At the heart of the crisis that led to the collapse of the ruling coalition is Christian Lindner, the finance minister, fired by Chancellor Olaf Scholz for refusing a new budget with more spending for Ukraine.
As Germany faces an unprecedented political and economic crisis, its commitment to Ukraine is under intense questioning. The German economy is stagnating, leading to a decline in tax revenues, compounded by a constitutional debt brake. Infrastructure and social investments are the main victims of this situation, further weighed down by the 37 billion euros in aid granted to Ukraine.
All this raises fundamental questions about Germany’s future. The fall of the ruling coalition is the first consequence.
The erosion of the German industrial base marks a long-term shift that is difficult to reverse.
From a European leader to a faltering economic power
Germany, once considered the driving force of Europe, is today going through a deep political and economic crisis, amplified by its involvement in the Ukrainian conflict. According to the latest forecasts from the International Monetary Fund, the German economy is expected to stagnate, with no growth expected by the end of the year, after a decline of 0.3% last year. This gloomy outlook indicates that no recovery is in sight.
The forecast for 2025 is equally modest, with annual growth of just 0.8%, a stark contrast to Germany’s historical performance. These projections will certainly be revised downwards, in particular due to the recent political crisis and the announcement of major divestments by Intel and Volkswagen.
The situation worsened when Volkswagen, the flagship of German industry and the largest industrial employer with 120,000 employees, announced the closure of three factories. This will result in around 20,000 layoffs, a 10% reduction in wage costs and a freeze on wage increases for the next two years. This announcement was the final blow which precipitated the fall of the government. The long-feared specter of deindustrialization is now becoming a reality, fueled by the rise of China’s high-tech industry and the conflict in Ukraine.
Whose fault is it?
In a desperate attempt to deflect responsibility, Chancellor Olaf Scholz pointed the finger at Germany’s aid to Ukraine. He claims that this complex crisis is a direct result of Berlin’s obligation to support Volodymyr Zelensky. The speech highlights the troubling interweaving of Germany’s internal difficulties with its international commitments, leaving many citizens disillusioned with a government more concerned with foreign affairs than their well-being.
This situation is reflected in disastrous polls, with a drastic fall in the seats of the ruling coalition parties in regional parliaments, notably in Thuringia and Saxony. At the federal level, the government’s popularity has fallen to less than 20%, reaching barely 12% in Saxony, according to Dimap/ARD surveys.
The political landscape is becoming increasingly unstable, especially after Scholz’s decision to dismiss Christian Lindner, former finance minister. Lindner, who openly warned that Germany could not support its economy while financing a war, was made a scapegoat for the government’s failures.
Support for Ukraine: a growing feeling of internal abandonment
Annalena Baerbock, German Foreign Minister, highlighted the financial burden of continued support for Ukraine, revealing that the 37 billion euros allocated required cuts to social programs in Germany. The consequences of this financial obligation are staggering: crucial investments, notably in early childhood programs and infrastructure modernization, have been relegated to the background in favor of military aid.
These choices not only reflect a priority given to foreign commitments to the detriment of domestic needs, but they also illustrate a worrying political shift that jeopardizes social well-being in the name of international geopolitical objectives.
The repercussions of this financial pressure are increasingly felt in daily life. German citizens find their essential social services underfunded because of the emphasis on military aid. This, combined with a growing sense of disappointment with political leaders, has caused widespread discontent. Many citizens even feel shame at the way these events are reported by the media and the government’s alignment with foreign interests, to the detriment of national well-being.
With Chancellor Scholz in a precarious political position, having lost the support of his former coalition partners, early elections are planned for February 2025. His leadership is severely questioned, and the disconnect between government policies and the economic realities of citizens is more visible than ever.
Germany’s structural challenges
German economic power is based on a 20th century model, largely centered on industrial production and thermal engine vehicles intended for export. Brands such as Volkswagen, Audi, Mercedes, BMW and Porsche have built a global reputation. However, the European Union is currently engaged in a trade war with China, imposing additional taxes on Chinese electric vehicles, which has provoked retaliation from Beijing, the main importer of German cars.
German automakers have paid insufficient attention to European climate change policies, such as the Green Deal, and have fallen behind rapid advances in electric vehicle (EV) technologies, now finding themselves several years behind their Chinese competitors. where engineering (Germany’s strong point) is less important, and where software (Germany’s weak point) takes over.
Furthermore, the conflict in Ukraine, sanctions against Russia and the destruction of the Nord Stream gas pipelines – probably by Germany’s close ally, the United States – have made German industries uncompetitive. American liquefied natural gas (LNG) costs four to five times more. In an anticipated bid to recently re-elected President Trump to avoid U.S. taxes on European products, European Commission President Ursula von der Leyen proposed buying even more U.S. LNG, making the industry European and German even less competitive.
Faced with these challenges, many German companies are relocating their production abroad, mainly to the United States and China, in search of affordable energy and more favorable regulatory environments. This trend makes the prospects for economic recovery increasingly bleak.
The erosion of the German industrial base marks a long-term shift that is difficult to reverse. In addition, the German working population is aging. The average age in Germany is 44.6 years, according to the Federal Bureau of Statistics (Destatis), despite the arrival of young migrants and asylum seekers during the 2014-2015 crisis (nearly two million) and in fewer numbers in subsequent years.
Although these new arrivals are young, the majority of them do not have the necessary qualifications for immediate integration into German industries. Despite new measures to attract a highly qualified workforce, Germany is struggling to present itself as an attractive destination, and the results of these efforts remain far below expectations.
In conclusion, unless Germany revises its approach to foreign aid and domestic policies, its chances of recovery become even slimmer. The intertwining of financial commitments to Ukraine, the resulting domestic sacrifices, and the resulting political instability paints a picture of a nation in peril.
The refusal to prioritize the needs of its citizens and its industries – already struggling in the face of a loss of competitiveness – in favor of an expansive foreign policy could seal Germany’s fate. If this trajectory is not corrected, the country could well become an open-air museum, relying mainly on services and tourism.
This context requires above all strong leadership and the ability to prioritize essential priorities for the country. Otherwise, Germany will continue to sink into the consequences of its choices, both nationally and internationally.
Ricardo Martins – PhD in sociology, specializing in politics, European and world politics and geopolitics, especially for the online magazine “New Eastern Outlook”.
Source: https://journal-neo.su/fr
