The People against the Federal Republic
The German far-right is rising and advocating for a race policy—the country's economy is stagnating and house prices are collapsing.
“Germany is a strong country.” — Angela Merkel, August 31, 2015
Last month’s GDP data confirmed that Germany is Europe’s clear economic laggard. Though it faced none of the crises of 2020, 2021, or 2022, the economy declined by 0.3% in real terms. Do some more math and the picture is even worse: GDP per person in employment declined by a full 1%.
Germany is a big chunk of the Eurozone’s economy (over 25%) so underperformance there can offset gains elsewhere and drag the region into stagnation—as it did last quarter. But Germany as the sick man of Europe is nothing novel—the economy has underperformed in the past and, as we explored in last week’s post, it is making policy choices that almost ensure economic weakness. What is new is that the malaise is now transmitting to German society more broadly.
For decades since its founding, the Federal Republic of Germany had been Europe’s best-in-class economy, a country synonymous with international competitiveness, high productivity, social peace, and political stability. Its growth was solid and steady, the Deutschmark an anchor of monetary stability, and the state was at once both careful with its finances and willing to deploy them in ambitious but historic projects, such as the reunification of Germany (1989-91) and the Energy Transition (2010-2050).
By contrast, the past three months are representative of a country in the grips of political, policy, and social chaos. In November (of 2023), the country’s constitutional court (Bundesverfassungsgericht - BVG) declared the 2023 budget unconstitutional, forcing parliament to vote through a supplementary budget with weeks to spare. It had to do the same for the 2024 budget.
In December, the same court ordered 455 electoral districts in Berlin to repeat the 2021 election due to irregularities—this is scheduled to take place next month. In early January farmers blockaded roads around the country protesting cuts to fossil fuel subsidies—in one particularly heated episode, they violently prevented Vice Chancellor Robert Habeck from disembarking from a ferry.
Later that month, the GDL union of train engineers went on their longest strike on record, paralyzing the country’s railways for five days. As anyone who has travelled in Germany will know, the country simply does not function without railways—2.5 billion people ride a train every year, or roughly 6.8 million each day. Even when there is no strike, roughly a third of them will arrive at their destination late.
Better than the alternative
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