Guten Morgen!

Another weekend, another Krautshell. This week’s developments have been anything but mundane, as the German Health Minister’s future hangs in the balance, the German parliament has found its voice, and Sweden is literally on fire. Take a look at the House’s View to hear Mats’s take on Europe’s technological shortcomings, and don’t forget to enjoy Anna’s WOOM. We wholeheartedly wish you a wunderbares weekend and hope you enjoy reading!

Anna                                Christian

When the Legislator Starts to Govern

These days, the German parliament, which was elected last year, begins to remind one of children that are starting testing their boundaries. In the last few days, two major proposals that were agreed upon between the parliamentary groups of the governing parties SPD, FDP and Greens together with opposition party CDU, put pressure on the government to act. First, the parliamentarians urged the government to supply heavy weapons to the Ukraine. Now, they demanded the government put pressure on the WHO to reinstate Taiwan to an observer status within the organization’s bodies. This status was previously revoked due to pressure from China.

Essentially, the German parliament has discovered its interest in geopolitics. The demands call for more or less nuanced decisions from the government to make one thing clear: they want a harder stance on Russia and on China. While the Federal Government is cautious with its words and actions against the autocratic states, the parliament is sick of waiting. And they’re not wrong. Supplying weapons to Ukraine is supported by the broad public and re-integrating Taiwan into the WHO comes with geopolitical advantages.

Generally, the new parliament seems to be quite confident. And from time to time, we even see collaboration between the opposition party CDU and those that constitute the Federal Government. An active parliament that encourages the government to act is good – at least as long as the government is able to keep pace and doesn’t stumble on hasty decisions.

The Sweden Paradox

Sweden – few places evoke peace and tranquility like this unspoiled country nestled along the northern Baltic coastline. In many circles, Sweden has for decades been a Totschlagargument (‘beat-to-death-argument’, a lovely German word) against critics of social democracy, demonstrating, apparently, the success of generous welfare and big state policies for all the world to see. Much of this is undeniably true: Swedes rank among the happiest people around, enjoy great social services and live in one of the cleanest countries on the planet. Moreover, the country demonstrated great hospitality during the refugee crisis of 2015-2016, welcoming twice as many people per capita than Germany (the nation usually lauded for its Willkommenskultur) and fully two percent of its population. What, then, are we to make of recent headlines?

Because something is rotten in the state of … Sweden, and the bottom line is crime. The country today leads Europe not only in gun violence and street bombings– the results of a gang landscape left unchecked – but has attracted negative headlines for a spate of Easter riots reminiscent of some the nastiest episodes in recent European history (see Theo van Gogh and the 2006 Mohammed cartoon controversy). In this case, an obscure politician of the far-right party Stram Kurs (‘Hard Line’, kudos for honesty) came up with the brilliant idea of celebrating Christians’ holiest day by burning copies of the Qu’ran. To no one’s surprise, violent protests ensued, leading to blazing inner cities and, most importantly, serious questions about Sweden’s social fabric. Liberal politicians were quick to emphasize that the violence stemmed from class, not religious or ethnic divisions, but following the prime minister’s statement that “integration has failed”, a bitter aftertaste remains. We Krautshellers truly hope that Sweden will soon return to giving Europe a good name at American dinner parties.

Less Covid, More Problems

As the pandemic recedes in the face of serious global upheaval, Germany’s top Covid Cop faces increasing scrutiny. There really isn’t much middle ground when it comes to Karl Lauterbach. Whether you have or have not heard of him, he was the public face of Germany’s Covid response and Scholz’s controversial pick to lead the Federal Health Ministry last December. He’s the ultimate Marmite Minister (any Brits out there?) and has somehow managed to be the most-admired and the most-hated German leader, all at the same time. For some, he represents safety and the loving embrace of Vater Staat (‘Father State’); for others, a panic-mongering-bow-tie-wearing warning of what goes wrong when activism replaces sound policy. Take your pick then, but hurry: Crossing a minefield largely of his own making, we can’t really say how much longer he’ll stay in office.

The trouble started with vaccine mandates. Lauterbach was the original advocate of universal compulsory vaccination, and when the bill failed in the Bundestag in early April, the entire government took a major political hit (Danke, Karl). The Ukraine war administered a further blow to Lauterbach’s prestige, leading him to suggest that there were “more important things than Putin’s great power fantasies” (i.e. “I’d like to talk about Covid, please). He must have changed his mind, however, because in late April reports emerged that he had actively undermined the efforts of an independent commission of inquiry into the efficacy of lockdown policies – policies he had loudly advocated throughout the pandemic. Now he appears stuck between a rock and hard place – erstwhile supporters are quietly backing off as long-time opponents prick up their ears. The ongoing debate about his 10 billion euro budget proposal will likely test the loyalty of the governing coalition, which is already under considerable stress after recent election troubles. Will Corona-Karl hold on until the “Autumn Covid Wave”? We’ll just have to see.

Source: Ministry of the Interior NRW // Landeswahlleiter

The EU’s Endless Quest for Market Relevance: Pipe Dream or Realistic Goal?

Europe, and particularly the EU got to where it is today (the second or third largest economy in the world depending on how you measure) by being an industrial powerhouse (and a few other reasons, but let’s not open that can of worms here). Born out of the revolutionary concept of interlinking previously war-torn countries’ economies and capitalizing on comparative advantages, the EU out-innovated, out-produced, and out-competed most of the Western world for the second half of the 20^th century.

As is the case with other industrialized economies in a globalized age, production began to be outsourced to markets cheaper than Europe and, simply put, the EU failed to adapt. We could hypothesize about where Europe went wrong ‘til the cows come home, but fact of the matter is Europe severely lags behind in many future-oriented technology markets. Both the EU and Germany, have put forward countless plans, initiatives, and acts to try and counter this waning market relevance and I want to lead you through some of these. Let me take you on a short journey through the problem and the proposed solutions by means of examples.

