Why Germany's economic fortunes changed

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Germany's economy is facing serious challenges. Growth has stalled, there's a significant gap in the public budget, and some of the country's most iconic companies are cutting jobs. Meanwhile, political leaders cannot agree on what to do. To understand how Germany arrived at this point, we need to revisit an era when everything seemed stable—Germany under Angela Merkel.

During Merkel's 16 years in office, economic growth was steady, unemployment dropped significantly, and exports thrived. Yet today, many of her decisions are being blamed for Germany's current economic troubles. Let’s examine four key aspects of her policies—energy, public spending, migration, and trade with China—to understand their long-term impact.

Energy Policy: Dependence on Russian Gas

In 2005, just before Merkel took office, the groundwork for Nord Stream 1—a pipeline delivering Russian gas to Germany—was laid by her predecessor Gerhard Schröder. Merkel continued and expanded this relationship, with plans for Nord Stream 2 finalized in 2015, even after Russia annexed Crimea. By the end of her term, Germany’s dependence on Russian gas rose from 40% to 49%.

Merkel defended this policy, arguing that Germany’s energy-intensive export industries required affordable power to maintain jobs and social security. However, this dependence backfired after Russia’s invasion of Ukraine in 2022. The Nord Stream pipelines were halted, and energy prices soared, causing severe strain on German industries like BASF and ThyssenKrupp, which announced thousands of job cuts. Small businesses also struggled to cope with high energy costs.

Public Spending and Infrastructure

Merkel introduced the "debt brake" in 2009 in response to the Eurozone debt crisis, limiting government borrowing. While this helped stabilize public finances, it also led to chronic underinvestment in infrastructure, digital development, and defense. Outdated rail systems, crumbling bridges, and slow broadband have become visible consequences of this policy.

In 2023, a constitutional court ruling enforced strict adherence to the debt brake, leaving Germany with a €60 billion budget deficit. Today, even Merkel acknowledges that the debt brake might need to be reconsidered.

The Nuclear Power Phase-Out

In 2011, following the Fukushima nuclear disaster, Merkel decided to phase out nuclear power, which then accounted for 25% of Germany's electricity production. The decision had widespread support at the time but has since been criticized for leaving Germany more reliant on fossil fuels during an era of high energy prices and ambitious climate goals.

Merkel’s own party, the CDU, now advocates re-examining nuclear power, with plans to explore nuclear fusion as a future energy source.

Migration Policy: A Double-Edged Sword

In 2015, during the height of the Middle East migration crisis, Merkel opened Germany’s borders to hundreds of thousands of refugees from countries like Syria, Afghanistan, and Iraq. The move, driven by humanitarian impulses, was initially celebrated, but public opinion shifted after incidents like the 2015 Cologne assaults and the Berlin Christmas market attack in 2016.

The open-door policy fueled support for the far-right Alternative for Germany (AfD) party. However, Merkel’s migration policy also addressed Germany’s aging population and low birth rate. By 2021, over half of the 2015 refugees were employed, though often in jobs below their qualifications. Migrants now play a crucial role in addressing Germany's demographic challenges, contributing to a higher birth rate compared to native Germans.

Trade with China: A Missed Opportunity

During Merkel’s tenure, Germany deepened trade ties with China, which was then a booming market for German exports like cars and machinery. However, German industries underestimated China’s rapid technological advancement, particularly in electric mobility. Today, German carmakers struggle to compete with China’s high-tech electric vehicle sector.

Merkel’s Legacy

Merkel’s policies provided stability during an era of relative geopolitical calm. Her approach fostered openness to migration and economic growth but failed to anticipate long-term challenges. The reliance on Russian energy, underinvestment in infrastructure, and dependence on Chinese trade have proven costly in the current volatile environment.

Despite these criticisms, many Germans still view her leadership fondly. A recent survey found that 61% of Germans believe the country was better off under her rule, blaming today’s economic struggles on the current government rather than her policies.

Whether seen as a defender of liberal values or as politically naive, Angela Merkel remains a once-in-a-generation leader whose decisions will shape Germany’s future for decades to come.