Energy crisis to labour shortage: Five challenges facing Germany right now

From Russia's war on Ukraine putting an end to cheap energy to a lack of staff in several industries and rising inflation, here are five challenges causing Germany's economy to become unstable.

A restaurant searching for staff in northern Germany. Many industries are struggling with staff shortages in Germany.
A restaurant searching for staff in northern Germany. Many industries are struggling with staff shortages in Germany. Photo: picture alliance/dpa/dpa-Zentralbild | Jens Büttner

Stagnant German growth in the second quarter has led analysts across the board to predict a recession as the outlook becomes clouded by the threat of a halt to Russian gas supplies.

But it is not only growth that is sputtering at zero percent between April and June – Germany’s entire economic model is being called into question by experts. Here’s a look at the challenges on the table right now.

READ ALSO: Germany economy stalls as recession looms

End to cheap energy

“The war in Ukraine puts an end to the German economic business model as we knew it – a model which was mainly based on cheap energy imports and industrial exports into a increasingly globalised world,” say analysts from ING bank.

Less expensive to produce and transport, with prices pinned down in long-term contracts, Russian gas has for decades contributed to Germany’s economic prosperity.

Industry consumes 30 percent of the gas burnt in Germany. Before the war, more than half of the total supplies came from Russia, a figure which had fallen to 35 percent by the beginning of June.

To wean itself completely off Russian gas, Germany is looking further afield for new supplies including shipments of liquefied natural gas from the United States and Qatar, as well as moving more quickly to renewable electricity generation.

Meanwhile, German society is having to take extreme measures to save gas. Cities have started turning off the lights, including Berlin, as is shown in the cathedral below. 

The Berlin Cathedral or Berliner Dom will no longer be illuminated to save energy.

The Berlin Cathedral or Berliner Dom will no longer be illuminated to save energy. Photo: picture alliance/dpa | Paul Zinken

READ ALSO: What is Germany’s new gas bill ‘tax’ and who pays it?

Globalisation in crisis

“As an exporting nation, Germany has benefited disproportionately from free trade. But it is exactly that which is now in danger,” opined the Süddeutsche daily earlier this month.

The coronavirus pandemic and the Ukraine war have shown the weaknesses of open economies as supply chains have been upended and key components have become scarce. Germany has been among the most exposed to the logistical snafus of the past two years.

Germany’s dependence on China is also worrying politicians in Berlin. The strong two-way ties between Germany and China were “not healthy”, liberal Finance Minister Christian Lindner said in April.

Beijing is Germany’s number one trade partner, with trade between the two nations climbing again by 15.1 percent in 2021.

“It’s potentially a new risk,” economist Claudia Kemfert told AFP. While the risk was less acute than dependence on Russia, more needed to be done to “focus on the domestic economy and build resilience”, she said.

Inflation shock

After years of anaemic growth, inflation is back with a vengeance in the European Union. In Germany, the memory of 1920s-style hyperinflation weighs heavy on the public debate.

Beyond this psychological block, the obsession with price stability ensures a “competitive industry and a nation of savers”, according to a recent report by French think tank OFCE.

An employee takes money from the till at a shop in Stuttgart.

An employee takes money from the till at a shop in Stuttgart. People in Germany face more price hikes, according to a study. Photo: picture alliance/dpa | Marijan Murat

Rising prices have led to rising labour unrest in Germany. July saw the longest industrial action at German ports in 40 years and a day of strikes by ground staff at Lufthansa. Unions haven’t ruled out more strikes happening if employers do not push up workers pay.

READ ALSO: Will Germany see more strikes affecting air travel this summer?

Ahead of negotiations that are set to kick off in September, the powerful IG Metall union is asking for an eight-percent pay rise for 3.8 million workers across various industrial sectors, the biggest wage demand since 2008.

Staff wanted

Overshadowed by the war in Ukraine, the lack of skilled workers is a major headache for German industry.

On top of the million vacancies already advertised, “Germany will need 500,000 extra employees every year for (the) next ten years,” said Marcel Fratzscher, head of the DIW think tank in Berlin.

The potential shortfall was a “risk for the competitiveness and prosperity of the country”, he noted.

Auto supplier Continental raised the alarm in July saying the shortage “threatened the future of the German economy”, which “urgently needs controlled immigration”.

Germany’s coalition government made up of the Social Democrats, Greens and Free Democrats say they want to make Germany more attractive to skilled immigrants to encourage them to come to Germany and work.

READ ALSO: ‘Appointments in English’: How Germany wants to attract workers from abroad

Germany is also planning to relax citizenship laws as part of its overhaul of immigration policies, which will mean non-EU nationals will be allowed to hold more than one nationality. 

