The persistent economic struggles of the EU’s leading economy continue to ripple across the continent, causing widespread concern.

Graham Charles Lear
8 min readJan 13, 2025

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Last week was a week that Rachel Reeves will surely want to forget in her first six months of tenure at №11 Downing Street. The process of putting it out of her mind started on Thursday when she jetted off to China, leaving behind her an economy still being battered by a record storm as borrowing costs soared, the pound and stock markets fell, and UK inflation was announced by the OECD as being the highest in the G7 group of highly-developed economies.

The timing of Reeves’ trip raised eyebrows among critics, who questioned the optics of leaving during such a turbulent period. However, her team defended the visit as a crucial opportunity to strengthen trade ties and discuss global economic challenges with one of the world’s largest economies. Despite the justification, back home, concerns mounted over the government’s ability to stabilize the economy amidst rising living costs and wavering investor confidence.

Meanwhile, opposition parties seized on the moment to highlight what they described as a lack of decisive action from the Chancellor. Analysts warned that without a clear strategy to address the underlying issues — such as stagnant growth and spiralling public debt — the UK risked falling further behind its international peers. For Reeves, the pressure to deliver a robust recovery plan upon her return will be immense, as both markets and voters grow increasingly impatient.

It may offer little solace to Ms. Reeves, but this Monday morning, I can extend a small consolation to the UK Chancellor. She could be in her cherished EU, where just last week, the statistics agency of the bloc’s leading economy delivered one piece of bad news after another. Unlike Germany, which is bound by the constraints of EU membership in addressing its challenges, the Chancellor of an independent, post-Brexit Britain has greater flexibility. Below, I summarize Germany’s string of unfortunate updates.

Germany’s economic woes began with a report of stagnating growth, as Europe’s largest economy narrowly avoided a technical recession. This was followed by dismal manufacturing data, revealing a sector grappling with declining orders and shrinking output. To compound matters, consumer confidence remains subdued, with inflationary pressures eroding purchasing power and dampening spending. Adding to the grim picture, Germany’s energy transition struggles have highlighted vulnerabilities in its energy supply, raising concerns about long-term competitiveness.

In contrast, the UK Chancellor, unshackled from the EU’s regulatory frameworks, has the latitude to implement targeted policies tailored to Britain’s unique economic landscape. While challenges persist, this flexibility offers an opportunity to act decisively, whether through fiscal interventions, regulatory reforms, or strategic investments. For Germany, however, the road to recovery may be more constrained, as it navigates the intricate web of EU policies and collective decision-making.

1. Production in industry

Production in industry (excl. energy and construction) in November 2024 in real terms 3.2%

(This came after a -4.2% year-on-year fall in October.)

2. Exports

Exports of goods in November 2024 3.5% on the same month a year earlier

3. New manufacturing orders

New orders in manufacturing in real terms 1.7% on the same month a year earlier

  • In current terms, foreign orders dropped by 10.8%, with new orders from the euro area decreasing by 3.8% and orders from outside the euro area declining by 14.8%.

4. Inflation

Inflation — Consumer price index, December 2024 +2.6% on the same month a year earlier

(Up by 0.4% in November)

Inflation — Harmonised index of consumer prices, December 2024 +2.8% on the same month a year earlier

(Up by 0.7% in November)

[Source: Destatis (German Federal Statistics Agency.]

The Scholz government collapsed a month ago following his dismissal of the finance minister.

07 November last year Chancellor Scholz summoned his FDP Finance Minister, Christian Lindner, from the smallest party in the coalition and fired him.

This decision sent shockwaves through the political landscape, highlighting the growing fractures within the coalition. The FDP, already uneasy about some of the more progressive policies championed by the Greens and Scholz’s party, viewed Lindner’s dismissal as a direct affront to their influence in the government. Meanwhile, the Greens, who had clashed with the FDP on issues ranging from climate policy to economic reforms, saw the move as an opportunity to push their agenda more aggressively.

As tensions escalated, public confidence in the coalition began to waver. Critics argued that the alliance’s inherent ideological differences made it nearly impossible to govern effectively. Scholz, however, defended his decision, stating that it was necessary to ensure stability and cohesion within the government. He called for renewed dialogue among the coalition partners, emphasizing the importance of compromise in navigating Germany’s pressing challenges, such as energy transition, economic recovery, and geopolitical tensions.

Despite these efforts, the cracks in the coalition continued to deepen, with each party increasingly prioritizing its own voter base over collective goals. The coming months would prove crucial in determining whether the “traffic light coalition” could survive or whether Germany would face the prospect of political upheaval once again.

