At the centre of the dispute that led to the collapse of the governing coalition was Christian Lindner, the finance minister dismissed by Chancellor Olaf Scholz for refusing to accept a new budget that included further spending on Ukraine.
All this raises fundamental questions about Germany’s future. The fall of the governing coalition was the first victim.
From a European Leader and an Economic Powerhouse to an Uncertain Future
Germany, once heralded as the powerhouse of Europe, is now facing a profound political and economic debacle exacerbated by its involvement in the Ukraine conflict. The International Monetary Fund’s latest forecasts predict that Germany’s economy will stagnate with no growth expected by the end of this year, following a decline of 0.3% last year. Such bleak projections indicate that recovery is not on the horizon.
Indeed, projections for 2025 suggest a mere 0.8% annual growth, a stark contrast to Germany’s historically robust performance. Certainly, the projection for 2025 will be revised downwards due to recent developments, particularly the political crisis and the announcement of substantial disinvestment by Intel and Volkswagen.
The situation took a devastating turn when Volkswagen, the flagship of the German industry and the largest industrial employer with 120,000 direct employees, revealed its plans to close three factories, resulting in approximately 20,000 layoffs and a 10% decrease in salaries costs for all employees and freezing any pay rises over the next two years. This bitter news was the final straw that precipitated the government’s collapse. The spectre of deindustrialisation has long haunted Germany, particularly since the rise of high-tech industrial China and the start of the conflict in Ukraine, but now top political leaders have finally realised that it is a reality.
Whom to Blame?
In a desperate bid to deflect responsibility, Chancellor Olaf Scholz has pointed fingers at the support Germany has provided to Ukraine. He claims that this complex crisis is a direct result of Berlin’s obligation to assist Volodymyr Zelensky. This narrative painfully highlights the troubling entanglement of Germany’s internal struggles with its commitments abroad, leaving many citizens feeling abandoned and disillusioned by a government more focused on international affairs than the welfare of its own people.
This has translated into dismal polling numbers and the sharp decline of seats in state parliaments for the governing coalition parties, such as in Thuringia and Saxony, with federal government approval ratings sitting just below 20%, dropping to a mere 12% in Saxony, for example, according to Dimap/ARD polls.
The political landscape has become increasingly volatile, particularly following Scholz’s decision to dismiss Christian Lindner, the former Finance Minister. Lindner, who had openly warned that Germany could not sustain its own economy while financing a war, became a scapegoat for the government’s failures.
Support for Ukraine: A Rising Sense of Domestic Abandonment
Annalena Baerbock, Germany’s Foreign Minister, has underscored the financial burden of ongoing support for Ukraine, revealing that the €37 billion allocated has necessitated cuts to social spending programs within Germany. The consequences of this financial obligation are staggering; crucial investments in early childhood programs and infrastructure modernization have been sidelined in favour of military assistance.
These decisions not only reflect a prioritisation of foreign commitments over domestic needs but also highlight a disturbing shift in policy that jeopardises social welfare in pursuit of international geopolitical aims.
The very real consequences of this financial strain are becoming apparent in everyday life. German citizens are feeling the pinch, as critical social services are underfunded due to the focus on military aid.
This situation, combined with a growing sense of disappointment in political leadership, has led to widespread public discontent. Citizens are genuinely ashamed of the media’s portrayal of these events and the government’s alignment with foreign interests at the expense of national welfare.
With Chancellor Scholz in a precarious political position, having lost support from former coalition partners, early elections are being planned for February 2025. His leadership is under heavy scrutiny, and the disconnect between governmental policies and the economic realities faced by ordinary Germans is more evident than ever.
The German Challenges are Structural
The German economic might be rooted in a 20th-century model, heavily centred on industrial production and combustion-engine vehicles for export. Brands like Volkswagen, Audi, Mercedes, BMW, and Porsche have built a worldwide reputation. To make matters worse, the EU is engaged in a trade war with China, imposing additional tariffs on Chinese electric vehicles (EVs), which has provoked retaliation from China, the primary importer of German cars.
German car manufacturers have been insufficiently attentive to climate change EU policies, such as the Green Deal, and have failed to keep pace with rapid advancements in EV technologies, leaving them several years behind their Chinese counterparts, where engineering (Germany’s strength) is less important, and software (Germany’s weakness) takes the lead.
Moreover, the military conflict in Ukraine, coupled with the subsequent sanctions against Russia and the destruction of the Nord Stream pipelines probably by Germany’s close ally, the U.S., has rendered German industries uncompetitive. The American liquefied natural gas (LNG) is four to five times more expensive. In an anticipated submissive move towards the newly elected President Trump, suggesting avoidance of American tariffs over European products, the EU Commission President Ursula von der Leyen suggested buying still more American LNG, making the European and German industries even less competitive.
As German companies relocate their production overseas—primarily to the U.S. and China—in search of affordable energy and favourable regulatory environments, the prospect of economic recovery looks increasingly bleak.
The erosion of Germany’s manufacturing base signifies a long-term shift that may not be easily reversible. Additionally, Germany’s workforce is ageing. The average age of the German population is 44,6 years, according to the Federal Statistical Office of Germany (Destatis), despite the influx of young migrants and asylum seekers that arrived in Germany during the 2014-2015 crisis (almost two million) and in fewer numbers in subsequent years.
While the new arrivals may be young, the majority lack the education and skills necessary for immediate integration into German industries. Although new measures have been introduced to attract highly qualified labour, the country struggles to present itself as an attractive destination for this talent. The outcomes of these efforts have been far below expectations.
In conclusion, unless Germany reassesses its approach to both foreign aid and domestic policies, the likelihood of recovery diminishes even further. The intertwining of Germany’s financial commitments to Ukraine, the resulting domestic sacrifices, and the ensuing political instability paint a picture of a nation in peril.
The refusal to prioritise the needs of its citizens and their industries, which are struggling with competitiveness, in favour of an expansive foreign policy may ultimately seal Germany’s fate as it grapples with the consequences of its choices both at home and abroad. This situation demands, above all, strong leadership and the ability to prioritise what is essential for the country; otherwise, Germany will likely become an open-air museum, relying mainly on services and tourism.
Ricardo Martins ‒PhD in Sociology, specializing in policies, European and world politics and geopolitics, especially for the online magazine “New Eastern Outlook”
