The Real Reason Europe is Rearming: Germany’s Industrial Collapse

The global collapse arrives piecemeal. Germany is going first.

This figure explains everything that’s going on in Europe. Germany is trying to stave off its industrial collapse by boosting military production and taking the whole European Union along the same road. It is a desperate attempt, unlikely to work because Germany doesn’t have the fossil resources it had in the 1930s, when the Nazi government used the same recipe to save the economy. In any case, the attempt will beggar the European citizens, who are going to lose the services that the state used to provide, as well as their savings. (image above, from Alex Krainer’s blog).

What’s happening to the European Union? It used to be a group of states reasonably dedicated to the welfare of their citizens, the health of the environment, and world peace. And then, the leaders suddenly turned into a bunch of rabid warmongers planning to burn what’s left of their citizens’ wealth to develop a huge military apparatus. Why did that happen?

It is all part of a trend that started becoming clear about half a century ago. The early calculations of The Limits to Growth of 1972 generated a trajectory for the world’s industrial system that involved a global collapse during the early decades of the 21st century. Industrial production was found to be the first element that collapses, quickly followed by food production and, later, by population.

A recent update of the model confirmed these results and computed the start of the industrial collapse in a few years from now. See the figure below from a recent post of mine on The Seneca Effect

The global collapse is the result of many smaller collapses that occur piecemeal in the world. It is like when the Titanic sank: almost everyone would eventually drown, but for some time, there were people still dancing on the upper decks. So, you would expect that some economies would already be sinking. And, yes, it is happening in Germany, as you can see from the figure at the beginning of this post. The German industrial production is collapsing remarkably fast: a typical Seneca curve. A rule of thumb for collapsing economic systems is that decline is about three times faster than growth. And that’s the case for Germany.

Of course, the industrial collapse is heavily affecting the whole German economy. If you want to confirm the collapse by means of financial parameters, look at the yield of government bonds. (again, from Krainer’s blog)

Krainer speaks of “Bond Armageddon” in Germany, which may be a little exaggerated. Things have improved a little, recently, but collapse is collapse. The German government is trying to keep the system working by selling cheaper and higher-yielding bonds. It is a slippery slope; basically a Ponzi scheme. The real risk is fiscal: if Germany tips into a debt spiral, the European Central Bank will eventually have to choose between saving German debt or the euro. That could cause the collapse of the whole European Union; by now probably unavoidable anyway.

There are several more economic indices that you can peruse on the “Trading Economics,” all confirming the ongoing German collapse. BTW, do NOT pay attention to the most common financial parameter, the Gross Domestic Product, GDP. It is by now heavily doctored in such a way as to avoid showing decline. It is the economic equivalent of counting calories from soda and calling it nutrition.

Why is Germany collapsing? If you read the comments in the discussion on social media, you’ll see that everyone is proposing their pet theories. It is because Germany built windmills instead of nuclear plants, because the German government allowed too many migrants to enter the country. because someone blew up the North Stream pipeline, because of the COVID pandemic, because Putin is evil, because of the Woke ideology, and those kinds of things. Most of these pretended explanations are qualitative and not based on data. For instance, the effort to move toward renewable energy in Germany started long before the beginning of the collapse. And both the COVID and the war in Ukraine started well after the beginning of the German collapse.

In practice, there is a clear explanation that’s not difficult to dig out from the data. It has to do with the way the German economy was structured; heavily dependent on industrial manufacturing and, in particular, on the export of cars. And here, Germany was unprepared for the sudden entry of China into the car market. Look at what happened (Source: International Organization of Motor Vehicle Manufacturers)

You see how China squashed all other car producers. They simply couldn’t compete with better and lower-priced cars. The effect was especially bad for Germany, which was caught with her pants down, still trying to sell obsolete cars running on thermal engines. China, instead, bet everything on electric cars and is winning the battle worldwide. You see the German disaster in a graphical form below.

The German collapse was not generated just by the car industry. Cars were just the trigger. It is the whole system that has become unable to function because of the multiple constraints that growth has generated: resource depletion, pollution, insufficient energy, bureaucracy, and more. Collapse had to start somewhere, and it started at one of the weak points of the global system: Germany. Ruin is rapid, as Seneca said.

Clearly, the German government can’t just sit and watch the country’s economy disintegrate. They are trying to do what all governments do in these conditions. If the industry ceases to be competitive in the world’s market, then the government takes over as a customer and directs it to produce military equipment. And that’s what they are doing.

