Why Germany is in crisis and what can happen now

The crisis in Germany exists and is felt in every sector.
The European locomotive, already considered the "sick man of Europe" for some time, was undoubtedly the nasty surprise of the 2023 EU economy and a protagonist, in spite of itself, on a global level in the past year.
German confusion and fragility pervade every area: from the stability of the faltering Government to the discomfort of the protesting population, to the narrowly missed recession, to the energy and commercial revolution to be faced, to the industrial heart of the shattered country.
The blows suffered by the European power are in reality the same ones that dragged the entire old continent into crisis.
Skyrocketing inflation, with record energy prices; interest rates increased dramatically; the green transition hindered by China's unattainable advantage in electric vehicles and critical raw materials; geopolitical tensions transformed into wars have disoriented the world and Europe first and foremost.
Germany has also had to deal with the budget crisis and with an austerity in the accounts that is no longer totally sustainable.
Furthermore, the German nation found itself vulnerable to the new challenges of green industry, the need for other trading partners beyond China, and structural and productive innovation.
In this complex context, the Scholz Government appears increasingly unstable and threatened by an advance of the far right which is frightening Berlin and all of Europe.
In the background, the horizon is also darkened by a demographic bomb that will not spare Germany and risks leaving consequences on the world of work and on the state budget.
The German crisis, therefore, is increasingly a polycrisis with uncertain outcomes.
The Germany of the future starts again with many doubts to be resolved that question all of Europe.
read also Germany, how did 2023 end? Recession avoided, but the crisis is deep Economy in decline The "multiple crises" that hit the German economy contributed to a 0.3% drop in GDP in 2023, compared to the previous year according to indications from the National Office of statistics.
Rising interest rates and high energy costs have made Europe's largest economy one of the weakest in the world.
Last year, Germany was the worst performing power globally, according to the IMF.
What pushed the nation so low was above all the German manufacturing sector, focused on exports, hit by the loss of low-cost Russian energy and a slowdown in demand from China.
Retail sales, exports and industrial production all saw declines last year.
Families have been pressured by the biggest rise in the cost of living in a generation, while the country's crucial manufacturing sector has suffered from high energy costs, weak global demand and rising borrowing costs.
Analysts say Europe's largest economy is on track for another year of stagnant growth in 2024, with a very high risk of a second consecutive year of negative output.
Carsten Brzeski, global head of macro research at Dutch bank ING, said: “There is no imminent recovery in sight and the economy looks set to go through its first two-year recession since the early 2000s.” Andrew Kenningham, chief European economist at consultancy Capital Economics, also pointed out that residential and commercial investment is headed for contraction, construction is down sharply and the government is limiting fiscal policy dramatically.
The expected GDP growth in 2024 is zero under these premises.
Industry shattered and in need of reinvention Germany has always been synonymous with industrial power, with the automotive sector driving the country's wealth.
Its automakers must now compete with relatively cheap electric vehicles from China and compete with the United States to attract tech giants.
There is a growing realization that Germany has failed to upgrade its sector with enough flexibility and digital know-how to remain competitive, according to a New York Times analysis.
Geopolitical crises and new industrial rivalries in China and the United States have weakened demand for German-made products abroad and are pressuring Berlin to redraw its map of trading partners.
In a nation so linked to the dragon market, rethinking the chains of exchange in the anti-China context (in this new context of West-East conflict that is emerging) is an urgent but complex and delicate challenge.
Overall, the German industrial sector is struggling to cope not only with the high price of energy, but also with the transition to a more agile and digital future.
According to an official index, plans to digitize the country's paper bureaucracy, which has its roots in 19th-century Prussia as some analysts point out, have largely stalled.
The nation has failed to meet its goal, set in 2017, to require all public offices to offer digital services by the end of 2022.
This infrastructure lags far behind the rest of the European Union, where on average 56 % of homes are connected to fiber.
-optical cables, compared to 19% of German homes.
In the private sector, companies complain that the amount of paperwork required to build or expand operations hinders growth.
read also Germany crisis, Berlin is losing this epochal industrial challenge Structural challenges: does Germany need a revolution? Germany, like other industrialized countries around the world, faces a profound labor shortage, particularly in high-growth skilled sectors.
Official estimates suggest that by 2035, Germany's aging society will leave a hole of 7 million skilled workers.
Bureaucracy and lack of investment are two chronic problems in the German economy that are slowing down the energy transition and the introduction of high-speed Internet connections.
Germany aims to reduce its greenhouse gas emissions by 65% by 2030 compared to 1990, a step closer to becoming carbon neutral by 2045.
Meeting the 2030 CO2 targets requires public funding, which has become significantly more narrowed after the court ruling canceled 60 billion euros of unused debt earmarked for climate projects.
Furthermore, the German nation has an economic system based on trade and therefore sensitive to international events that weaken foreign demand.
Weak global, and particularly Chinese, growth, as well as high interest rates, are expected to limit demand for German exports.
Shipping disruptions in the Red Sea and escalating tension in the Middle East could further cloud the trade outlook.
Political crisis and discontent The German crisis is also political, as well as economic.
Support for Scholz-led coalition parties has fallen to around 30% in polls, a far cry from the majority achieved in the 2021 election, making it one of the most unpopular governments in modern Germany.
This in turn has fostered a greater push for protest, whether it be farmers blocking the roads with their tractors or voters shifting their support to the far-right Alternative for Germany (AfD), which now it is the second most popular party in the polls.
read also France, Holland, Germany, USA: in the West the right is riding the agrarian revolt The biggest blow to the stability of the Government, made up of the Social Democrats (SPD), the Greens and the Liberals, came with the shock ruling of the German Constitutional Court in November 2023 In essence, the reallocation of unused debt linked to the pandemic period was rejected, for a total of around 60 billion euros, intended for climate and transformation projects, which caused chaos in the country's budget.
Ministers, trying to plug a €17 billion gap in the 2024 budget, have been forced to adopt a series of painful austerity measures, including the abolition of the diesel subsidy for agricultural vehicles.
From here, the farmers' revolts broke out, which were not the only ones and actually inaugurated a hot week in January.
Railway workers have blocked transport to demand more guarantees on wages and working conditions, doctors plan to close surgeries unless the health system receives more state support and hauliers furious at higher road tolls are ready to stage blockades.
Germany is in full political, social and economic turmoil.
The crisis is multiple and reflects a Europe weakened by ongoing epochal changes, tensions, inequalities that require effective solutions for growth and the protection of rights.