Cutting the Gordian Knot

Twenty-five years ago, Germany was famously called the “sick man of Europe.” In the ensuing decades, though, it did an about-face, turning itself into an “economic superstar,” a manufacturing and exporting powerhouse that led the continent to new heights.

Today, however, it seems again like a broken nation that can’t get out of its own way.

The country is just a little tired and in need of a “cup of coffee,” German Finance Minister Christian Lindner told CNN earlier this year.

But that old moniker is being trotted out again to describe the country. That’s because last year, the economy was the worst performer of the major economies in the eurozone, and the only G7 economy to shrink, according to the International Monetary Fund. This year, it is set to be the latter group’s slowest-growing economy again.

Meanwhile, Germany’s income per capita shrank 1 percent between 2019 and 2023 – the 34th-worst outcome out of 41 high-income economies. Of the G7 economies, only Canada performed worse. The US rise of 6 percent was in another league.

“Germany is struggling,” the IMF concluded.

Certainly, Germany suffered more than its European counterparts when Western sanctions hit oil and gas exports from Russia – traditionally its main supplier, as well as a major trading partner. Still, citing slow growth forecasts even when energy prices are in decline, the German finance minister recently called for “structural reforms,” Reuters reported.

German officials say the dismal picture is due to multiple crises, including historically elevated levels of inflation, high interest rates and weak domestic and foreign demand for German goods.

Others counter that the problems also stem from a huge surplus of private savings with little public investment at home, the country’s miniscule role in the digital economy and an aging workforce with a persistent shortage of skilled labor, wrote the Financial Times.

“Germany has become sick,” said Peter Bofinger, professor of economics at Würzburg University, adding that the German economy is facing a fundamental challenge to its business model, namely its dependence on exports.

“But it could be cured if it were willing to change its lifestyle and take the medicine needed to regain its health,” he added. “The medicine is public debt deployed as an engine of growth … by increasing public investment to stimulate domestic demand and the emergence and deployment of new technologies.”

That said, leftists at Jacobin magazine took a different angle. They argued that Germany has depended too much on low-wage growth which has alienated working folks.

Meanwhile, big government and excessive red tape loom large in the sluggishness, according to the IMF and also the former head of the European Central Bank, Mario Draghi, added the Associated Press. For example, incorporating a new business can take up to six months, often involving snail mail and faxes. In the US, it takes about an hour.

Regardless of the reasons, the results are that real wages and services in the country have declined, as has its vaunted efficiency – its famously punctual trains are regularly late now, for example. Meanwhile, broadband coverage remains poor and the country’s infrastructure is crumbling. Strikes by rail workers and farmers freeze major cities too often. And legacy German companies such as Deutsche Bank are cutting thousands of jobs – now, Volkswagen is threatening to close entire factories in the country, a shocking move for Europe’s car-manufacturing giant.

Meanwhile, violent crime reached a 15-year high, with some high-profile cases involving migrants, wrote Deutsche Welle, adding to widespread anti-immigrant sentiment.

Such issues are often cited as why the far-right, populist, Alternative for Germany (or AfD) has been making great strides in local and European Parliament elections this year. The problem is, with their wins comes more fractious politics, even paralysis, because many parties refuse to work with them in coalitions. That makes it difficult for officials to get things done, World Politics Review noted.

German officials are moving on some issues, however. Recently, Germany’s Constitutional Court gave the green light to a plan to cut more than 100 lawmakers from parliament, reducing the total from 733 to 630, according to Politico. The idea is that smaller government is better.

Cutting red tape and government isn’t enough, says Bofinger.

Recently, the Guardian wondered if “the ‘sick man of Europe’ label would stick to Germany this time around. After all, “its growth model seems kaput,” it wrote.

Still, it concluded that it’s too soon to write off such a resilient country: “The economy (has) confounded critics before.”