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Blink 3 of 8 - The 5 AM Club
by Robin Sharma
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Kaput summary
Wolfgang Münchau
The End of the German Miracle
22 mins
Brief summary
Kaput examines the intricate challenges and systemic flaws facing the eurozone, providing insights into economic instability. Wolfgang Munchau offers a sharp critique of fiscal policies and their impact on the European financial landscape.
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Kaput
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Key idea 1 of 5
Neo-mercantilism’s fatal flaw
In the German industrial town of Mühlheim, two factories used to stand side by side. One made pipelines, the other nuclear reactors. This was the economic backdrop to author Wolfgang Münchau’s childhood. These factories weren’t just employers – they were monuments to the postwar economic model that rebuilt Germany, a model admired and emulated around the world.
But today, that very model is showing signs of collapse.
How did a system once hailed for its strength unravel so dramatically? The answer lies in Germany’s embrace of neo-mercantilism – an economic ideology that treats global trade as a zero-sum game, placing export dominance above domestic growth.
For Germany, this policy hinged on two factors, the first of which was deliberately underpaying its workers. The logic was that by keeping wages low, they could sell German goods for cheaper abroad. The second factor was to use state-owned banks to subsidize industrial titans with huge loans. This allowed them to outproduce rivals abroad. Taken together, these enabled Germany to amass huge trade surpluses – exporting more to the world than it imported in return.
So how did this play out in practice? Enter the “Landesbanken” – regional state-owned banks tasked with enforcing industrial policy. Rather than reward innovation, these banks channeled capital into politically favored sectors. A telling example came in the 1990s, when steelmaker Krupp announced its merger with rival Hoesch. The deal was facilitated by Westdeutsches Landesbank (WestLB), which, under pressure from politicians in Düsseldorf, waived standard credit checks altogether.
This wasn’t an exception – it was the system. The bank’s boardrooms were stacked with union leaders and political loyalists, creating a self-reinforcing loop: subsidized loans preserved jobs in legacy industries, which in turn secured votes and political backing. Unsurprisingly, WestLB earned the nickname “Red Godfather” in financial circles.
But the very structure that made this model resilient in the 20th century became its undoing in the 21st. As the global economy evolved, two fatal contradictions began to surface in Germany’s economic playbook.
First, globalization demanded agility – something the Landesbanken, conditioned to follow political orders rather than market signals, couldn’t provide. Their blind plunge into U.S. subprime mortgage investments ended in disaster, with an €18 billion collapse after the 2008 financial crisis. Institutions built to resist market forces found they couldn’t survive them.
Second, while Germany’s massive 8 percent GDP surplus came from exports – cars, machinery, chemicals – the profits were repeatedly funneled back into the same aging industries. This created a closed loop: prioritizing sales over innovation and stunting long-term growth.
And so, we arrive at the reckoning. Neo-mercantilism’s central failure was clinging to industrial models of the past, even as the world pivoted toward digital transformation. Today, those rigid structures are colliding head-on with a fast-moving global economy.
In the next section, we’ll examine how this rigidity has transformed Germany from a postwar innovation pioneer into a nation now scrambling to keep pace with its own digital decline.
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What is Kaput about?
Kaput (2024) dismantles the myth of invincibility surrounding Europe’s economic powerhouse. You’ll discover how decades of collusion between industry and politics left the nation vulnerable to energy shocks, digital stagnation, and dependence on authoritarian regimes. This is a sharp wake-up call for anyone invested in where Germany – and by extension, Europe – is headed next.
Who should read Kaput?
- Economics students looking into European economic decline
- Business leaders reliant on German supply chains
- German citizens wondering what’s going on with their economy
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