Exhibit A: Cloud Services

When discussing the cloud services industry, mostly American companies, and potentially one Chinese company come to mind. It’s unquestionable that any company or public administration wanting to effectively serve its clientele at scale will not get around using cloud services. In Q4 2021, the top eight global cloud infrastructure service providers constituted 82 percent of the global market. How many of these are European you ask? Zero. Nada. Zip.

Also, as you can see by the examples of Amazon Web Services vs. Microsoft vs. Google, a competitive cloud services environment drives innovation in a whole range of other sectors. In Europe that competition is simply nonexistent, and so is the technological progress. That’s the first shortcoming.

Moreover, if you can’t develop the technology yourself, at least you can try to use it for your own advantage. What do cloud services offer? An opportunity to grow businesses quickly, innovate in an interconnected manner, and manage a workload efficiently. However, even when it comes to using cloud services, many in Europe are still dragging their feet. Take the example of German schools: the use of Microsoft’s Cloud Service Office 365 has been banned in a handful of German states over data protection concerns. Instead, schools are to use privacy-friendly (and technologically inferior) alternatives. The same goes for public administration, and a fair share of businesses. That’s shortcoming number two.

Exhibit B: Chips and Drones

In the pandemic at the latest, the EU seemed to wake up to its major defects in terms of global market influence in a series of key sectors. Since then, there has been an endless stream of messages from the EU institutions trumpeting the need to “reestablish European technological leadership.” According to the EU and its Member States, the way to do this is by bringing back key industries onto the continent and pushing the label “made in Europe.” Much like why car manufacturers decided to stay in Mexico instead of moving back to Detroit: the plans are unrealistic and not very economical.

Two concrete examples of this come from the European Chips Act and the planned Drone Strategy 2.0. For the former, the EU is tired of relying on Asia and the US for its supply of semiconductors. Therefore, the Commission set a goal of capturing 20 percent of the global microchips market share “in the future” with 43 billion euros in investment by 2030.  According to current estimates, European Countries as a whole control a mere six percent of the global market. By 2026, China plans to invest over 150 billion euros, and in that same time frame the US will be investing around 52 billion euros. Say what you want, but those numbers just aren’t adding up.

The same can be said for the drone industry. According to current data based on sales volume, around 86 percent of drones around the world come from non-European companies. By 2030, the European stakeholders involved in the drafting of the Drone Strategy for Europe want 50% of the value created in the European drone market to come from European companies. I’m by no means a mathematician, but one and one is not making two here.

The House’s View: Look Beyond the Horizon

Right now, it seems the EU is trying to win a marathon in which it’s still at the starting line while the other runners are just crossing mile 25. If the EU tries to win this “race” through conventional means, as the figures above clearly point out, it will lose. In many of these sectors, the EU simply cannot outspend China, and it also can’t make up for twenty years of lost time against the US. To become a true global player in certain industries, the EU needs to rethink its strategy. What the EU needs at this moment is the same kind of imagination that created the original European Coal and Steel Community. Innovations so far out of the box that other countries won’t pick up on them for themselves until it’s too late. Once the EU stops trying to beat other countries at their own game and invents a whole new game altogether, that’s when we can start talking about “European leadership” again.

• More Taxpayer Money for the State: The government plans for new jobs to be created within the Germany’s administration and ministries. Several thousand jobs are allegedly discussed. The budget for some of these was already discussed in the budget committee of the parliament. The Federal Audit Office encourages the budget politicians to not be too generous. Let’s see if they have the necessary discipline.

• Schröder Quits as Rosneft Board Member: After months of controversy surrounding his personal ties to Vladimir Putin, former chancellor Gerhard Schröder has left the board of Russia’s state-controlled oil company, Rosneft. The move comes amid major pressure on Schröder’s fellow Social Democrat, Chancellor Olaf Scholz, to sufficiently distance himself from his party’s recent pro-Russian past.
• Ukraine to Receive German Tanks in July: In a major development considering Germany’s hesitancy to deliver heavy weapons to the Ukrainian government, Defense Minister Lambrecht confirmed on Friday that 15 Gepard (‘Cheetah’) anti-aircraft tanks will be delivered in July. This marks a considerable shift and could conceivably escalate tensions with Moscow.

(NEW) LEADERS NEEDED

Elections in North Rhine-Westphalia (NRW) took place last weekend, and very much like Christian predicted in his last WOOM, there were no surprises. However, while Prime Minister Hendrik Wüst can stay in office, it is worth mentioning that the Social Democrats got beaten badly, receiving their worst result in NRW history. Similar outcome the week before in Schleswig-Holstein.

NRW, Germany’s biggest state, is widely considered an indication for the federal level. And indeed the polls are looking better and better for the CDU on the federal level, while the SPD is losing ground. While at first glance you might think the CDU should be celebrating, I am not so sure. First, the SPD’s bad results can clearly be assigned to a non-leading leader, a chancellor who fails to find clear words towards Russia and articulate what Germany’s objective in this conflict should be. It seems the gains for the CDU derive less from the party’s own merits, but more from people being disappointed with the SPD.

Adding to this is another poll, asking people who they would prefer as Chancellor, Scholz, or the CDU leader Friedrich Merz. Even given the poor performance from Scholz a vast majority, in a direct election, would prefer him to Friedrich Merz. For now, this might not be that big of an issue. I am just wondering how much better the CDU could be polling with a leader that is liked by the population. And, more importantly, I wonder when and if they will realize, looking towards the next federal elections, they should revisit the question of party leadership once again.