On February 28, 2022, the energy ministers of the European Union held an urgent extraordinary meeting in the Belgian capital, Brussels, amid deep concern over the impact of the Russian invasion of Ukraine on the European energy market. Europe had long relied heavily on Russian energy supplies—especially natural gas, of which Russia provided about 40% of Europe’s needs.
A senior official who attended the meeting told the Financial Times that the discussion was dominated by existential questions:
Will we be able to keep the lights on?
Will we be able to heat homes during winter?Will we manage to supply factories with the energy they need?
These concerns were reasonable because quickly abandoning Russian gas and finding alternatives in a short time was nearly impossible. Nevertheless, Europe managed—almost miraculously—to get through the winter of 2022 without disaster. But this success came at a cost: the frantic search for alternative energy sources pushed prices to record highs, severely affecting consumers and companies, especially the industrial sector.
Germany… the biggest loser
Before the war broke out, Germany was the European country most dependent on Russian gas. And although it survived the worst-case scenario after supplies were reduced and later halted completely, it could not escape the consequences of that disruption. Today, high energy costs weigh heavily on the German industrial sector—the engine of the German economy—especially because most German industries are energy-intensive.
For two and a half years since the war began, German industry resisted the soaring costs and managed to stay afloat despite losing the advantage of cheap Russian gas. But recently, signs of collapsing competitiveness have appeared. The shocking announcement by Volkswagen in September 2024 is a clear example: for the first time in its history, the company said it was considering closing two factories inside Germany, reflecting the severity of the crisis the country is facing.
How did Germany end up here?
After Russian supplies stopped via Nord Stream 1—and after the Nord Stream 1 and 2 pipelines were blown up in September 2022—Germany lost a major source of cheap energy permanently. Despite the political debate over who was responsible for the explosions, the incident itself caused a major spike in energy prices and placed German industries in a critical position.
To face these conditions, the German government tried to ease the burden by placing caps on gas and electricity prices. But these programs were extremely expensive for the budget and did not last long. After they ended, companies and factories once again had to bear the full cost of expensive energy.
German industry under pressure
The automotive industry is a symbol of Germany’s economic strength. In 2023 alone, this industry generated revenues exceeding €564 billion. Historically, its success rested on two key pillars:
Low energy costs thanks to Russian gas.Huge sales in the Chinese market.
But today, German industry faces a double blow:
Energy has become extremely expensive.China—once its biggest market—has become a fierce competitor through companies like BYD, which entered the European market with much lower labor costs and highly economical production.
German companies can no longer compete under these conditions. For example:
A worker in the German automotive sector earns €62 per hour.In the Czech Republic: €23.
In Spain: €29.
In BYD’s factory in Hungary: only €16.
Germany used to compensate for high wages with cheap energy. After losing this advantage, competition has become almost impossible.
Volkswagen: A historic crisis
The company announced that its production capacity inside Germany exceeds demand by about 500,000 cars—meaning entire factories have become a “burden.” The natural option is closure and layoffs, but Volkswagen has been bound by a union agreement since 1944 that prohibits forced layoffs until 2029. This means that even if it shuts down factories, it will still have to pay workers’ salaries.
Meanwhile, the company is expanding in other countries such as the United States and China, while reducing its presence inside Germany.
Deeper problems threatening Germany
High energy prices are not the only issue. Another major problem is:
A shortage of skilled labor, caused by low birth rates and an aging population.
This leads to fierce competition among companies for workers and pushes wages even higher, increasing costs.
Some politicians have called for allowing migrants and refugees to work in order to fill the huge gap in the labor market.
Will Germany return to Russian gas in the future?
The big question many are asking:
Can Germany return to relying on cheap Russian gas to revive its industrial advantage?And is this even possible while Vladimir Putin remains in power?
The answer is unclear, but it will remain a central economic and political topic in the coming years—especially if the competitiveness of German industry continues to decline.
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