A little over three years ago I wrote my Zauber post, thanking Poggiosole's many German guests for their patronage and praising Germany's centuries-long record of artistic and industrial prowess, its economic might and geopolitical nous (under Merkel).
Things have changed. Shortly after I penned "Zauber", bad news started eclipsing good: instead of leading the post-covid economic recovery, as one would expect of Europe's largest economy, Germany was just keeping apace of its neighbors. Then, with the invasion of Ukraine and the West's move's to put the screws to Russia by weaning itself off its hydrocarbons, with the contraction of EU-UK trade following Brexit, and with China beginning to credibly compete with Germany in the automotive and precision tool sector, the floor began to fall in.
"The engine of Europe", a phrase that references Germany's much-vaunted automobile industry as well as the propulsive power of its GDP, suddenly seemed to sputter. Donald Trump had left office, but his NATO skepticism while president, as well a number of remarks he subsequently made in his campaign for reelection now add to the angst: Europe cannot entirely count on the United States' military might to support its stability and prosperity. As a mid-2022 Brookings commentary pointedly puts it, Germany made a late 20th century "strategic bet" by outsourcing "its security to the US, its export-led growth to China, and its energy needs to Russia" and is "finding itself excruciatingly vulnerable in an early 21st century characterized by great power competition and an increasing weaponization of interdependence."
Take this historical moment and fold in Olaf Scholz and his fractious coalition and it's no surprise that a fat chunk of the "high" half of Europe is limping. Pressure on the industrial sector and exports has exarcebated
decades of underinvestment. German trains no longer run on time. The market value of Volkswagen Group (which also builds SEAT, Cupra, Škoda, Audi, Bentley, Porsche and Lamborghini cars) has steadily declined. Three years ago the (usually cautious) Economist was calling a win for VW in the EV race. That has not turned out to be the case, despite the company's dominant position in car-making and outsized investment in electric drivetrain and software technology. German defense manufacturer Rheinmetall has done well, but in most other sectors, from high-end appliances to chemicals to software, most German firms have underperformed. And, just this week, The Economist opined that the gloom is set to linger.
We don't just read about Germany's pain, we see it in our numbers. Our income from German guests, once our most enthusiastic fans as a bloc, went from 38% of annual revenue in 2022 to only 18% this year. It's too early to tell what we'll see in 2025, but I'm not expecting a sudden reversal.
And yet, down here at Poggiosole, we've kept running, investing, playing the long game. This year we've laid hundreds of meters of underground conduit to bury unsightly phone cables and bring power deeper into our groves, we've installed infrastructure for stronger and faster Wi-Fi, we've set up security cameras in our parking area and entrances and smoke detectors in our lodgings, we bought a large self-powered
tree sprayer and a Ventrac compact tractor for more efficient mowing and hauling, we built out a second equipment shed overlooking our lower grove and we ran water lines into our upper and lower groves to make it easier to keep our saplings hydrated in hot summers to come. If over this winter we see a good number of bookings for 2025 we'll consider re-drilling and restoring our well to help us cope with future droughts. And just 10 days ago I opted to continue our annual pratice of charitable giving (since 2021).
None of this comes cheap; as a consequence, our cash pile has dwindled. But Hope Springs Eternal: despite all of the foregoing, my belief in Germany's genius and potential is undeterred (as is this blogger's, who concludes that Germany is "underloved and oversold"). Likewise my belief in the beauty and value of Poggiosole is undiminished. Still, if Europe's economic engine continues to sputter, I'll increasingly be looking across the Atlantic to balance Continental malaise. Towards that end I took a small step this past week: we now accept credit cards. 😅
Postscript, October 25: In my original Zauber post I praised Angela Merkel as the "21st century's most enduring multilateralist". She was also a cautious gradualist, especially when it came to implementing reforms. In a scathing opinion piece published yesterday (just as Merkel is about to publish her 736-page memoirs) The Economist connects both those qualities to the deep malaise currently felt in Germany (and, by extension, Europe). "Just about every big decision taken by Mrs Merkel now seems to have resulted in Germany — and often the entire European Union — ending up worse off", writes Stanley
Pignal, The Economist's Brussels bureau chief. He extends the blame to German voters, writing "they are the ones who voted time and again to put off reforms of the sort undertaken in the early 2000s by Mrs Merkel's predecessor, Gerhard Schröder." Perhaps the saddest note sounded by Pignal is the one connected to Merkel's "kindness towards migrants" which, he opines, "while laudable, led to a political backlash that has helped fuel the rise of the hard right in Germany and elsewhere." Students of history especially will find that chilling. No one wants a weakened, nationalist Germany.
Post-postscripts, November 13 & 21: With Trump returning to the White House, Germany stands to lose. Time will tell whether the US president-elect's protectionist promises are kept, but considering Germany's trade surplus with America, it does not look good for German businesses. And the trouble goes beyond trade barriers. According to this rather alarmingly-titled analysis, German industry is suffering from a decades' old culture of incremental improvement in, well, just about everything it produces, leaving it vulnerable to disruptive innovation nurtured elsewhere. Witness Miele, a world-renown manufacturer of high-end home appliances, continuing to proudly tout its century-old
marque and Immer Besser (Always Better) tagline, the very essence of incremental improvement, even as it has had to either cut staff or move more of its workers to neighboring Poland and partner with BSH to build refrigerators in Turkey. Ever the contrarian I've been working with a reseller of German appliances on a large order for Miele clothes washers and dryers (to upgrade Poggiosole's laundry and supply room and update old machines in Poggiosole's colonica) as well as a new Miele dishwasher, fridge and freezer, two Gaggenau cooktops and a Berbel hood for the colonica's ground floor, which will be undergoing renovations next year. I'm a big big believer in incremental improvement. There's ample evidence that, over time, it can lead to extremely high levels of refinement and performance. Miele appliances, BMW automobiles, BOSCH power tools, Birkenstock footwear and Zeiss and Leica optics (to name but a few) are a testament to that. But an unfortunate consequence of obsessively refining what you already know how to do well can cause you to lose sight of the broader landscape, the possibilities on the horizon. Even Adidas, once synonymous with top-tier athletic shoes, while not exactly limping, has lost market share to leaner rivals running alongside it.
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