Germany is facing significant challenges as Chancellor Friedrich Merz struggles with low approval ratings and a disliked coalition government. The far-right Alternative for Germany is gaining traction, and a recent withdrawal of American troops signals a strain in the U.S.-Germany relationship. These developments threaten Germany’s historical political stability, social cohesion, and Atlanticist foreign policy.
The root of these issues is Germany’s faltering economy, previously known for its efficiency and stability. The country has been in recession for three years, with companies like Commerzbank announcing mass layoffs. Media coverage, such as Die Zeit’s series “Where Germany still works,” highlights the economic downturn.
The once-robust economy significantly contributed to Germany’s postwar identity. Economic improvement won’t solve all political problems, but it might counter stagnation and strengthen German businesses.
Germany’s economic rise and fall is an old story. At its peak, Germany thrived as a high-tax, high-wage nation with a complex bureaucratic system. Such a framework is vital to consider as some propose lowering business costs to revive the economy.
Key components of postwar economic success included an education system focused on technical skills, managers trained in engineering and sciences, banks with long-term investment strategies, and stable labor relations. These factors supported the technological prowess of the Made-in-Germany label.
In the 1990s, as the U.S. economy advanced through Wall Street and Silicon Valley’s strengths, Germany faced a creative gap. In response, it opened up to foreign capital, leading banks and insurers to divest their stakes in domestic companies. The government reformed labor markets, stripping some worker protections to boost competitiveness.