In 1979, Jimmy Carter gave his “Crisis of Confidence” speech, which went on to be known as the “malaise” speech, despite his never using the word. In the speech, Carter outlined challenges facing the country, namely inflation, high energy prices, and a general feeling of paralysis across the government. While he tried to use the speech to chart an optimistic course out of the crisis mood, the speech came to be remembered as symbolizing Carter’s ineffectual presidency. Germany has been in a similar funk in recent years, beset by problems familiar to Americans in the late 70s: low growth, high inflation, runaway energy prices, and a paralyzed political class. How did the economic engine of Europe, the third-largest economy in the world, get to this point and where can it go from here?
How did we get here?
It wasn’t that long ago that books and articles across the English-speaking world were enviously extolling Germany’s economic and political virtue with titles like Why the Germans Do It Better. In debates with my conservative friends circa 2016, I would point out that Germany’s social market economy had achieved many of their favorite policy priorities: a balanced budget, an export surplus, and a world-class manufacturing sector with strong vocational education. That envy has since faded. Now Germany’s energy transition is the favorite punching bag of Republican politicians as an example of green policies gone awry.
The perception of Germany as a bastion of political stability from the Euro crisis years has eroded as well. While many place the public infighting in the previous ‘Traffic Light Coalition’ government as the start of the stumbling of German leadership in Europe, Germany’s frequent abstentions in the European Council (to the point where the practice became called “the German vote”) began in the final Grand Coalition government under Angela Merkel 2017-2021.
The current government has struggled to advance its reform agenda. Last summer, Chancellor Friedrich Merz declared an “Autumn of Reforms” that still has yet to materialize. Once the coalition announced its reform package, the German public found little to celebrate. Many of the proposed reforms the government has put forward center around Merz and the CDU’s main rhetorical focus in combatting the economic crisis - that Germans need to work more. One of the most widely panned measures would require workers to go in person to the doctor for a sick note for their employer. It’s little wonder that the Chancellor has the lowest approval ratings in the Federal Republic’s history.
Meanwhile, the German economic brand remains strong in the US, to the point where many Americans are still shocked when they hear Germany has had almost no economic growth since 2019. Those warm feelings are cold comfort to German companies struggling with repeated supply chain shocks. Since 2020 they have faced the pandemic, oil and gas cutoffs following Russia’s invasion of Ukraine in 2022, wild swings in US tariffs in 2025, and now more energy market disruptions from the closure of the Strait of Hormuz. While the most recent export numbers look promising and economic growth projections for 2026 have ticked up despite all the headwinds, Germany’s economic model faces an uncertain future. Stiff competition from Chinese companies offering lower cost and still high quality products threatens Germany’s manufacturing backbone. Plus, the country’s aging population means month over month reductions in the total labor force. So despite maintaining near full employment, Germany’s growth and production numbers are slackening.
On top of all that, there are three state-level elections in Eastern Germany this fall in which the far-right Alternative für Deutschland (AfD) is projected to emerge as either the first or second largest party. In Saxony-Anhalt, the AfD has a chance to win an absolute majority and govern alone without seeking a coalition partner. Germany’s intelligence agencies are preparing to reduce information sharing with an AfD-led state government for fear that the Kremlin-friendly party would pass secrets to Moscow. Efforts to contain the AfD through the broad “firewall” policy of non-cooperation from all other parties have proven ineffectual with the AfD’s vote share rising from election to election. Saxony-Anhalt may be just the first break in the dam, with the AfD sooner or later becoming a governing party in other states as a junior or senior partner in a coalition or offering conditional support to a minority government.
So yeah, the vibes are bad. Even Germany’s once vaunted train network in a punctuality-obsessed society has little better than a coin flip’s chance of getting you from city to city on time. And the German media are full of reporting on the country’s malaise in even more detail than my paragraphs above.
There’s an old joke about the differences between the Prussian and Austrian mentalities. It goes “In Berlin, the situation is serious but not hopeless. In Vienna, the situation is hopeless but not serious.” Without commenting on the situation in Vienna these days, in Berlin there is more than enough hopelessness and not enough seriousness.
In both politics and business, there seems to be too little recognition of just how late the hour is. The AfD is built on a foundation of nativism and bigotry fueled by misinformation, but it also feeds off frustration in the ineffectiveness of German public institutions. The very name of the party evokes the feeling from many Germans that no matter how they voted, they would end up with the same policies - hence the need for a true ‘alternative’. Yet when faced with economic crisis and a public clamoring for reform, the coalition parties can’t make substantive concessions to each other and are forced into least common denominator dealmaking that won’t actually solve the most pressing problems.
