Is Germany falling apart?

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Frank Trentmann is a professor of history at Birkbeck, University of London and author of Out of the Darkness: The Germans, 1942-2022.

A visitor to Germany might be surprised to find that, despite the country’s legendary efficiency, the trains no longer run on time. Many other extraordinary scenes are playing out in Germany today that buck the national stereotypes. Farmers are blocking highways with their tractors. Offices and restaurants are closed for lack of staff. Workers are on strike. The economy is likely in recession. More than a million citizens have been protesting against xenophobia but right-wing populists are nonetheless projected to become the biggest party in the eastern states.

These days, Germany is a far cry from its popular image as an economic powerhouse, built on efficiency and hard work, or a reliable international partner with a stable if somewhat boring political system. Is Germany as we know it falling apart?

In 2023, the German economy shrank by 0.3 per cent. Instead of powering Europe, it is now a brake on growth. The country’s problems are partly the flip side of its earlier success. Germany was one of the big winners from globalization. To cash in on it, the country massively increased its exports. In 2000, exports accounted for a third of its GDP. Ten years later, it had gone up to half. When globalization went into reverse, it naturally hurt Germany.

But the problems run deeper and point to historic flaws as much as to external events. For far too long, Germany lived in denial of its vulnerability and dependence on the outside world. Its big chemical industry and the steel for its cars were fired by cheap gas, coal and oil from Russia. The war in Ukraine put an end to that. The government tried to cushion the rise in energy costs with $290-billion in aid, but even such a huge aid package only goes so far. Energy-hungry industries such as chemicals are feeling the pain.

One might think that Russia’s war on Ukraine would have been an overdue wake-up call. Instead of reshoring, though, German firms invested even more in China. It was like putting more eggs into the same basket. The slowing down of the Middle Kingdom inevitably has ripple effects on the Rhine and Ruhr. More gloomy Chinese consumers mean fewer BMWs and Mercedes.

What makes a bad situation worse is the shortage of skilled labour. The problem is long-standing, and it reflects the country’s inflexibility and inwardness. Former chancellor Gerhard Schröder tried to lure “computer Indians” to Germany with work visas in 2000, and Angela Merkel, his successor, made it easier to get a residence permit. These changes barely made a dent. Fewer than 20,000 IT specialists came. Meanwhile, a quarter of a million German scientists and technicians left for greener pastures elsewhere.

In 2015, Germany became known for its Willkommenskultur (welcome culture), with which it greeted nearly one million refugees. The reception was unmatched in Europe but the country’s welcome of migrants has been mixed. Counter to the hopes of many industry bosses, many refugees turned out to have the wrong skills or none at all. Xenophobia and red tape have not exactly helped their entry into the labour market. In the Netherlands, for example, every second Ukrainian refugee is working today; in Germany, it is only one in five.

The large number of unfilled apprenticeships partly reflects the historic difficulty the country has had with coming to terms that it is a migrant society. To be fair, things have improved since the 1970s. Previously stigmatized “guest workers” from Turkey, Greece and other Mediterranean countries are today recognized as people “with a migrant background.” Cem Özdemir, the son of one of them, has even risen to be federal Minister of Food and Agriculture. Still, discrimination and inequality has not vanished. Tellingly, one quarter of teenagers who are the children of migrants currently miss out completely on vocational and professional training – double the number of their peers with German roots.

If you are planning to visit Germany, be prepared to encounter zones with no WiFi signal, trains that arrive hours late, and closed motorways and bridges. Years of underinvestment have taken its toll. Generous subsidies for renewable technologies such as solar panels were hoped to spark a green industrial revolution. Instead, it lined the pockets of firms and farmers and the new industry moved to China.

In 2009, parliament put a “debt brake” into the constitution, which limits the amount of new public debt that can be taken on to 0.35 per cent of GDP a year. It means Germany has little debt – 65 per cent of GDP compared with 104 per cent in the United Kingdom, 113 per cent in Canada, 144 per cent in the United States and 254 per cent in Japan. But it also means little investment.

It will be hard for the country to move out of the quagmire it is in with the debt brake pulled. At present, the brake looks firmly stuck. The Liberal members of the coalition government are intent on keeping the brake on – sound finance is their brand. In recent years, the Social Democrat Chancellor Olaf Scholz thought he had devised a clever plan to circumvent the strict limit by creating special “off-budget” funds for the army, pandemic and climate crisis. The Constitutional Court has now ruled these to be unconstitutional.

For a government which is already on the ropes, the decision is catastrophic. For the Chancellor, it is a personal blow. Mr. Scholz had served as finance minister under Ms. Merkel. What he lacks in charismatic leadership, he tried to make up as a skillful accountant. For the Greens, it means the end of special funds to support the ecological transformation needed in the fight against climate change. For people and the economy in general, it probably means poor digital services and delayed trains for years to come. The government had promised to move administration, health and education into the digital age and boost digital skills and connectivity, but that plan now lies in tatters.