Debt brake illusion

Returning to Germany’s strict budgetary rules in 2023 after a three-year pandemic-enforced hiatus is a key aim for Finance Minister Lindner.

However, the goal was “as surprising as it is unrealistic”, said analysts at ING.

Germany is preparing to spend billions again to support households through the coming energy crisis and investing colossal amounts into the switch to renewable energy.

“Germany will need time and money” to implement “investment and structural change as determined and committed as it demanded from other eurozone countries in the past”, the ING analysts said.

READ ALSO: Germany plans return to debt limit rules in 2023

By Sophie MAKRIS

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Why sunny weather in Germany can switch off solar panels

The more the sun shines in the southern German town of Aurach, the more likely it is that Jens Husemann's solar panels will be disconnected from the grid -- an exasperating paradox at a time when Germany is navigating an energy supply crisis.

Why sunny weather in Germany can switch off solar panels

“It’s being switched off every day,” Husemann told AFP during a recent sunny spell, saying there had been more than 120 days of forced shutdowns so far this year.

Husemann, who runs an energy conversion business near Munich, also owns a sprawling solar power system on the flat roof of a transport company in Aurach, Bavaria.

The energy generated flows into power lines run by grid operator N-Ergie, which then distributes it on the network.

But in sunny weather, the power lines are becoming overloaded — leading the grid operator to cut off supply from the solar panels.

“It’s a betrayal of the population,” said Husemann, pointing to soaring electricity prices and a continued push to install more solar panels across Germany.

Europe’s biggest economy is eyeing an ambitious switch to renewables making up 80 percent of its electricity from 2030 in a bid to go carbon neutral.

N-ergie thermal power station

The thermal power station of energy supplier N-Ergie in Nuremberg, southern Germany. (Photo by Christof STACHE / AFP)

But Russia’s invasion of Ukraine has put a spanner in the works.

Moscow has cut gas supplies to Germany by 80 percent, in what is believed to be a bid to weaken the European powerhouse’s resolve in backing Ukraine.

READ ALSO: OPINION: How many massacres will it take for Germany to turn off Russian gas?

As a result, Berlin has been scrambling for alternative sources across the world to replace the shortfall.

This makes it all the more frustrating for Husemann, whose solar panels normally generate enough electricity for 50 households. With the repeated shutdowns, he suspects they will only supply half of their capacity by the end
of the year.

Grid bottlenecks

Grid operator N-Ergie, which is responsible for harvesting electricity from Husemann’s panels, admits the situation is less than ideal.

There were 257 days last year when it had to cut off supply from solar panels on parts of the grid.

“We are currently witnessing — and this is a good thing — an unprecedented boom in photovoltaic parks,” Rainer Kleedoerfer, head of N-Ergie’s development department, told AFP.

An employee of energy supplier N-ERGIE working at the company's network control centre in Nuremberg, southern Germany. 

An employee of energy supplier N-Ergie working at the company’s network control centre in Nuremberg, southern Germany.  (Photo by Christof STACHE / AFP)

But while it takes just a couple of years to commission a solar power plant, updating the necessary infrastructure takes between five and 10 years, he said.

“The number of interventions and the amount of curtailed energy have increased continuously in recent years” as a result, according to N-Ergie spokesman Michael Enderlein.

“The likelihood is that grid bottlenecks will actually increase in the coming years,” while resolving them will take several more years, Enderlein said.

According to Carsten Koenig, managing director of the German Solar Industry Association, the problem is not unique to solar power and also affects wind energy.

READ ALSO: Reader question – Should I modernise my heating system in Germany?

Solar bottlenecks tend to be regional and temporary, he said. “Occasionally, however, we hear that especially in rural areas in Bavaria, the shutdowns are more frequent.”

2.4 million households

Koenig agrees the problem is likely to get worse before it gets better.

“This will be especially true if political measures aimed at sufficiently expanding the power grid in Germany… drag on for too long,” he said.

Some 6.1 terawatt hours of electricity from renewables had to be curtailed in 2020, according to the most recent figures available.

With an average consumption of around 2,500 kilowatt hours per year in a two-person household, this would have been enough to power around 2.4 million households.

A spokesman for Germany’s Federal Network Agency said it did not share the belief that “it will not be possible to expand the network in line with demand in the coming years”.

Only some aspects of the expansion are seeing delays, the spokesman said — mainly due to slow approval procedures and a lack of specialist companies to do the work.

According to Husemann there have also been delays to the payments he is supposed to receive in return for the solar power he supplies — or cannot supply.

He said he is already owed around 35,000 euros ($35,600) for electricity produced so far this year that has never found its way into a socket.