Germany in Transition

I have just completed a week in Germany, visiting our teams in Berlin, Frankfurt and Hamburg, plus meetings in Munich. We released a special report on declining trust in Brand Germany. I also spoke to a convening of the Atlantic Council 150, a group of young reporters, civil society leaders and government officials, on the threat of fake news in a democratic society. Here are a few observations from the week.

  1. The Political Situation Is Fragile — After a turbulent weekend, there will be emergency intra-party meetings today between the two parties of the center right, the Christian Democratic Union (CDU) and the Christian Social Union (CSU), to try to find a compromise on immigration. The CSU with party chairman Horst Seehofer, based in Bavaria, is seeking a harder line on further entries in order to stand off the rising Alternative for Deutschland (AfD) threat in provincial elections this fall. After Seehofer’s threat to resign as federal minister of the interior, it now seems less likely that a compromise can be found. This could result in a collapse of both the CDU/CSU parliamentary group and the grand coalition. In case of new elections, CDU and CSU could emerge as nationwide competitors, and AfD could gain ground again.
  2. Immigration — There are a reported 1.4 million immigrants to Germany in the past three years. I was told that 25 percent of them are trained and working productively. The German integration solution is much more comprehensive than the U.S. There are still refugee camps at Tempelhof Airport in Berlin and other government-owned properties.
  3. Brand Germany Weakens — We have found that trust in German headquartered companies has fallen since 2014. For the past 5 years, Brand Germany has led the list, but now it ranks behind Canada, Switzerland, Sweden and Australia. Trust is particularly weakened in developed nations, the U.S., UK and France. The problems of the automotive sector on emissions, nicknamed Dieselgate, has caused a dramatic fall in trust in the car business, most notably in the home market, dropping from 62 percent to 35 percent in the past three years, making it the least-trusted sector in Germany.
  4. The Knock-on Effect of Dieselgate — The most alarming finding in our special report is that only 41 percent of respondents in developed markets believe that German companies have values and views that match their own. There is also doubt about transparency, ethical business practices and internal controls. There is still belief in German innovation and engineering; these are the pillars of the recovery of trust.
  5. Doubts About Intentions of Social Media — German publishers are leading the fight against Facebook and Google. The implementation of the GDPR is proceeding as the first strike for privacy. The German media is finding the same adverse environment on advertising as its global peers, with much of the revenue diverted to the two American giants. Google is trying hard to make friends with regional newspapers, training editors on the use of social tools to reach younger audiences.
  6. President Trump — In a recent poll, only 19 percent of Germans trust President Trump, 36 percent trust President Putin of Russia and 45 percent trust President Xi of China. That pretty much sums up the consensus on the very fraught relationship between Germany and the U.S. The day I arrived in Germany, President Trump threatened tariffs on cars imported from Europe, a direct shot against Germany. It is true that there is a tariff differential on car exports; the EU charges 10 percent and the U.S. only 2.5 percent (but 25 percent on pickup trucks). Despite the trade disputes, there is little likelihood of a turn to Russia or China.
  7. Start-ups — My most inspiring meeting was with the founder and CEO of Brainlab, a 700-person company based in Munich that offers software to neurosurgeons for precision procedures. The 3-D images even show the nerve connections to the brain stem. Future applications include hip surgery and shoulder procedures. The first cross-hospital implementation will be in New York City later this summer.
  8. Russia — I sat with Horst Teltschik, former defense minister to Chancellor Kohl during the period of reunification. He is considering a book on Russia and the West. He noted that the Americans had caused serious doubts about their intentions in Eastern Europe by installing ABM missiles in Poland and Hungary in 2003 and by flirting with admission of Russia to NATO, then only taking the Baltic states. He also explained the annexation of Crimea and the key naval facility at Sevastopol on the Black Sea as returning a province to Russia that had been given to Ukraine by Soviet leader Khrushchev in the late 1950s. Teltschik did acknowledge the weakness of the European defense capacity, with consistent under-spending on military equipment, and the consequent reliance on American forces.
  9. A Walk Through History — The Munich Documentation Centre is an important addition to the study of the Holocaust. The Nazi party was founded in Bavaria in 1919, in part as a reaction to the takeover of the city for a month by a revolutionary soviet. Hitler made a grab for power with the Beer Hall Putsch in 1923, then was given a light sentence in prison by a conservative judge. Aided by wealthy local families, he continued his climb to power, aided by the onset of the Great Depression and seizure of the Ruhr by the French and British when reparation payments were not made. There are chilling photos of Hitler practicing for mass public oratory and cruising in a donated Mercedes with his sponsors.
  10. A Sense of Unease — The defeat of the German soccer team in the first round of the World Cup was symbolic of the general ennui of the country. Despite record economic performance, beautiful new structures such as the Elbe Philharmonic Hall in Hamburg, packed restaurants and vibrant culture, the mood seems dark. There is fear about the future, the aging population, the migrants taking jobs, the prospect of further instability in the EU as Italy wobbles, and the new Trans-Atlantic tensions.

This is a country in transition, from a long rule by a steady and cautious leader and domination by the automotive sector. What will emerge depends in part on whether business can reverse the trust slide that is threatening the success of Brand Germany. Business must step forward and address issues such as retraining of workers, data privacy and absorption of immigrants into the workforce. It is time for CEOs in Germany to throw off their society-imposed yokes and demonstrate that the business sector is in fact a force for good for society.

Richard Edelman is president and CEO.

Björn Grochla

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