Germany’s economy faces multiple converging crises, both structural and conjunctural. Soaring energy costs due to the war with Russia; a cost-of-living shock, with high inflation, high interest rates and falling real wages; austerity imposed by the constitutional debt brake, when American competitors are going for fiscal expansion; a green transition that will hit key sectors such as the auto industry, steel and chemicals; and the transformation of China, one of Germany’s most important trading partners, into a competitor in sectors such as electric vehicles. Could you tell us first, which regions have been worst affected by the downturn?

There is a general crisis underway, the most severe for decades, with Germany in a worse situation than any other major economy. Hardest hit are the industrial regions, the backbone of the German model up till now—Greater Munich, Baden-Württemberg, the Rhine-Neckar, the Ruhr. During the pandemic, retail and services were the worst affected. But now our Mittelstand firms are under massive pressure. In 2022 and 2023, energy-intensive industrial firms suffered a 25 per cent decline in output. That’s unprecedented. They are just starting to announce mass redundancies. These small and medium-sized family-owned firms—lots of them specialist engineering works or makers of machine-tools, auto parts, electrical equipment—are really important for Germany. They’re mostly owner-managed or family-run, meaning they’re not listed on the stock exchange and often have quite a rugged character. But they have their own sort of business culture, focused on the longer term, the next generation, rather than quarterly returns. They’re embedded in their local communities, often doing business-to-business trading. They want to retain their workers, instead of exploiting every loophole, like the big corporations—of which we have plenty, too.

It’s the Mittelstand firms that are really suffering in the current crisis. With continuing high energy prices, there is a real danger that manufacturing jobs will be destroyed on a large scale. And when industry goes, everything goes—decently paid jobs, purchasing power, community cohesion. You only need to look at the North of England—or the deindustrialization of the eastern Länder. The fact that we have this solid industrial base means that we still have a relatively high number of well-paid jobs. But Mittelstand firms have been under pressure for a long time. Mainstream politicians like to sing their praises, because they are very popular in Germany—it’s quite an achievement to have retained these small, high-skilled family companies against the pressures of corporate buyouts and globalization. Helped in part by the cheap euro and low-price Russian gas, some of them became so-called hidden champions and world-market leaders. But German governments, prodded by global capital, have been tightening the conditions under which they operate. This was part of the neoliberal turn under Gerhard Schröder’s red–green coalition at the turn of the millennium. Schröder abolished the old model of local banks holding large blocks of shares in local companies; that had at least had the advantage that most of the shares weren’t freely traded, so there was no shareholder-value pressure from financial groups or hedge funds to maximize returns. Schröder also granted a profit-tax exemption, to tempt the banks to sell their industrial shares—if he hadn’t done that, the model probably wouldn’t have broken.

I don’t want to idealize the Mittelstand. There are family-run companies that exploit their employees quite harshly. But it’s still a different culture to that of the listed companies with international, predominantly institutional, investors, who are only interested in chasing double-digit returns. To let the Mittelstand be destroyed would be a real political mistake, because many aspects of the economic crisis have their roots in bad political decisions—decisions like the war with Russia, like the way the green transition is being handled, like the antagonistic stance towards China, all of which clearly go against Germany’s economic interests. Schröder was der Genosse der Bosse—the comrade of the bosses, as we used to call him—but at least he looked at the situation and understood the importance of ensuring the flow of affordable pipeline gas. The current government has switched to high-priced American liquefied natural gas for purely political reasons. All three parties in the governing coalition—the spd, fpd and Greens—have plummeted in the polls because people are fed up with the way the country is being governed.

If we could look at those political decisions, one by one. First, the enormous rise in German energy costs is a direct outcome of the war in Ukraine. In your view, could the Russian invasion have been averted? It’s commonly said that it was driven by revanchist Great Russian nationalism, which could only be stopped by force of arms.

My impression is that Washington never really tried to stop the Russian invasion, other than by military means. With Ukraine moving fast towards eu and nato membership, it must have been clear that some sort of agreed security regime was needed as reassurance for the national-security interests of the Russian state. But the us ended all arms-control treaties and confidence-building measures in 2020, and in the winter of 2021–22 the Biden Administration declined to talk to Russia about the future status of Ukraine. You don’t need ‘revanchist Great Russian nationalism’ to explain why Russia thought it could no longer look on as Ukraine was turned into a major base for nato.

Germany is under a lot of pressure from the us to reduce its economic ties with China. How do you see that relationship?