Scholz had to stay and run a caretaker administration ahead of emergency federal elections next month, so he appointed a new Federal Minister of Finance Dr Jörg Kukies, responsible for all aspects of German fiscal and tax policy and for determining the broad outline of budgetary policy. Scholz emphasized that Dr. Jörg Kukies brings extensive experience to the role, having previously served in senior financial positions both in the public and private sectors. Kukies is expected to focus on stabilizing the economy, addressing inflation concerns, and ensuring fiscal discipline during this transitional period. His appointment comes at a critical time, as Germany faces mounting economic challenges and prepares for a new wave of political leadership following the upcoming elections.

Germany’s economic issues stem from Angela Merkel’s tenure.

Many of Germany’s financial woes have been caused by its government’s catastrophic decision, taken under former German Chancellor Angela Merkel, This abrupt shift left Germany scrambling to diversify its energy sources, driving up costs for businesses and households alike. Compounding the issue, the country’s ambitious transition to renewable energy, while commendable in intent, has faced significant implementation hurdles, including delays in infrastructure development and insufficient energy storage solutions. These factors have contributed to rising energy prices and a growing sense of economic uncertainty. Additionally, Germany’s manufacturing sector, long considered the backbone of its economy, has been grappling with supply chain disruptions and increasing global competition, further straining its economic resilience.

In February 2022, following Putin's expanded invasion of Ukraine, Germany was ultimately compelled by the EU to comply with the embargo on Russian imports. Germany, which had long relied on Russian energy supplies, faced significant economic and political challenges in adapting to the embargo. The move prompted a rapid reassessment of its energy policies, leading to increased investments in renewable energy sources and efforts to diversify its energy imports. This shift marked a turning point in Germany’s approach to energy security and its role within the EU’s collective stance against Russian aggression.

The country has taken years to comply, but it now appears to be doing so, albeit reluctantly. Unlike the UK, Germany lacked port facilities for importing liquefied natural gas (LNG) by tanker and was forced to scramble to construct terminals to avoid the risk of shutting down or rationing power to its extensive manufacturing sector. Compounding the issue was Germany’s controversial decision, made during Merkel’s tenure, to shut down all nuclear reactors. This move delayed the planned closure of coal-fired power plants, contributing to Germany’s persistently high carbon footprint. The situation was further exacerbated by the economic strain of COVID lockdowns, which turned an already challenging scenario into a significantly worse one.

This combination of factors forced Germany to rethink its energy strategy. The construction of LNG terminals became a priority, accelerating efforts to diversify energy sources and reduce reliance on Russian gas. However, the transition has not been smooth. Critics argue that the country’s energy policy lacks coherence, as the simultaneous phase-out of nuclear power and reliance on coal undermines its climate commitments.

Meanwhile, businesses in Germany’s manufacturing sector have expressed concerns over rising energy costs and supply uncertainties, warning of potential impacts on competitiveness. Policymakers face mounting pressure to strike a balance between achieving energy security, meeting climate goals, and maintaining economic stability. As Germany navigates these challenges, its energy policy choices will likely serve as a critical test case for other nations grappling with similar dilemmas in the face of geopolitical and environmental pressures.

In 2015 and 2016, Angela Merkel made a unilateral declaration of “all migrants welcome here,” ostensibly framed as a humanitarian response to conflicts in the Middle East. However, it was widely perceived as an attempt to address a demand for cheap imported labour. The resulting influx of nearly two million migrants from Arabic and African countries, most of whom neither spoke German nor possessed skilled education, has placed a significant strain on the German economy. This challenge has been further compounded by additional arrivals, primarily elderly individuals, women, and children, admitted under the policy of ‘family reunification.’ Recently, a coalition of mayors from German towns informed Chancellor Olaf Scholz that they could no longer sustain the financial and logistical burden of housing, feeding, educating, and caring for more migrants.

Germany’s economic struggles have also raised concerns about its ability to maintain its dominant position within the European Union. Neighbouring countries, while sympathetic to Germany’s challenges, are increasingly wary of the ripple effects on the broader EU economy. As Germany grapples with energy diversification and attempts to revitalize its manufacturing sector, other EU nations are pushing for stronger collective measures to mitigate economic fallout.

Moreover, the global shift toward renewable energy and digitalization presents both a challenge and an opportunity for Germany. While its renewable energy initiatives, such as the Energiewende, have made progress, critics argue that the transition has been inconsistent and too slow to shield the economy from energy shocks. Similarly, the country’s lag in adopting cutting-edge technologies, including artificial intelligence and automation, risks eroding its competitiveness in a rapidly evolving global market.

To address these issues, Germany must prioritize investments in innovation, workforce upskilling, and infrastructure modernization. Policymakers are under increasing pressure to implement reforms that not only address immediate concerns, such as high energy costs and economic stagnation, but also position the nation for long-term resilience and growth. However, achieving this balance will require navigating complex political dynamics, both domestically and within the EU, as well as overcoming entrenched bureaucratic hurdles.

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Graham Charles Lear
Graham Charles Lear

Written by Graham Charles Lear

What is life without a little controversy in it? Quite boring and sterile would be my answer.

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