Economic Stagnation Fuels Political Instability in Germany

The recent collapse of Chancellor Olaf Scholz's government highlights the fragility of Germany's political situation, which mirrors the stagnation of its economy compared to the robust growth seen in the U.S. and elsewhere following the pandemic.

Germany's political landscape is facing significant turmoil following the dissolution of Chancellor Olaf Scholz's government, attributed mainly to economic stagnation. While the American economy surged by 12 percent over the past five years, Germany's economic performance has remained stagnant, lacking any meaningful growth during the same period.

This stagnation is particularly concerning for a nation recognized as one of Europe’s economic powerhouses, now struggling to maintain its competitive position. Political discontent is rising as disagreement over the reasons for this economic malaise hampers constructive action. Germany's economy, the third-largest globally, struggled through the pandemic, witnessing shrinkage, a brief rebound, and then retreating into stagnation for two years, almost sliding into recession.

In contrast to the discontent experienced in the United States—which empowered Donald J. Trump amidst concerns over pandemic-induced inflation—German citizens are equally frustrated but face a more difficult reality. They have endured the consequences of a non-growing economy, leading to rising populism and empowering extremist political factions on both ends of the spectrum.

While U.S. voters were disillusioned by the rising costs of living under President Biden, German voters are grappling with a lack of growth altogether, wanting a semblance of progress. With the political class unable to provide coherent solutions or agree on causes, the future of Germany's economy—and its political stability—remains uncertain.