Abstract: In the past, Germany and France have been the economic and political cornerstones of the European Union, driving much of its growth and integration. Today, things have changed, and both countries are facing significant challenges that threaten their economic and political stability and sustainability, thus threatening their roles as the EU’s main pillars. The economic struggles in Germany and political and financial turmoil in France have threatened the region’s competitiveness in the global market. This paper examines the challenges faced by the two countries and how they undermine the EU’s stability and future economic sustainability.
Background
During the Industrial Revolution, Europe hosted the world’s largest economies and superpowers. By the end of the 19th century, European countries such as Germany and France were among the countries with the largest GDP globally (Milanovic, 2024). Investments in industrial production, such as automotive production in Germany, drove this. However, two world wars that engulfed the continent halted Europe’s economic prowess and growth. When the Second World War ended in 1945, Europe suffered devastating losses in terms of human lives and economics (Livi-Bacci, 2021).
In 1949, several countries agreed to create a body, the Council of Europe, to protect human rights and the rule of law in the region. This council evolved through the years, and in 1992, the European Union was created, and the member states agreed to create a unified financial market, introduce EU citizenship, and cooperate in matters of foreign policy, security, and justice (Kelemen & McNamara, 2022). Despite the EU hosting several countries, two prominent members are France and Germany. Together, these countries make up 40-45% of the total region’s GDP, and as a result, the stability and growth of the union have been dependent on these two countries: France and Germany.
Challenges Faced by France and Germany
France
France is the second-largest economy in the European Union region. In the past, it has played a key role in the economic status of the EU, especially in agriculture and fashion. However, in recent times, France has been faced with a substantial political and economic crisis (Schirm, 2022). Regarding economic upheavals, France has faced consistent debt crises and budget deficits (Ragot, 2021). This has led to tight financial conditions limiting capital accessibility to private sectors. To access credit, businesses do so at higher yields, and this increased cost of financing limits the competitiveness of businesses and economies.
France has also been at the centre of internal and external political chaos. For external political crisis, France has been accused of protectionist policies that clash with EU policies (Clegg, 2022). One of the main policies that created much discourse was the transition to green energy. Following the EU sustainability agenda, countries such as Germany have invested heavily in green power projects such as solar and wind. However, France has consistently relied on nuclear energy production, thus creating friction between member states. The other main concern has been internal conflicts between different political factions in France. Recently, France has witnessed numerous political crises leading to major insurrections in major cities (Kelemen & McNamara, 2022). These insurrections threaten the peace and stability that the regions have witnessed for decades, and there is a great danger if such crises spread to other member states.
Germany
Germany is the EU’s largest economy, and it has been largely anchored in industrial production, especially automotive manufacturing. For decades, Germany’s automotive manufacturers, such as Volkswagen, have been the largest supplier of motor vehicles globally (Yeung, 2024). However, this reliance on traditional industries has threatened the sustainability of the German economy since the world economy has shifted from heavy manufacturing to a digital-oriented economy. As a result, global economy leaders such as the US have shifted their focus to technologies such as AI and semiconductor production, which fetch more revenue. Germany’s stagnation in traditional industries has led it to lag in emerging technologies such as electric vehicles (EVs) and semiconductors, major components of motor vehicles today. As a result, Germany has lost its supremacy in global automotive production, with its main companies, such as Volkswagen, lagging behind the US’s Tesla and China’s BYD.
The European Union
The main problem facing Germany and France, thus the EU, can also be traced back to the EU itself. One of the most cited problems that has reduced the competitiveness of the EU in the global market is EU overregulation (Saviola, 2022). The EU parliament in Brussels has been the symbol of government regulations and their impacts on the economy due to its emphasis on regulations. In the recent past, the EU has been critical in energy transition and sustainability, which has led to the passage of several key legislations (Livi-Bacci, 2021). Companies in the EU have been forced to abandon cheap sources of energy such as coal and fossil fuels and embrace renewable energies, which are currently expensive and unreliable. This has made the finished products from the Euro area more expensive than those in countries like China. The higher prices of products made in the Euro area are limiting the ability of businesses in the Euro area to compete with businesses from other global markets, making Europe lose billions of dollars in trade opportunities. This is the main problem facing German automotive manufacturers such as Volkswagen.
The other main challenge is the insufficient investment in modern innovations and technologies. The Euro area has relied on traditional industries to drive its economic growth. However, global economic activities have shifted, and major economies rely on modern technologies such as AI. Countries such as China and the US have invested massively in these technologies and continue to push for more innovations. However, investment in Euro-area innovations and startups has been hindered by the cost of acquiring capital driven by instabilities in the region’s financial market. The debt crisis in France is one example of the financial struggles plaguing the region, hence dimming any efforts of the region’s economic reforms. This is because the capital markets drive innovations and research activities, determining the lending rates at which businesses can access capital.
Solutions
Experts predict that the EU’s current challenges are causing the region to lose over $3T in revenues. Additionally, countries such as Germany are facing an unemployment crisis, which threatens the stability and peace in the country. The future of the EU depends on the region’s ability to compete with countries such as the US and China. Thus, the region needs to find and implement solutions to the challenges facing Germany and France, the region’s top economies. The most effective solutions include the following:
Increasing Productivity
The most advocated solution to the EU’s economic challenges is the increase of productivity. An increase in productivity means an individual creates more value for the same amount of work. Thus, for the same workforce, the entire economy creates more value. This makes the entire production process cheaper, thus enhancing the competitiveness of products and services from the region in the global market. One way to enhance productivity is through digitalization and automation of production processes (Skare, Obesso, & Ribeiro-Navarrete, 2023). Machines work as a complement to human labour, thus enhancing their productivity. The effectiveness of automation as a solution to productivity is evident in Italy, where the government incentivizes the digitalization of agricultural production through capital injection. As a result, agricultural firms and processing industries invested in machinery and automation, increasing productivity. A similar approach to digitalization and automation is necessary in a country such as Germany, whose economy relies on industrial production. Automation and digitalization of Germany’s production activities will increase the country’s productivity and reduce the overall costs of production (Skare, Obesso, & Ribeiro-Navarrete, 2023). This will give its products and services a chance to compete with products and services from countries such as China and Japan.
Invest In Digital Industries
One of the main problems facing the EU region is that it has stuck with traditional industries. This makes it impossible for the region to compete with other developed markets such as the US. Digital industries such as AI are breaking valuation records, and today, they are valued at trillions of dollars. As a result, these valuations are translated into local economies, making the economies of the US and China, countries leading in these technologies, be valued in similar valuations. If the EU region is to compete in economic valuations, the region needs to embrace and invest heavily in these digital industries. One way to achieve this is to empower and invest in the venture market. Countries such as the US have invested heavily in venture markets. Venture capital organizations invest in technology startups and enable them to reach their full potential. However, the venture capital industry in the EU is not well developed, and the investment banks are more risk-averse (Nasreen, Mahalik, Shahbaz, & Abbas, 2020). This limits the ability of startups to access capital to enable their growth and expansion, slowing innovations in the region. The region’s governments and financial industry should collaborate to create a venture capital industry to finance innovations and technology development.
Conclusion
Europe is in a dire economic and political crisis that requires immediate interventions. These crises are majorly a result of its two largest economies, France and Germany, being in crisis. Germany, the region’s largest economy, faces economic problems such as unemployment due to uncompetitive economic production. France, the second-largest economy, faces political and economic challenges as it struggles with debt crises and budget deficits. The EU region needs to address these challenges by increasing productivity and investing in digital industries to enhance the future stability and sustainability of the EU economy.
