What’s going on over in Germany?

Earlier this month, lawmakers — first in France, then in Germany — voted to dissolve their governments, leaving two of Europe’s leading economies in a state of uncertainty.

Meanwhile, Germany is already facing economic headwinds, as industry giants like Volkswagen struggle to compete with foreign automakers. Germany is also adjusting to a changing energy landscape.

Ludovic Subran, chief economist at the global financial services company Allianz, joined “Marketplace Morning Report” host David Brancaccio to share more. The following is an edited transcript of their conversation.

Ludovic Subran: Germany is really in a pickle when it comes to energy, because they stopped [using] nuclear some years ago. And of course, their superdependency on Russian gas has proven extremely ineffective because of the war, and the renewable energy agenda has been lagging substantially. I do think there is a silver lining. It’s that they can really turn around a bit the situation, but for that, they need public money to crowd in private investments into renewable and this is not happening. And so, of course, the competitiveness of the German automakers, the German chemical industry, but also more generally of Germany as a site — as a literal production site — is really not cheap anymore and more importantly, is much more expensive than, say, the U.S. now — where the price of power is a tenth of what the price of power in Germany is.

David Brancaccio: That’s really striking. All right. Now, back to this kind of tripod that was holding up Germany until fairly recently. You also said U.S. security — that would be Donald Trump’s incoming administration will be more skeptical about NATO. But then there’s the third part, you haven’t mentioned it yet: That’s about China taking German exports. That is changing.

Subran: As you know, the Chinese economy has been stalling. They are barely recovering from a deep real estate crisis. They’re doing whatever it takes to make sure the Chinese economy is revived, including big stimulus. And of course, as you can imagine, this has taken a huge toll on German exports. Almost a third of German exports have disappeared in thin air. So the question now is whether Germany can reorient these exports to other countries, including BRICS countries. There is a way for Germany to be a trade ally on the U.S. and not in a trade feud. And to be fair, they need to be successful on all three fronts if they want to offset the loss of China as such a big client country in the years to come.

Brancaccio: Right. And a lot of this, it would help if you had a government, and we’re not going to really know the direction of that until the snap elections in February. Do you think February will resolve much of this?

Subran: I mean, certainly by Feb. 23 we will have a new parliament, but it will take another couple of months to get to these very famous coalition contracts. So actually, the uncertainty in Germany could last all the way through April 2025, so my concern is that there will be another phase of reality check for Germany when they will realize that it’s not a quick-fix that they need right now. They actually need to go much deeper, changing maybe the constitutional debt brake, rethinking how they work within Europe, rethinking their mercantilist model, whether they need to servitize more their businesses instead of only relying on this export from Germany. And this is going to be fascinating to see that evolving. I’m confident about Germany being able to turn it around, but it will take time.