The end of special funds is bound to make for more social conflict. In recent years, ruling governments spent their way out of difficult situations with handouts. In Germany during the pandemic, people temporarily out of work received up to 80 per cent of their wages from the government – for up to 28 months! Strict adherence to the debt brake now requires cuts and savings. The many angry farmers blocking traffic with their tractors are a foretaste of things to come. It was the cut of their diesel subsidy that pushed them over the edge.

Many people already feel left behind and ignored by the government, and in three states in the former socialist East, the right-wing populist Alternative für Deutschland (Alternative for Germany) is currently ahead in the polls. Hard times and tight budgets make a dangerous mix.

How did a once booming and stable country manoeuvre itself into such a corner? The reasons reach back into the period after the Second World War. Reconstruction after Hitler was a moral as much as a material undertaking. During the economic miracle, Germans were asked to save to generate the funds needed to get industry back on its feet. Politicians and central bankers called for wage restraint and moderation to keep German exports cheap and competitive. In the early 1950s, thrift was not an obvious choice – many families had lost their savings in the hyperinflation of 1923 and in the currency conversion of 1948. But it soon became a moral mantra that promised freedom via self-discipline for citizens and country. Credit, by contrast, meant debt and dependence.

The national economy came to be seen as a larger version of the virtuous household that was balancing the books, as when Ms. Merkel invoked the thrifty Swabian housewife to explain that one cannot live beyond one’s means. Politicians elsewhere might use similar metaphors but in Germany it resonated with widespread values. The debt brake, austerity, and the harsh terms of the bailout of Greece and other countries during the Eurozone crisis (2009-15) all belong to the same morality play. A high view of work and a low view of consumption and credit go hand-in-hand with this idealization of thrift.

From abroad, Germany is sometimes described as a quasi-socialist welfare state. In reality, welfare rests on the principle of self-help. Individuals should work to support themselves and their families – only if that fails, should communities and the state step in to secure basic needs.

What falls under basic needs has been hugely controversial. In 2006, the minister of labour Franz Münterfering (a Social Democrat) quoted from the Bible: “If a man would not work, neither should he eat.” Recent attempts by the Social Democrats to raise benefits prompted a backlash: Higher benefits were seen as a slap in the face of all those hard-working citizens who got up in the morning to work as cashiers and cleaners and barely made ends meet. Work should pay.

Saving, work and little debt – these are moral hangovers from the time of the big boom in the 1950s and 60s, a time when the cake was growing so fast that more or less everyone got a bigger slice. The economics minister and later chancellor Ludwig Erhard, the so-called father of the economic miracle, promised prosperity for all and saw hard work as its foundation. This era is now long gone but its values continue to cast a shadow over the present and shape expectations.

A large segment of the population has low-paying jobs and will never reach prosperity regardless of how hard they work. Wealth has also become more unequal in Germany, helped by the abolition of the wealth tax, the lowering of inheritance tax and the low rate of home ownership. Arguably, the country could do with more investment, and a wider use of credit, bonds and securities. The fear of debt has become a tight corset.

The challenge facing the current government is that it inherited high expectations while the number of policy instruments at its command has progressively shrunk. External shocks such as the war in Ukraine did not help but part of the blame must also fall on this government and its predecessors. For a long time, Germany has been trying to have its cake and eat it, too.

Responsibility was outsourced. Germany liked to see itself as a “peace power,” but relied on the United States for military security. It wants to be green and switch off nuclear power but also drive fast cars and live in cozy homes, fired by imported gas and oil. Renewable technologies would steer the country toward green growth and save the climate without people having to change their lifestyles. No surprise that there was an outcry last spring, when the government announced a switch to costly heat pumps, even though it offered generous support.

So is Germany about to fall apart? The coalition government itself will probably stay together for now. The Liberals, Social Democrats and Greens alike are trailing miserably in current polls and have little interest in facing the voters any sooner than they have to. For the country as a whole, it is also good to remember that time and again, it has proven to be more robust than its critics had prophesied. The “hot autumn” predicted in 2022 did not materialize and neither economy nor society imploded because of rising energy costs.

Germans can have a tendency toward self-pity. But the decades after the Second World War are also full of demonstrations of solidarity and sacrifice. The divided country absorbed 12 million German refugees from the East, and in West Germany the burdens of war were shared between the lucky ones who had lost little or nothing and the millions of bombed out residents, war widows and refugees.

Democratic politicians would do well to remember those earlier episodes in the battle with populists. After years of coddling citizens and sheltering them from the real world, there needs to be a more open, honest debate about risks and responsibilities. Without it, it will be difficult for the democratic parties in Germany to win back citizens who feel disillusioned or duped and are toying with casting their vote for populist pied pipers.