithole did all the work.
Volkswagon has suffered big time after the diesel emissions scandal, a few
of their executives went to prison in the US. overkill in my opinion.
Thu, 07 May 2026 15:20:04 -0700
whiteguyinchina from private IP
Reply #17456373
It extends the US regime as well because these countries will be more dependent on US energy and have to buy militaryshit from US. Germany will probably round
up Muslim youts and send them to the front to be drone fucked. We are really upon a new era.
I have always thought that the West had concluded that China model of state led capitalism was more successful than a consumer based economy, and that it was
pivoting its economies in that direction. I did not ever think thay would do so by promoting military industrial complexes all over the globe. Yet here we are.
I guess i lack imagination.
State led capitalism means national champion companies fed with govt funds, and this requires a reduction in consumption by the masses. Because that money is
needed for investment, not consumption.
So my logic in buying Campbell's was that in the end people will be eating 3d printed meat anyway. Inflation is guaranteed in a wartime economy. I still think
the premise is right and the stock will recover. But also maybe not.
Thu, 07 May 2026 18:09:55 -0700
phosita from private IP
Reply #15340480
I love my turbodiesel. If only I could remember who it was on original JDU who sent me that excellent .txt on turbodiesels.
Sheeeit, diesel is like > $8/gallon. More than I'd pay for aviation gasoline.
Fri, 08 May 2026 14:32:07 -0700
doublefriedchicken from private IP
Reply #10015620
A fraternity brother in college had the Mercedes turbo diesel. He still has it - 37 years later.
Fri, 08 May 2026 14:47:45 -0700
marlon from private IP
Reply #18951288
must be a rust bucket by now
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