Germany’s industrial competitiveness is declining, and its export power is weakened by Chinese competition and American pressure.

The deteriorating geopolitical context is further exacerbating the situation of Germany’s weakening industrial performance. The Zeitenwende, initiated by the “traffic light” coalition government, already signaled an awareness of Germany’s vulnerability in a context where realpolitik prevails and where dependencies can be used for coercion (dependency on energy in relation to Russia, security and defense in relation to the United States, and economic dependency in relation to China).

The arrival of Friedrich Merz’s government signifies the return of the Conservatives to the Chancellorship, but as part of a coalition with the Social Democrats, thus necessitating compromises and trade-offs. Easing Germany’s “debt brake,” establishing a Special Fund for Infrastructure and Climate Neutrality (Sondervermögen für Infrastruktur und Klimaneutralität, SVIK) for the next twelve years, and deploying resources in the military sphere have given the new government leeway to revitalize the country’s economy.

However, difficult trade-offs must be made between priorities in terms of competitiveness, which raise questions about the German economic model; the preservation of social achievements, which are intended to maintain the German post-war model of prosperity; and defense imperatives, which require a significant effort by Germany to catch up militarily in light of the threats facing Europe. Germany’s repositioning is taking place in a context in which it is torn between expectations for domestic policy and those at the European level.

In this context, it must be asked how Germany can reconcile these numerous imperatives and find the appropriate levels of government intervention. While it is necessary to make structural decisions to maintain and strengthen Germany’s industrial base, already severely tested by external shocks, Germany is also increasingly called upon to lead at the European level. Can it succeed on both fronts?
 

Marie Krpata works as a Research Fellow at the Study Committee on Franco-German Relations (Cerfa) at the French Institute of International Relations, Ifri

This publication is also available in French: « Redémarrer l’économie allemande : entre impératifs économiques, sociaux et de défense ».

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