For decades, German politics and elections have embodied the idea of stability, often described even as “boring”. Few parties in Parliament, clear majorities and bipartical coalitions have guaranteed political and economic stability, making the Germany a crucial anchor For the whole of Europe. Underlines it Carsten Brzeski, Global Head of Macro di Ing, Explaining that “however, with the end of the Merkel era, Germany has lost this single strength point. The first government coalition of always made up of three parties collapsed after three years and on February 23 the country will vote “.
Germany, how to get out of stagnation?
A crucial theme of the election campaign – explains the expert – is it disastrous state of the German economy. Just last week the news spread that the economy contracted in 2024 for the second consecutive year. However, economic problems have existed for longer. In fact, the economy currently has the same dimensions he had at the beginning of 2020, marking five years of de facto stagnation. We have often discussed the reasons for this stagnation. In short, a combination of twenty cyclical and structural opposites paralyzed the economy. While the winds against cyclical, such as high inflation, high interest rates, high levels of stocks or even high political uncertainty, can vanish rather quickly, the structural problems remain. Germany began to realize that the old macroeconomic model of low -cost energy and large export markets easily accessible no longer works. Ten years of insufficient investments, the deterioration of competitiveness and the passage of China from destination of export to ferocious industrial competitor have had and will continue to have repercussions on the German economy.
The three most urgent structural problems
About a month from the elections, let’s take a closer look at Germany’s structural problems. The list is long, but in order not to complicate things we will focus on the basis of the German macroeconomic model: energy, China and competitiveness.
Before the Russian eavy of Ukraine, Prices and energy supply They had never been a concern for the German industry. Low cost energy was a fact. In a country that does not have raw materials, with the exception of coal, energy imports can become crucial, especially in the context of the green transition.
Contrary to what is believed, In 2002 Germany He decided to gradually eliminate nuclear energy in a period of about 30 years. The first nuclear power plants were closed in 2003 and 2005. In 2010, this transition period was prolonged, but with the catastrophe of Fukushima, the German government accelerated the decision to gradually eliminate nuclear energy, closing many almost immediately central, while the closure of the others was planned by 2023 60%. At the same time, however, gas imports from Russia remained an important source to facilitate the transition.
Up to the Russian invasion of Ukrainethe prices and energy supplies were not a problem for industry at all. Low prices and stable supplies were simply a fact. In 2019, Germany still had one of the lowest EU electricity prices, much lower, for example, those of France and levels similar to those of the United States. In 2023, electricity prices in Germany were three times higher than those of 2019, twice higher than those of France and China and three times higher than those of the United States.
A positive note is that Germany has anticipated the green transition and is in advance of many other industrial countries. However, a more negative note is that the high costs, the still unstable flow of renewable energy and the high costs of import of the gas to fill any interruption of the renewable energy supply have significantly undermined the industrial foundations of the country. This problem will probably be aggravated by the increase in demand for energy due to the use and application of artificial intelligence and other web services.
In the early 2000sthe cinA – explains the expert – still – It was the salvation of the German economy; Now it’s the worst threat. The rapid growth of China, accelerated by entry into the World Trade Organization, brought a huge appetite for industrial products “Made in Germany”. Although many Germans thank the former Chancellor Gerhard Schröder for his structural reforms in the early 2000s, the role of China was at least as important, if not more, for the return of Germany as an economic power. While German exports to the rest of the world have doubled in the last twenty years, those towards China have increased eight times.
However, with the beginning of the pandemic, the role of China COme important growth engine for Germany has changed. At first, Chinese demand fell due to the weakness of internal demand, then decreased because China became increasingly capable of producing assets that normally imported from Germany, in particular cars. In 2018, in fact, China announced its 2025 strategy “Made in China”, which aimed to guarantee China’s position as a global power in high -tech industries – a better version of Germany, in practice. The strategy was almost a copy of what Germany knew as “Industry 4.0” strategy. The greatest difference is that China has focused everything on it, while Germany has not done it. China has become a competitor for many German industries.
The “China factor “ has highlighted a more general problem of the German economy: the gradual loss of competitiveness international. In the most important international competitiveness rankings, Germany was in the top 5 in the early 2010 years. Currently it is between 20 and 25th place. The reasons for this loss of competitiveness include a rapid decline in infrastructure, education and digital infrastructure. As for infrastructure and education, Germany has been too pleased and has simply forgotten (or did not consider it necessary) to strengthen itself, while as regards digital infrastructure, the country has collectively forgot to invest and innovate. Somehow, the words of the former chancellor Angela Merkel of 2013, according to which the Internet was an absolute novelty, labeled the failure of an entire nation in embracing digitization.
But it is not solor the conventional infrastructure It is digital to weigh on Germany growth performance. For a country that was once famous for its qualified employees, the scarce performances in the Pisa tests of the OECD are equally worrying.
The decline in international competitiveness It is closely linked to the chronic deficiency of investmentthe. In the last twenty years, German public investments as a percentage of GDP have been significantly lower than the EU average and even the investments of the private sector have been lower than those of many other countries. While the braking of public investments can be explained by the increase in public consumption and from the constitutional brake to debt, private investments have been slowed down by the increase in taxes, regulatory and extension, but also by generational changes. In particular, in the famous German Mittelstand, the investments were braked by the impossibility for the owners of the companies to find adequate succession planning. Several studies have tried to estimate the current investment gap in Germany, with results that range between 400 and 600 billion euros (from 10% to 15% of GDP).
How to get out of stagnation?
After five years of de facto stagnation, last year the awareness that economic problems are not only cyclists was finally spread in German politics and society. The country is still one of the richest economies in the world, but needs a relaunch to stop the gradual deterioration. TOFfrontare the main problems related to energy, China and competitiveness will be a challenge. If to this are added the unfavorable demographic data and the impact on health and pension systems, it is clear that there is no easy exit from the current situation.
Observing the economic ideas of political parties, “it becomes increasingly clear that, even in the best case with reforms and investments, any new government will not try to upset theThe old business model of business, but rather to rejuvenate it. Less bureaucracy, some tax cuts to stimulate spending and investments, any attempts to reduce energy costs and investments in infrastructure: all elements that fall within the wishes list of any European economist and that represent an incentive to growth for The economy, at least temporarily “.
If these measures “are really enough to compete with China and the United States is a completely different question. What Germany would get after the elections is an updated model of its economy – clearly better than the old one with cracks, batteries and very few gadgets, but commonand not a new and sparkling model, which leaves the competition openly “, The expert concludes.