Vamos a la fábrica: Reindustrialising away from Germany?

7 months ago 30

The spectre of deindustrialisation keeps European business managers and policymakers pondering and theorising.

At an event hosted by the European Policy Centre (EPC) in Brussels on Wednesday (24 April), France’s Industry Minister Roland Lescure warned that Europe could undergo complete deindustrialisation over the next few years — unless it implements government subsidies similar to those already in place in China and the US.

“If we don’t enact measures as the Chinese and [US counterparts] have done, yes, European industry, it can disappear,” Lescure said, in response to a question from Euractiv.

Lescure also stressed that, unless Europe quickly addresses its industrial decline, far-right and anti-European sentiments will only become more pervasive across the continent.

“The alternative is nationalism, it’s protectionism, it’s war,” he cautioned.

For decades, Europe’s industrial heartland has been based in Germany.

An educational system based on strongly work-focused vocational training, first-rate infrastructure and, until recently, a bountiful supply of cheap Russian energy have made Europe’s largest economy a world leader in the production of cars, chemicals, and other manufactured goods.

However, things are now changing — or, rather, might soon change. Geopolitical and, especially, climate-related forces are causing experts and policymakers to rethink the continent’s industrial geography.

In particular, many believe that Europe’s industrial base — which has experienced a steep drop in production and shed hundreds of thousands of jobs over the past few years — should relocate permanently to the continent’s south.

If this happens, Spain, with its sparsely populated territory and climate perfect for the deployment of solar and wind farms, stands to be the main beneficiary.

“I sincerely believe, because I am witnessing it first-hand, that Spain can contribute to this process of re-industrialisation in Europe,” Spain’s Industry Minister Jordi Hereu told the EPC event.

There is much evidence to support Hereu’s thesis.

According to the latest data by Eurostat, the EU’s official statistics office, industrial output in Germany fell 6.1% from February 2023 to February 2024.

Spanish industrial production, by contrast, grew by 3.5% over the same period, the largest increase across the entire bloc.

The two countries’ contrasting industrial fortunes are symptomatic of their broader economic performances.

According to projections published last week by the International Monetary Fund (IMF), Spain’s economy — the fourth largest in the EU — is expected to grow nearly ten times as much as Germany’s this year (1.9% to 0.2%).

The countries’ distinct economic prospects are also reflected in their leaders’ statements.

Hereu noted on Wednesday that Spain is now “positioning itself among the industrialised countries of the world”. Meanwhile, German Economy Minister Robert Habeck recently described his country’s economic situation as “dramatically bad“.

However, Simone Tagliapietra, a senior fellow at EU policy think tank Bruegel, told Euractiv that one should distinguish between the impact of the immediate energy shock of Russia’s invasion of Ukraine in February 2022 and the broader, longer-term forces reshaping Europe’s economic and energy systems.

“The situation over the last few years is not indicative of the other question – [i.e.] the new geography of the energy industry,” he said.

Tagliapietra confirmed that Europe’s industry will indeed experience significant upheaval over the coming years: “The key fact is that the energy transition will reshape the industrial map of Europe and the world.”

The senior researcher stressed there are three different ways for Europe’s manufacturing and energy sectors to be restructured as policymakers attempt to green the continent’s economy.

The first scenario is that Spain becomes one of Europe’s main producers of renewable energy but ships much of what it makes to the EU’s traditional industrial heartland in the north.

A second scenario would see Europe’s manufacturing base permanently relocated from Germany to Spain — and more broadly, from north to south.

And a third is that Europe’s industry moves further south still — to African countries.

“It might well be the case that given the higher energy prices in Europe, the production of energy-intensive goods like ammonium, for example, or fertilisers, might make sense in African countries where you have greater amounts of renewable energy potential, rather than in Europe,” Tagliapietra explained.

[Edited by Anna Brunetti]

Chart of the Week

Spain’s GDP growth has historically followed similar trajectories to the German one – only dropping below the latter between 2010 and 2014, as the Southern European country took a harder hit from the financial crisis, and again tumbling to -11.2% at the peak of the Covid-induced economic slump, as our Chart of the Week shows. However, the Spanish GDP is now forecast to steadily surpass its German counterpart over the next few years.

Arguably, the IMF’s projection can be seen as equally indicative of Germany’s continued economic weakness as it is of the broader shift in economic power relations across Europe.

“We may see the world becoming more multipolar,” European Central Bank president Christine Lagarde said in April last year. This seems to be especially true for Europe.

Economic Policy Roundup

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