Is Germany’s Economic Model Truly Kaputt?
4 min
More than two decades after Germany was famously called “the sick man of the euro” by The Economist magazine, investors must wonder if the country’s industrial heart is once again critically weak. This week brought more dismal German economic data: Industrial production fell 1.5% in June from the previous month, worse than analysts expected. Though figures released on Friday showed a rise in exports, the volume of goods Germany sends abroad is still close to lows plumbed in the 2009 global financial crisis.
German gross domestic product has clocked three quarters of negative or zero growth , making the country the worst performer among major eurozone nations since 2019. Previously it was the top performer. How long this “slowcession” lasts is a crucial question for picking stocks in Europe. Despite the recent economic reversal, the DAX has been by far the best equity index in the eurozone over 20 years, returning almost 360%.
By comparison, investing in long-stagnant Italy yielded a paltry 140% return. German industrial output has been in decline since 2018, when global vehicle sales fell for the first time in almost a decade. A postpandemic rebalancing of spending toward services has made the situation worse. Growth in China, the fourth-largest market for German exporters, has slowed.
On Thursday, shares in Siemens —the largest industrial firm in Europe—fell 5% after it cited these two factors as the cause of a fall in orders during the second quarter. Some of the grit that has gotten into the German economic machine might be hard to dislodge . Chinese carmakers have turned from partners into fierce competitors as Volkswagen , BMW and Mercedes-Benz play catch-up in electric-vehicle technology.
It isn’t just China that is seeking to substitute imports for domestic products; the Biden administration is copying Beijing’s playbook. There is also energy. At the same time as German industry has lost Russia as its main source of cheap gas, Berlin has closed the country’s last three nuclear power plants. Angst has gripped German officials and executives in an echo of worries voiced at the start of the millennium, when unemployment surged and globalisation ravaged factories.
Back then, the response was a policy package that prioritised international competitiveness, incentivising the creation of low-pay “minijobs.” The government embraced fiscal austerity and nudged unions to push for wage restraint. The result was a 20-year decline in unemployment and a current-account surplus that reached an eye-watering 8% of GDP even as the U.S. ran huge deficits. Many economists praised German labor flexibility and fiscal austerity.
Conversely, critics pointed out that surpluses made most households worse off, and that Germany’s factory-job losses were just as large as America’s. Politics aside, it was largely a fortuitous jump in foreign demand that drove growth, allowing the nation to solidify gains in industries where it already had an advantage.
“Over the last 20 years, Germany always had an external sugar daddy: China, the eurozone and then the U.S.,” said Carsten Brzeski , chief economist at ING.
The flaw in this model was that it outsourced economic policy, leading to problematic dependencies on geopolitical rivals. It also fostered an excessive focus on old winners at the expense of new digital technologies and renewable energy. Bearish investors are right that it will take years to rectify these problems, particularly given the complexity of consensus-based German politics. Yet the German export-led model also got a lot right. As in China or South Korea, it channeled demand toward higher-productivity, higher-wage firms.
Unlike in the U.S., German manufacturing became more complex. That allowed the country’s industrial base to survive better than in other Western countries. In a world where nations are scrambling to reshore industries, Germany already has them. The readiest answer to its growth challenge isn’t to turn away from manufacturing but to double down by taking a page from Chinese and now U.S. industrial policy.
The German government is already doing this with semiconductors as part of the European Chips Act. Back in June, it signed off on 10 billion euros (around $11 billion) in subsidies for American chip maker Intel to build two plants, and earlier this week it committed €5 billion to help Taiwan’s TSMC set up a factory with local partners like Infineon.
A similar approach is needed to upgrade the country’s power generation and transmission and accelerate the transformation of carmakers and other industrial incumbents. Long-term energy guarantees could stem cost swings in the meantime. Given its political influence over the European Union, it seems hard to imagine that the bloc’s green-economy push could somehow leave Germany in a less dominant position . Historically, this is one patient that always leaves the hospital.
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Selloff in bitcoin and other digital tokens hits crypto-treasury companies.
3 min
The hottest crypto trade has turned cold. Some investors are saying “told you so,” while others are doubling down.