Nothing surprising about that. It already happened in the 1930s. Look at this graph:

As soon as the Nazis took power, they started increasing military expenditures until, some ten years later, they had become a hundred times larger than at the beginning. At that point, nearly 80% of the national income went into weaponry. Total madness, of course, but it happened. Governments are dumb beasts, and cruel, too.

There is nothing especially Nazi in this. It is a constant in history that states facing economic troubles try to solve them by using force, military force. It never works; on the contrary, it worsens things. The Romans hastened their demise by funneling all their resources into legions and fortifications. The Soviet Union did something similar by trying to control Afghanistan. And you know what happened to Germany in Nazi times. Incidentally, forcing an economy to turn all its resources to the military effort implies a heavy-handed clampdown on all dissent, which is what’s happening in Germany right now. And farewell to freedom of speech; it is not happening just in Germany.

The disaster is not going to remain limited to Germany. It is reverberating throughout the whole European system. After Britain left the EU, Germany gained a larger share of the European Economy. Germany accounts for 24% of the EU GDP and 26% of the EU industrial production. Now, we can reasonably say that Europe is Germany, plus minor states. Apart from Britain, which is collapsing in parallel with Germany, so far, the other components of the union have been able to survive the collapse better because they were not so heavily based on car exports. But they are not doing well, either (below, data sourced by kimi.ai from FRED/OECD).

And that explains why the European Union is embarking on the mad idea called “Rearm Europe,” a typical path that declining states and empires tend to follow. Before collapsing completely, they tend to make an effort to bolster their military strength, desperately trying to use force to avoid the unavoidable. As Alfredo Facchini says in a post on FB, “We are facing a full-blown scam, concocted by a stagnant Europe that has begun to see Keynes as wearing a camouflage uniform, selling rearmament as an engine of the economy. Growth, yes: but only for those who produce weapons. For the people, instead, precariousness, meager salaries, and social services reduced to the bare minimum remain.”

When the rearming path is chosen, the trend reinforces itself by more positive feedback: more weapons imply more profits for the military industry, and more profits mean more financing for more weapons. It is an explosion of the military industry that beggars citizens, depriving them of all the services that the state used to provide, from health care to education. In an extreme situation, as it happened in Germany in the 1940s, the effort becomes so all-encompassing that the government proceeds to the physical elimination of those citizens deemed useless and a burden for the state (as I describe in my book, Exterminations (2024))

Is it going to happen? History tends to rhyme, although it never repeats itself. In the 1930s, Germany could still create a military industry on a par with the other military powers of the time, mainly Britain, because it still had abundant coal reserves. Its coal production matched that of Britain, which was already on a descending trajectory (see a post of mine on Cassandra’s Legacy. (figure below from “The Oil Drum”)

There is no way, now, that Germany will be able to rebuild its economy today using its coal reserves, by now badly depleted. Nor can it do that using Russian gas, by now considered evil. Renewable energy is growing in Germany, but it still produces only a fraction of the total energy consumption; nearly 60% of its power consumption, but just 20’% of its primary energy consumption.

These energy constraints makes a 1930s-style total militarization physically impossible for Germany. Rheinmetall can triple 155 mm shell production, but you can’t run tank factories or aluminum smelters for fighter jets on 20 % of primary energy from PV and wind plants, which are themselves dependent on Chinese components. So the trajectory is more Japan 1937-1945 (resource-poor aggressor starts strong, runs out of steam very fast) than Germany 1939-1945. As a good thing, though, it might boost renewables, the only sector of the economy that can still grow on local resources.

One thing that history tells us is that collapsing states tend to become unable to engage in military adventures beyond their borders. That phase is going to start soon in Europe, but for the time being, we are still in a dangerous phase. Fortunately, the whole point of rearming is not to make war, but to make money, so we may hope that nobody will be mad enough to launch Europe into a major war against Russia. But that’s not guaranteed — plenty of people at the highest power level are mad. If it happens, all bets are off, and we may be thinking of a series of worst-case hypotheses that would leave only ruins and a few people alive in the region we call Western Europe.

In this sense, the economic collapse of the European Union is a good thing because it would prevent the formation of a military bloc whose leaders could think that a war could bolster their power. Who knows? We might be able to avoid the worst. Just maybe.