German chancellor Angela Merkel is being treated like political royalty, a consequence of her country’s economic power as well as prime minister David Cameron’s desperate need for friends in Europe. Few would argue about the position of Germany as the economic powerhouse of the European Union but what can Britain learn from the German economic model? Does Germany’s economy suggest that the idealisation of competition and flexibility, touted by chancellor George Osborne and his elite friends, is the route to success?
We have a lot to learn from the German model, particularly in terms of the way the government frames the two important sources of economic dynamism: energy and money.
Germany’s Energiewende or energy transition is one of the most dramatic and underreported developments taking place in Europe today. It has hugely ambitious targets for the reduction of carbon dioxide emissions, which are to fall by a minimum of 80% by 2050 with a staging-post of 55% reductions by 2030, as well as pledging to phase out nuclear energy by the end of 2022. The rejection of nuclear after the Fukushima accident was famously an example of Merkel’s ability to listen, learn and change her mind, which we might also welcome being shared with our own government.
Not only has Germany turned its back on Europe’s dirty fossil and nuclear past, it has also questioned ownership of energy and responded in a way that would be anathema to Britain’s Conservative politicians. The energy revolution is being driven by communities and by local politicians; it would be quite impossible without a muscular role being played by the state, the same state that in Britain is being devastated by austerity cuts. As a result, local communities and local governments across Germany are benefiting from the energy transition: the 928 inhabitants of the village of Grossbardorf, in Bavaria, have united to develop photovoltaic roof systems, solar power plants, a biogas plant with a combined heat and power (ChP) unit and a district heating network; Jühnde in Göttingen began its journey to becoming a ‘bio-energy village’ in 2001 and by 2004 70% of the population of the village were members of the co-operative and use locally generated bio-heat, relying on the methane produced by fermenting agricultural waste products.
These sorts of developments would be impossible without a wholly different approach to finance exemplified by the state-owned development bank – the KfW (Kreditanstalt für Wiederaufbau or Reconstruction Credit Institute). Established under the Marshall Plan and originally focused on the reconstruction of a war-torn economy, the KfW has been able to provide the finance to enable Germany’s development as political priorites have changed, through Reunification and now the Energiewende. The contrast with the situation in the UK is made clear through evidence given to the Environmental Audit Committee’s Inquiry into Green Finance, which will report shortly. It will demonstrate a tussle over power and profits that has held back the energy transition in Britain, where high-risk activities are always more attractive to private finance than investment in vital sustainable and resilient infrastructure. Continue reading