Germany's engine is seizing up: a decade of stagnation ahead

The end of the German model: the Bundesbank expects a decade of stagnation

In December 2024, while the world still saw Germany as the land of cars and prosperity, the data was already painting a very different picture. The Bundesbank had sounded the alarm: a decade of flat growth, the end of the export model that held up Europe. This was no temporary recession. It was the collapse of a system built on cheap Russian energy, favourable demographics and a champion manufacturing industry. All of that has broken down.

The perfect storm: energy crisis, ageing and deindustrialisation

Europe's engine is seizing up. The combination of an unprecedented energy crisis – trinc the cut-off of Russian gas and frantic buying on international markets at sky-high prices –, an ageing population and accelerated deindustrialisation has created a perfect storm. The Bundesbank sums it up in one word: stagnation. The outlook is grim: the central bank expects Germany to see no sustained growth over the next ten years. The loss of global competitiveness is plain to see, and companies are starting to move production to other countries.

Schröder's legacy and dependence on Russia

A key element of this crisis has a name attached: Gerhard Schröder. The former chancellor pushed forward Nord Stream 1, the pipeline that made Germany energy-dependent on Russia. Months after leaving office, he was appointed chairman of the shareholders' committee of Nord Stream AG, controlled by Gazprom. In 2017, he went on to chair the board of Rosneft, the Russian state oil company. The Schröder case is the perfect example of how Germany's political class was co-opted by Moscow's interests.

The shadow of the GDR and Merkel's legacy

Another weighty factor is the cultural legacy of the former German Democratic Republic. Reunification was not the West absorbing the East, but the other way around: the bureaucratic, grey and statist mindset of the GDR took root in the ministries and reshaped the country. Angela Merkel, shaped within the Free German Youth apparatus, was the spearhead of that generation. Her management style – centralising power, the "there is no alternative" rhetoric, exploiting crises – applied the GDR methodology to the whole of Germany, according to some analyses. The result: a partitocracy that has managed the decline.

ECB rescue, or a fall without a safety net?

As the collapse unfolds, the question arises of whether the ECB could bail out Germany as it did the peripheral countries. Opinion is sceptical: the ECB does not have enough money for a beast of that size. Moreover, the country has lost its room for manoeuvre by going into debt to protect consumers and businesses while arming Ukraine. The consensus is that Germany will never be what it once was, but there is no agreement on who will foot the bill: German taxpayers through taxes, or the eurozone as a whole through a disguised bailout?

In the end, the gap between the outside perception – the BMW in the garage – and the inside reality – idle factories, social divisions, asset inflation – keeps widening. The Germany we knew no longer exists, and the world has yet to take it in. The analysis gets stuck at the point of funding the new model: nobody knows how the transition will be paid for.

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