Gabriel Roadtrip

Same Complaints, Different Country

gabriel dpa
Sigmar Gabriel in the USA.
  • Why it matters

    Why it matters

    The health of Germany’s economy could be at stake. The more German companies produce directly in the United States, the less they are producing and creating jobs back home.

  • Facts

    Facts

    • Cheap energy has led to a re-industrialization in much of the United States in recent years.
    • Germany has seen its economy stagnate over the last few months, sparking fears of a new recession in Europe as well.
    • The German government has resisted calls from global leaders to increase public spending.
  • Audio

    Audio

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Manfred Erlacher is a happy manager. The head of a BMW car manufacturing plant in the small and once-impoverished town of Spartanburg in South Carolina is running a successful business, free of the bureaucracy he would have encountered in BMW’s home country of Germany.

“We have ideal conditions here,” Mr. Erlacher told his guest, Sigmar Gabriel, the second-most powerful politician in Germany, who was on a visit to the United States this week.

Mr. Gabriel, Germany’s economy minister, deputy chancellor and leader of the Social Democratic party in a coalition with Chancellor Angela Merkel’s Christian Democrats, seemed to be listening. The Spartanburg manager didn’t waste the opportunity, telling of the ideal transport connections, low labor costs, non-bureaucratic approval processes and, above all, the cheap energy costs.

All of this allowed Mr. Erlacher to save about one quarter compared to the cost of the average BMW plant in Germany. And that’s not all.  The growing consumer demand in the United States means he can sell more cars. The plan is to invest another €1 billion in an expansion of the plant.

It was an eye-opening visit for Mr. Gabriel. While he should be proud that Germany’s traditional manufacturers are this successful in the world’s largest economy, it also served as a cautionary tale for the state of his own economy. These two countries are going after the same industries – the re-industrialization of the United States could mean the de-industrialization of Germany.

“Raising our deficit will not make countries like France or Italy more competitive. Renault and Peugeot won’t sell a single additional car.”

Sigmar Gabriel, German Economy Minister, Vice Chancellor

This is not only a worry for Germany, but, somewhat paradoxically, also a concern for the United States. This is because the world’s largest economy is counting on Germany – Europe’s largest economy – to pull the continent out of its growth doldrums.

Mr. Gabriel’s trip, accompanied by a handful of staff and three journalists, began Wednesday in Washington. Wherever he went, he heard the same call: Germany’s government needs to relax its spending constraints. The message was delivered during meetings with U.S. Treasury Secretary Jack Lew and U.S. Vice President Joe Biden.

The need for Germany to spend more money has been a repeated refrain for German politicians travelling the globe recently. Finance Minister Wolfgang Schäuble heard the same demands during his own trip to Washington for the International Monetary Fund’s annual gathering of finance ministers and central bankers.

While Mr. Schäuble and Mr. Gabriel may be from different political parties, both are toeing a similar line. Whether in talks with Mr. Lew or with an advisory board of economists, Mr. Gabriel insisted it was not Germany’s job to solve the problems of the struggling euro zone.

“Raising our deficit will not make countries like France or Italy more competitive. Renault and Peugeot won’t sell a single additional car,” Mr. Gabriel said, sounding much like Mr. Schäuble before him.

Mr. Biden added another demand: Germany should ease its opposition to negotiations over a free-trade deal between the United States and Europe. Here Mr. Gabriel, who has struggled to keep his own left-leaning SPD members in line, was more obliging. He praised the merits of free trade and closer cooperation with the United States.

The Transatlantic Treaty and Investment Partnership was a “gigantic geo-political opportunity” for the European Union and United States to set long-term standards for world trade, Mr. Gabriel said.

“We are seeing a growing interest from German firms in the U.S. market. The good conditions are attracting many potential investors.”

Martina Stellmaszek, German-American Chamber of Commerce

But the two leaders remain at odds over a key element of the treaty – whether investors can appeal to a supra-national arbitration panel for compensation if they have been wronged by governments. The controversial ISDS panels, which the United States and many E.U. countries insist must be part of any agreement, have been opposed primarily by Germany and Mr. Gabriel’s SPD party.

Mr. Gabriel told Mr. Biden that “from our point of view there is no need for special protections for investors,” especially between two countries with well-developed legal systems. Investors should be able to use the national courts and not some intransparent supra-national body.

The response from the United States was swift: how can one expect to negotiate a free-trade deal with China, where investor protections are surely a must, when we passed on the idea in a trade deal between the United States and Europe?

Still, Mr. Gabriel’s overall support for the trade deal, known as TTIP, fits with his newly cultivated image in Germany as a friend of business. Indeed, Mr. Gabriel acknowledges the need to create more growth opportunities for German industry.

This also goes for investment overall. While Mr. Gabriel – like Mr. Schäuble – has resisted calls for more public spending, the economy minister is looking for ways to encourage more private investment. He is convinced that Europe needs more investment, but says this has to come from mobilizing private capital.

And so it was with some degree of relief that Mr. Gabriel left the confines of Washington to meet German managers in Spartanburg, South Carolina, where BMW first began producing cars in 1996 and has led a revival of this once-sleepy town.

Only the message here wasn’t necessarily any more comforting. The managers, many from traditional manufacturing sectors where Germany has been a global leader, praised the ease of doing business in the United States.

“We are seeing a growing interest from German firms in the U.S. market. The good conditions are attracting many potential investors,” said Martina Stellmaszek, head of the German-American Chamber of Commerce in Atlanta, Georgia.

This is because the United States has made the re-industrialization of the country a top priority, with incentives both at the federal and state level. Falling energy prices brought on by the boom in fracking have helped. U.S. companies are expected to invest about €500 billion in the coming two years.

By contrast, investment in Germany has stagnated over the last few years, though there are some signs of a recovery this year and next. But especially in energy-intensive industries, there continue to be more cutbacks than new investment.

Companies including BASF, SGL Carbon and Wacker have already made their decision – they’re investing billions in the United States. Low energy prices and a stable economic situation is simply too good to pass up.

Mr. Gabriel said he realizes the risks. “We need an Energy Agenda 2030 in order for industry not to completely lose its competitiveness due to high energy prices,” he said.

Perhaps Mr. Gabriel did learn something from his trip.

 

Klaus Stratmann has written for Handelsblatt about energy policy in Berlin since 2005 and accompanied Mr. Gabriel on his U.S. visit. Christopher Cermak worked for nearly six years in Washington DC before becoming an editor for the Handelsblatt Global Edition in Berlin. To  contact the authors: stratmann@handelsblatt.comcermak@handelsblatt.com

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