Companies have shifted resources outside their homeland, leading to a net outflow of capital of more than €650 billion since 2010. Trump’s historic win in the US threatened to accelerate that steady drain by putting further pressure on German firms to invest more in the world’s largest economy to avoid potential tariffs.

(Nov 7): Looming large in the hours between Donald Trump’s election victory and the late-night collapse of Germany’s government is a crisis of competitiveness that has sapped life from Europe’s largest economy.

Companies including chemicals giant BASF SE, auto supplier ZF Friedrichshafen AG and home-appliance maker Miele & Cie KG have shifted resources outside their homeland, leading to a net outflow of capital of more than €650 billion (RM3.07 trillion) since 2010, according to figures from the Bundesbank. Almost 40% of that has taken place since 2021, when Chancellor Olaf Scholz’s fractious coalition was voted into power.

Trump’s historic win in the US presidential election threatened to accelerate that steady drain by putting further pressure on German firms to invest more in the world’s largest economy to avoid potential tariffs. With options running thin and scheduled elections less than a year away, Scholz fired Finance Minister Christian Lindner — leader of the pro-market Free Democrats — in a dispute over reviving growth, putting Germany on track for its first snap ballot since 2005.

“We need a government that is capable of taking action and has the strength to make the necessary decisions for our country,” Scholz, a Social Democrat, said on social media, pointedly pinning the blame on Lindner. “Anyone who refuses to find a solution in this situation is acting irresponsibly.”

Coalition collapses

At the heart of the dramatic end to the embattled three-party alliance are high energy prices, ageing technology and overbearing bureaucracy, conditions that have driven away national champions and hobbled efforts to attract foreign capital. Trump’s threats of protectionist measures highlighted the political deadlock that long hobbled serious reforms, forcing Scholz’s hand.

“The economy is not working. We have a massive outflow of capital,” Friedrich Merz, head of the Christian Democrats, which leads in the polls, said earlier this week calling for new elections. On Thursday, he called for a confidence vote next week to accelerate a change in government.

“Germany’s government turmoil that saw Chancellor Olaf Scholz call a snap election will add to the already very high economic policy uncertainty in the near term and prompt businesses to postpone investment decisions,” said Martin Ademmer, economist at Bloomberg Economics.

While frustration has been directed at his government, Germany’s issues have been building for years, triggering telling shifts in resources.

After powering Germany’s progress with innovations like electrical grids, street trams and long-distance telegraph lines, Siemens AG has invested €30 billion since 2020, most going to overseas acquisitions and expansion. Its biggest domestic project was around €750 million for the redevelopment of property in the century-old Siemensstadt district in Berlin.

“There’s actually nothing that speaks in favour of investing in Germany,” Christian Kaeser, Siemens’ global head of tax, told lawmakers in Berlin at a parliamentary hearing in mid-October, citing low growth and burdensome taxes. “That’s why our most recent investments primarily were made abroad.”

That stance was underscored last week with Siemens’s US$10 billion (RM43.95 billion) deal to buy Michigan-based software maker Altair Engineering Inc in one of its the largest-ever acquisitions.

The outflow has shown no signs of abating, with Volkswagen AG paring back at home and high-profile investment projects — such as a heavily subsidized Intel Corp. plant in eastern Germany — running into trouble.

“The German business model of the past is broken,” said Christian Rusche, economist at the German Economic Institute in Cologne. “Companies are increasingly looking elsewhere.”

Unless Germany can lure investors at home and abroad into changing course, it faces protracted stagnation and risks falling further behind other advanced industrial economies, creating a vicious cycle that unsettles voters and fuels more political turmoil.

Action is needed quickly to stem massive outflows. Since 2010, German companies have invested €1.7 trillion abroad, according to the Bundesbank. There are signs that the exodus has intensified in vulnerable segments. Energy-intensive companies had nearly €70 billion in capital in the US in 2022, more than triple the level a decade earlier.

On the flip side, Germany has struggled to lure capital to secure jobs and help modernise. Despite assurances for €10 billion in subsidies, Intel announced in September that it postponed construction of a factory in the former communist state of Saxony-Anhalt.

A few weeks later, Wolfspeed Inc halted plans for a US$3 billion plant with Germany’s ZF in the shadow of a disused coal plant in Saarland near the French border.

Economy Minister Robert Habeck called it one of the “great hopes” for a region suffering from a steady decline in industrial jobs. But like Intel, Wolfspeed is shifting resources to US plants instead of expansion in Germany.

For domestic players, it’s about cutbacks. ZF is redirecting resources to Eastern Europe. About a third of the group’s 35 German sites are now at risk, according to Achim Dietrich, the top labor representative at the Friedrichshafen-based company.

“Panic mode has set in,” he said in an interview with Handelsblatt.

It’s a similar story at Miele. The family-owned company, which helped equip German homes with appliances after postwar reconstruction, is moving washing-machine production to Poland from its main plant in Gütersloh.

International expansion has long been part of the strategies for Germany’s export-oriented companies. For decades, sites in the US, China and other markets secured employment at home, but that’s now in question as waves of job cuts roll across the country.

VW is locked in a dispute with its German unions over plans to close as many as three factories, eliminate thousands of jobs and reduce wages for some 140,000 workers. In China, where the automaker operates more plants than in Germany, operations remain insulated despite severe competitive pressure from state-backed manufacturers.

Mercedes-Benz Group AG is reducing production of conventional models at its Rastatt plant in Germany while ramping up EV output in Hungary — an indication that management sees the future of the brand outside its homeland. Similarly, Ford Motor Co, which set up its first German assembly plant a century ago, will halt production at its Saarlouis factory by 2025, choosing instead to produce EVs in Spain.

Germany’s vast network of parts suppliers are following suit. A recent survey by the VDA auto lobby showed that 80% are delaying, relocating or cancelling domestic investments. Over a third intend to shift resources to other EU countries, Asia and North America.

After posting profits everywhere except Germany, BASF is another company pulling back. In Ludwigshafen, its presence is evident from hospitals to streets named after famed chemists.

While its hometown remains its largest production site, basic chemicals are imported from the US and Asia rather than produced locally.

“You can really see that Europe has lost competitiveness compared to other regions,” Martin Brudermüller, BASF’s outgoing chief executive officer, said when presenting annual results earlier this year, noting that local operations will continue to shrink. “Within Europe, Germany particularly has lostcompetitiveness.”

Bureaucracy is a particular issue. Regulations impacting German businesses encompass some 50,000 pages, compared with 34,000 a decade ago, despite multiple rounds of legislation aimed at reducing the burden. A recent survey of more than 1,700 companies by the Ifo economic institute revealed that almost half had postponed projects at home in the last two years because of such issues.

The good news is that despite the lack of capital expenditures, investments in intellectual property are rising more strongly than other advanced economies, according to Deutsche Bank AG economist Robin Winkler. And not all of the country’s economic actors are gloomy about the prospects for regaining national competitiveness.

“I’m putting my money on Germany,” said Rob Smith, chief executive officer of forklift-maker KION Group AG. “But it’s not gonna be the way we used to compete. We’re gonna have to find a smarter, better way to compete because the competition is much more intense.”

Uploaded by Felyx Teoh