In confronting the AfD in the East, the CDU has ruled out joining a coalition or strategic cooperation with the Left (Die Linke) which is descended from the Socialist Unity Party (SED) of East Germany as a matter of official policy. With the AfD taking up 30-40 percent of the vote share, a majority coalition without the CDU and Left is in many cases mathematically impossible. Such catch-all coalitions of all the democratic parties are not a long-term solution. The ideological gulfs between them are too vast for effective governance. I can absolutely understand why the parties and their leaders would not want to work together. But if the parties, including the CDU, actually do take the threat the AfD poses to the German democratic constitutional order as seriously as they say they do, they should be open to uncomfortable arrangements as a stop gap and enable reforms at the federal level to take the wind out of the extremists’ sails long term (easier said than done, I know).
The German business community has also been slow to recognize and react to the realities of the moment, especially in geopolitics. Representing the German business community in Washington over the last five years, I saw up close how many leading businesspeople and associations supported Nord Stream 2 and close economic ties up with Russia up until the full-scale invasion in February 2022. Similarly, many companies have been slow to react to China’s unfair economic practices. Most prominently, the German auto industry advocated against EU countervailing tariffs on Chinese EVs out of fear of Chinese retaliation. Their opposition led the German government to vote against the measure, though they were out-voted by other EU member states.
Seriousness and urgency are missing at the organizational level as well. While some companies are fighting for their lives, others seem to have missed the starting pistol. Anecdotally, I heard from a colleague at a German business association that when the leadership proposed tying part of employees’ compensation to a performance-based incentive, 80% of them voted against it. The people representing the German business community showed themselves to be skeptical of hustle-oriented incentives that jibe with the ‘roll up your sleeves’ approach the coalition is pushing.
One comparative bright spot has been the geopolitical awakening following Russia’s 2022 aggression against Ukraine, the so-called Zeitenwende or “turning of the times”. The Zeitenwende has become a cross-party consensus among the CDU/CSU, SPD, Greens, and the FDP (currently not in the Bundestag). It has led to major expansions in German defense spending, the creation of Germany’s first National Security Council, and a major revamp of Germany’s strategic culture. The coalition is also working to grant Germany’s intelligence agencies increased authorities to share information with the police and conduct covert actions abroad in the face of Russia’s hybrid warfare campaign.
Of course there are areas for improvement, or Baustellen as the Germans would say. Procurement processes have to become faster and more flexible. And the National Security Council has been persistently under resourced and its relationship with the Defense Ministry and Foreign Office remains unclear. That said, the direction of travel is clear and the German policy elite seems to broadly grasp the seriousness of the moment even if the institutions aren’t acting with the urgency experts demand. The biggest Baustelle actually lies with convincing the broader public of the necessity of measures like rebuilding conscription infrastructure. There German civil society’s military skeptical instincts run contrary to the personnel demands of an expanded Bundeswehr.
What comes next?
In the early days of the second Trump Administration, several European friends asked me what I thought about the direction the United States was on. I answered that I was ‘darkly optimistic’ in that I thought the Administration would cause considerable damage, but that it would ultimately be unsuccessful in establishing a new political realignment or some flavor of authoritarian regime a la Erdogan or Orban. While I was still shocked like everyone else by the ‘muzzle velocity’ of the first months of Trump II, I think I was broadly correct given the steep and persistent decline of the president’s approval ratings and the fracturing of the MAGA base.
I’m similarly darkly optimistic for Germany. I think things will get worse politically and economically before they get better. The only silver lining of the prospect of the AfD gaining power in Saxony-Anhalt is that they won’t be able to hide behind being a marginalized opposition party anymore. They will have a governing record to defend. Based on the party’s rhetoric and official program, much like MAGA, they will not take any actions to actually improve people’s material conditions. Many of their priorities like placing the children of asylum seekers in separate schools or gutting the local public media, they will face immediate constraints from the Constitutional Court.
That doesn’t mean there’s nothing to fear from a state-level AfD government. They will still find ways to make the lives of asylum seekers and ethnic minorities miserable either through policy or through inciting and giving cover attacks from extremist groups. In dealing with the far-right in power, it often seems to be a question of how quickly can they cement their authority (officially and unofficially) before popular discontent with their governance reaches a breaking point. I believe the German constitutional order and civil society are well positioned to buy time while broader resistance to the AfD’s misgovernment builds.
On the economic front, I think some of the current lack of seriousness is that the average person hasn’t felt the precarity of Germany’s position yet. As more major employers announce job cuts and plant closures, the threat of deindustrialization will become concrete for more workers and voters. While many business leaders have been sounding the alarm for years, their concerns have been dismissed as crying wolf by some on the political side, including (reportedly) former Chancellor Olaf Scholz. A growing constituency of displaced workers will become impossible to ignore.
The German political system has also shown itself responsive and capable of reform when the right conditions align. Germany underwent constitutional reforms to limit the powers of the upper house, the Bundesrat and the federal states to reduce institutional gridlock hindering reforms. Most recently, Germany removed the debt brake for defense and infrastructure spending, which was also anchored in the constitution, last spring. By comparison, the most recent amendment to the US Constitution was ratified in 1992 and all it did was ban pay raises for members of Congress from taking effect until the next election for the House of Representatives has taken place. German institutions allow policymakers to take big swings when they have the will to do so, including in ways that would be impossible in the current political environment in the US.
