The year that has just ended has not been good for Germany. The European country remains in recession, with its important industry immersed in a deep crisis, with a heated debate on immigration policy, fueled even more after the recent attack on a Christmas market, and with a, no less worrying, crisis of confidence in politics after the chancellor, Olaf Scholz, decided to break up the coalition government due to insurmountable disagreements with his liberal partner on economic matters. The economic recovery will take time to arrive and a possible large coalition between conservatives and social democrats after the early elections scheduled for February 23, as the voting intention polls point out, does not reassure the country’s main economists, who warn of strong disagreements between the Christian Democratic Union (CDU) and the Social Democratic Party (SPD) on issues such as taxes, investments and debt.
The need to undertake reforms is now undeniable and, for this, a strong Government is necessary. “The CDU/CSU [Unión Democristiana y su partido hermano bávaro, la Unión Socialcristiana] and the SPD come from different worlds that do not come together easily. There is a risk of stagnation of reforms and a greater loss of prosperity,” warned the president of the German council of economic experts that advises the Government, Monika Schnitzer, in an interview with the Funke media group. If changes are not made, the stagnation could last up to almost a decade, something unprecedented in the recent history of Germany, as the Bundesbank warns.
But how did it get to this point? Germany’s once thriving industry – the backbone of the German economy – has been producing less and less since 2017, and the decline has accelerated recently. According to experts, the negative trend is partly due to poor management decisions, for example in the automotive sector, which has led Volkswagen to announce that it will cut 35,000 jobs by 2030.
Furthermore, it must be taken into account that Germany is the largest steel producer in Europe. More than four million people work in steel-intensive sectors such as automotive, mechanical engineering and construction, struggling to survive affected by high costs. The pressure on this industry is increasing, as well as on the chemical industry that suffers from high energy costs. Cheap subsidized imports, especially from Asia, force German companies to save, as is the case of Thyssenkrupp, which will cut 11,000 jobs between now and 2030.
If this were not enough, Germany is languishing under a lack of private and public investment, high taxes and a nearly impenetrable jungle of government regulations and documentation requirements, as well as a huge shortage of skilled labor.
The Federation of German Industries (BDI) sees the last years of the Scholz Government with liberals and greens as “two lost years” and warns of a “notable” loss of prosperity and a decline in competitiveness. “Germany will only be able to abandon the path of progressive deindustrialization if it manages to set a new course through far-reaching structural reforms and attract more investments,” he wrote in a document of demands that he has prepared for the next Government.
The war in Ukraine, an eroding world economic order and a possible global rise in protectionism undermine Germany. “The German economy is not only fighting against persistent headwinds, but also against structural problems,” explained the president of the Bundesbank, Joachim Nagel. According to its forecasts, the Gross Domestic Product will have contracted by 0.2% in 2024 and will grow by only 0.2% in 2025, provided the necessary reforms are carried out.
This increases pressure on the future Government at a time of great discontent with politics and the economy. “There are many challenges that we have to face. We cannot exchange them as if they were gifts that we do not like,” warned the Federal President of Germany, Frank-Walter Steinmeier, in his traditional Christmas message. “We have to be open about what is going wrong, what is not working in our country as it could and should.”
Debt brake
One of the main points of friction will continue to be a possible reform of the debt brake established in the German Constitution, demanded by the SPD to reactivate the economy. “What is very important in a debt brake reform is the legal stipulation that the additional money be spent exclusively on future-oriented investments: defense, infrastructure, education,” explained economist Schnitzer.
The electoral campaign is predicted to be very tough. In addition, it will coincide with Donald Trump’s return to the White House on January 20. “The most important issue will undoubtedly be the economic crisis. We are in our second year of recession, at the bottom compared to other European and non-European countries. It is a depressing constellation, because there is a lot of controversy about how to get out of this crisis,” explains Hajo Funke, professor of political science at the Free University of Berlin (FU).
The second topic will be the immigration issue, especially since a man from Saudi Arabia rammed his car into the Magdeburg Christmas market, killing at least five people and injuring 200. The attack was, as expected, instrumentalized by Alternativa for Germany (AfD), ignoring that the attacker was an Islamophobe and sympathized with their ideology.
The party, second in voting intention with 19% according to the latest polls, does not hesitate when it comes to promoting hatred if it can obtain political gain. Furthermore, possible failures to detect the danger that the Saudi represented serve as ammunition for the AfD, but also for other opposition parties.
“AfD is one of the most far-right parties in Western Europe. Much more than Marine Le Pen or Meloni’s party,” Funke maintains by phone. “But there are also many people who vote AfD because they are disappointed, frustrated and full of resentment towards politicians. Disappointed and frustrated by the performance and ineffectiveness of the Scholz coalition.” In his opinion, this leads many people to look for something “completely different” and points out that credibility in politicians has been reduced to less than 20% after the breakup of the Government. “That’s almost unheard of by German standards,” he says.
The political scientist believes that in order to confront the extreme right it is “crucial” that they govern “in a socially sensitive, efficient way and without fighting.” However, despite everything, he believes that the current Government has also done things well, such as in ecological matters, or when it comes to combating inflation and energy insecurity. The health reform undertaken this year is also seen by many sectors of society as necessary to tackle many of the problems that the country’s public health suffers from.
The other big issue of the election campaign will be the war in Ukraine. In total, Germany has provided military aid to Ukraine worth around €28 billion, according to official figures. But Scholz has remained firm in his refusal to send Taurus missiles to avoid an escalation of the conflict that could trigger a war between Russia and NATO. The fear of war is evident among the population. The Germans are faced with the dilemma of wanting to continue supporting Ukraine, but without continuing to spend billions at a time of economic crisis and fear of possible social cuts.
The parties will thus fight in the coming weeks to convince a disillusioned electorate. For now, if the elections were held this Sunday, the CDU/CSU, led by Friedrich Merz, would win them with 31% of the votes, according to the latest polls. Meanwhile, the SPD would be around 16% of the vote, behind the AfD (19%), followed by the Greens with 13%. Meanwhile, the liberals (FDP) would be left out of parliament by not reaching the minimum of 5%.
