Monika Schnitzer, leader of The Wise Men, says Germany will face a long period of decline if it fails to embrace change. Andreas Warnhorn/German Council of Economic Experts
Germany should not be «naive» about the «very real» risk of a Chinese invasion of Taiwan, warned one of Berlin's top economic advisers.
Monica Schnitzer, who chairs the Council of Economic Experts, said the country should cut economic ties with the world's second-largest economy to avoid a «present moment of conflict» if Xi Jinping sends troops to the island.
Ms Schnitzer also told the Telegraph that the German economy also needs to move away from over-reliance on car manufacturing as consumers shun expensive electric vehicles.
Germany risks a protracted recession unless policymakers are willing to let go of some of the country's valuable energy-intensive industries, Ms. Schnitzer said, such as ammonia.
Ms Schnitzer has chaired the German Council of Economic Experts since 2022.
The group is an independent body that advises politicians, including the government. The five-member group was formerly called «The German Wise Men», although it currently consists of three women and two men.
Ms Schnitzer said Germany should learn from the invasion of Ukraine, which caused an economic shock due to the loss of cheap Russian oil and gas.
As a result, many companies, including SMEs of small and medium-sized enterprises that dominate the economy, have found themselves in crisis, and the economy has just emerged from recession.
Ms Schnitzer said the West is entering a «phase of heightened tension» with Beijing as President Xi ramps up rhetoric about invading Taiwan.
“The way Xi has changed policy over the past couple of years is worrying me,” she said. The Economist urged Berlin to sever ties with China in «security-related places».
She said: “I think this is something we need to reckon with. You don't want to be caught in a conflict with very sensitive technology that is controlled by a country where there could be conflict, and I see this potential conflict with Taiwan as something very real.
“This is not means you should not cooperate. But you need to be more vigilant and aware, not naive.»
German Chancellor Olaf Scholz has made it clear that Germany does not seek to completely «separate» from Xi Jining's China. Photo: KAY NIETFELD/AFP
Last month, Berlin laid out a plan to «de-risk» its relationship with China. While the government has stressed that it is not seeking a «decoupling», Germany has announced that it will reduce its dependence on China in a number of «critical sectors», including medicine and microchip manufacturing.
A 64-page report released by the government warns that Germany has built «dependencies in many areas», including veterinary drugs, solar panels and lithium batteries.
“China has changed,” warns the report. “As a result of this and China's policy decisions, we need to change our approach to China.”
Olaf Scholz, the German Chancellor, insists that companies should take the lead. However, this will not be easy to do. The industry has close ties with the country.
Trade between Germany and China hit a new record of almost 300 billion euros (£256 billion) in 2022, making the world's second largest economy Berlin's most important trading partner for the seventh consecutive year.
The country's major automotive industry is dependent on China for rare earth minerals needed to produce batteries for electric vehicles.
China currently accounts for 85% of the world's rare earth recycling and provides about 98% of the EU's need for rare earth magnets used in electric vehicles.
0808 China controls most of the production of clean technologies. supply chain
Ms. Schnitzer said: «It's very difficult because there are currently attempts to increase battery production in Europe, but you still need rare earths and you get them from China.»
< p>German companies also made a bet. China as the main market. According to Deutsche Bank, Infineon, Germany's largest semiconductor maker, derives 38% of its revenue from China, while about a fifth of BMW and Volkswagen's revenue comes from China.
More broadly, 61- a year old scientist said that Germany is «too dependent on the production of cars.»
About 800,000 people work for automakers in Germany, many of them in highly paid positions.
Volkswagen, Mercedes-Benz, Audi, BMW and Porsche are located in the country, and about 25% of all passenger cars produced in Europe are produced.
However, the industry fails to realize the importance of the transition to electric vehicles and, as a result, were taken by surprise.
Elon Musk's Tesla market capitalization is currently $700 billion, more than ten times the stock market value of BMW and more than all Germany's largest automakers combined.
Ms Schnitzer said: “Germany as a whole is very dependent on car production and many executives were not happy to change what they saw as a winning business model.
0203 Germany, second largest car manufacturer«This is wrong. just having the leather seats that German CEOs like better is enough.
“This is a new generation of people who care about different things. It's a bit like when Germany started making cars in the US and didn't realize drivers needed cup holders for big cups.»
«If they don't come together, there won't be more well-paying jobs, because they will be taken over by other competitors.”
More broadly, she argued that the German economy must be fundamentally reorganized to reflect political tensions between East and West, as well as the fact that the era of cheap energy seemed to be over.
Ms Schnitzer said : “We need to act together and restructure the economy. This is a big discussion that we are now having.
“Should we do everything in our power to keep the old structures [by subsidizing] energy prices for energy-intensive industries to keep them in the country? Or should we let them go? If you ask my personal opinion, I would say that we should let them go.”
The country barely pulled itself out of recession in the last quarter with zero growth, while the International Monetary Fund believes Germany will the only major country to shrink this year.
Even Russia is expected to show more growth.
Ms Schnitzer said the threat of a protracted recession in Germany is the «number one question» asked of the Policy Council in the Bundestag.< /p>
However, she rejected the idea that Germany has again become the sick man of Europe.
“The only thing I fear is resistance to change. We need to accept change. How we get out of this crisis largely depends on what is done now.
“What doesn’t help is that we say we want to leave things as they are. Because everything has changed. Energy prices have changed. We need to adapt.”
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