What is to be done?
I won’t pretend to have ideal and politically feasible policy solutions for Germany’s pensions, reducing bureaucracy, the ideal level of immigration, etc. Dipping my toes into being part of the commentariat, I will flex my ability to wax poetic about anything and everything and say in this case the problem is cultural. I’m generally skeptical about cultural explanations for issues because by diffusing responsibility to everybody, it effectively becomes no one’s problem to solve. That said, I don’t see a way out of Germany’s current crisis of confidence without the aggregate of millions of individual decisions to actively break the status quo.
At all levels, decisionmakers and everyday workers should focus on results and operational realities. Too often in German organizations, if you outline a problem and a proposed fix, you’ll receive an overview of the procedural blockers or historical reasons why the policy/situation is the it is instead of an appraisal of the problem and proposed solution themselves. At the risk of overgeneralizing, Germans on an individual level will often explain some bureaucratic absurdity by blaming path dependency and years of accumulated decisions and then just sigh and shrug their shoulders when asked how to fix it. After all, that’s usually for someone else higher up in the hierarchy to decide. In Germany, there’s a consensus based decision-making culture across public and private institutions from government ministries to companies and unions to civic associations and book clubs. Any proposal must be thoroughly discussed and is only agreed to if all affected parties are okay with it. That’s great for setting up stable and inclusive institutions, but if, like right now, the status quo is itself the problem, it’s maddening to try to change.
At the risk of overgeneralizing, I think at some level many Germans believe that a fixation on procedure is necessary for maintaining the high standards behind their country’s high-value manufacturing base. Even when presented with examples of absurdly long permitting processes, they may concede the specific point but will hold fast to the principle that rigorous rule following is a virtue onto itself, even if the rules are flawed. The competition high tech Chinese companies able to produce quality products quickly and cheaply appears to belie that idea, and we’ll see how long the principle survives in the geopolitical and economic pressure cooker Germany is currently in.
Dan Wang in his book Breakneck contrasts the “lawyerly societies” in the West with China’s “engineering state”. According to Wang, the US and European countries have become overfocused on rules and procedure while China focuses on technical problems and rapid implementation. This has led to outcomes like China being able to build thousands of miles of modern infrastructure like high speed rail while similar projects in California or the airport in Berlin languish under red tape and cost overruns. The engineering state is far from perfect, though. The lack of checks and balances leads to extreme policy swings like China’s total covid lockdown and rapid reopening or the massive real estate bubble from over-construction. If we take the lawyer/engineering state divide as a spectrum rather than a dichotomy, I think it’s easy to see Germany (and the United States for that matter) has room to move a few ticks in the engineering direction with a focus on speed and outcomes. I also think being “engineering society” geared towards efficiently solving problems is a goal many Germans would gladly strive towards.
A concrete example of implementing an ‘engineering’ or results oriented mentality would be in the current debate over the response to the recent drone attacks in Eastern Germany, which are almost certainly part of Russia’s hybrid warfare campaign across Europe. So far, much of the debate has focused on jurisdictional issues over which authorities should have the responsibility to combat suspicious/hostile drones near critical infrastructure like airports. Never mind that there presently aren’t enough personnel or necessary equipment in place to detect and defeat nefarious drones in German airspace. Russia doesn’t care about jurisdictional delineations in the countries it’s attacking. It cares whether or not there are forces in place capable of countering its actions. Accordingly, the debate in Germany should focus on quickly getting teams of people with appropriate equipment in place to secure airports, power plants, etc. from drone attacks and then work out organizational reporting lines from there.
A mentality shift alone won’t solve Germany’s problems, but I believe it’s a necessary step. It’s also one individuals across society can make without having to wait for permission or action from their managers or representatives. Germany and Europe are facing a polycrisis and speed matters. It matters whether factories for munitions or batteries are online now vs. two years from now. It matters whether trains are reliably bringing people and goods across the country on time. And it matters for a society’s self-perception whether its government is responsive to its needs. As we can see from the current mayoral administration in New York, people believe more in a democratic system when they can see a government deliver on promises quickly. Responsiveness breeds trust, and trust is necessary for people’s willingness to make sacrifices for the common good. Like Jimmy Carter said:
I do not promise you that this struggle for freedom will be easy. I do not promise a quick way out of our nation’s problems, when the truth is that the only way out is an all-out effort… We can manage the short-term shortages more effectively and we will, but there are no short-term solutions to our long-range problems. There is simply no way to avoid sacrifice.
I hope the spirit behind his words can help Germany and the rest of us find more success confronting our challenges today than it did in 1979.