It was the move to make for much of the year: Sell shares or borrow money, then plough the cash into bitcoin, ether and other cryptocurrencies. Investors bid up shares of these “crypto-treasury” companies, seeing them as a way to turbocharge wagers on the volatile crypto market.
Michael Saylor pioneered the move in 2020 when he transformed a tiny software company, then called MicroStrategy , into a bitcoin whale now known as Strategy. But with bitcoin and ether prices now tumbling, so are shares in Strategy and its copycats. Strategy was worth around $128 billion at its peak in July; it is now worth about $70 billion.
The selloff is hitting big-name investors, including Peter Thiel, the famed venture capitalist who has backed multiple crypto-treasury companies, as well as individuals who followed evangelists into these stocks.
Saylor, for his part, has remained characteristically bullish, taking to social media to declare that bitcoin is on sale. Sceptics have been anticipating the pullback, given that crypto treasuries often trade at a premium to the underlying value of the tokens they hold.
“The whole concept makes no sense to me. You are just paying $2 for a one-dollar bill,” said Brent Donnelly, president of Spectra Markets. “Eventually those premiums will compress.”
When they first appeared, crypto-treasury companies also gave institutional investors who previously couldn’t easily access crypto a way to invest. Crypto exchange-traded funds that became available over the past two years now offer the same solution.
BitMine Immersion Technologies , a big ether-treasury company backed by Thiel and run by veteran Wall Street strategist Tom Lee , is down more than 30% over the past month.
ETHZilla , which transformed itself from a biotech company to an ether treasury and counts Thiel as an investor, is down 23% in a month.
Crypto prices rallied for much of the year, driven by the crypto-friendly Trump administration. The frenzy around crypto treasuries further boosted token prices. But the bullish run abruptly ended on Oct. 10, when President Trump’s surprise tariff announcement against China triggered a selloff.
A record-long government shutdown and uncertainty surrounding Federal Reserve monetary policy also have weighed on prices.
Bitcoin prices have fallen 15% in the past month. Strategy is off 26% over that same period, while Matthew Tuttle’s related ETF—MSTU—which aims for a return that is twice that of Strategy, has fallen 50%.
“Digital asset treasury companies are basically leveraged crypto assets, so when crypto falls, they will fall more,” Tuttle said. “Bitcoin has shown that it’s not going anywhere and that you get rewarded for buying the dips.”
At least one big-name investor is adjusting his portfolio after the tumble of these shares. Jim Chanos , who closed his hedge funds in 2023 but still trades his own money and advises clients, had been shorting Strategy and buying bitcoin, arguing that it made little sense for investors to pay up for Saylor’s company when they can buy bitcoin on their own. On Friday, he told clients it was time to unwind that trade.
Crypto-treasury stocks remain overpriced, he said in an interview on Sunday, partly because their shares retain a higher value than the crypto these companies hold, but the levels are no longer exorbitant. “The thesis has largely played out,” he wrote to clients.
Many of the companies that raised cash to buy cryptocurrencies are unlikely to face short-term crises as long as their crypto holdings retain value. Some have raised so much money that they are still sitting on a lot of cash they can use to buy crypto at lower prices or even acquire rivals.
But companies facing losses will find it challenging to sell new shares to buy more cryptocurrencies, analysts say, potentially putting pressure on crypto prices while raising questions about the business models of these companies.
“A lot of them are stuck,” said Matt Cole, the chief executive officer of Strive, a bitcoin-treasury company. Strive raised money earlier this year to buy bitcoin at an average price more than 10% above its current level.
Strive’s shares have tumbled 28% in the past month. He said Strive is well-positioned to “ride out the volatility” because it recently raised money with preferred shares instead of debt.
Cole Grinde, a 29-year-old investor in Seattle, purchased about $100,000 worth of BitMine at about $45 a share when it started stockpiling ether earlier this year. He has lost about $10,000 on the investment so far.
Nonetheless, Grinde, a beverage-industry salesman, says he’s increasing his stake. He sells BitMine options to help offset losses. He attributes his conviction in the company to the growing popularity of the Ethereum blockchain—the network that issues the ether token—and Lee’s influence.
“I think his network and his pizzazz have helped the stock skyrocket since he took over,” he said of Lee, who spent 15 years at JPMorgan Chase, is a managing partner at Fundstrat Global Advisors and a frequent business-television commentator.
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