Curated by Kristóf Szombati and Ece Özbey
Germany’s latest parliamentary elections mark more than just a change in government — they signal a potential turning point for the country’s economy, multicultural identity, and political landscape. As the European Union’s largest and most influential member grapples with mounting domestic and global pressures, the decisions made in the coming years will not only define Germany’s trajectory but also reverberate across Europe and beyond.
This mini-series brings together leading scholars working in and on Germany to offer their insights into the key questions arising from this pivotal moment of transition. Through a multi-angled, interdisciplinary discussion, it examines the political, economic, and social forces driving change and shaping the country’s and the broader region’s future.
The series opens with a closer look at Germany’s evolving economic and social model.
You can also explore the previous contributions to this mini-series:
📌 Read our editor Kristóf Szombati’s analysis of the election outcome and the challenges facing the incoming government.
Germany’s socio-economic model – rooted in a highly skilled industrial base, strong exports, and a robust Sozialstaat (welfare state) – has long been seen as a driver of growth as well as a source of trade imbalance within Europe. Over the past years, and especially since Russia’s invasion of Ukraine, however, this model has come under growing strain from deindustrialization, global shifts, and fiscal constraints. Domestically, demographic shifts, labor shortages, and the green transition are challenging the foundations of Germany’s industry-based growth strategy. Internationally, intensifying geopolitical competition, the restructuring of global supply chains, rising energy prices, and new tariffs threaten the export-oriented industries that have long powered German prosperity.
Against this backdrop, we asked our contributors whether the country is poised for a fundamental overhaul following the elections. The specific question we posed to them was:
How likely is it that the new government will pursue a sustained shift away from an industry-based economic strategy and implement significant reforms to the key pillars of the Sozialstaat?
A shared theme across all contributions is skepticism about the likelihood of profound change. Martin Höpner, Mischa Stratenwerth, and Mounir Zahran all emphasize the resilience of Germany’s industry-first logic and the enduring political consensus around protecting manufacturing. While acknowledging serious pressures – ranging from energy shocks to labor market shortages– all three point to strong institutional and political path dependencies that make significant departures from the current model unlikely.
Yet, there are differences in emphasis. Höpner underscores the deep political alignment across parties – including the SPD and even populist fringes – around export orientation, suggesting that foreign observers hoping for a shift in Germany’s role in global trade should temper their expectations. Stratenwerth, while equally doubtful of major industrial or welfare reform, highlights the unresolved battle over the debt brake as a potential obstacle to transformation – though he warns that even if it is overcome, reforms may fall short of addressing structural problems. Zahran, focusing on social policy, argues that Germany’s welfare state is likely to survive, though subject to incremental tightening, and notes the absence of serious political debate on the crisis of German industry.
Taken together, these contributions offer a clear picture: Germany’s elite is doubling down on the country’s socio-economic model instead of seeking to alter its foundations. For now, Germany appears set to defend its industrial core at almost any cost — even if this means avoiding the deeper adjustments its economy may urgently require. Whether this strategy can hold in the face of mounting internal and external pressures remains an open question.
Prof. Dr. Martin Höpner
Germany’s neighbors are following the formation of the government closely. Germany’s reactions to the economic misery in the country will have an impact on all its trading partners. Comparative political economy classifies Germany as the prime example of an export-oriented growth regime. Due to its exorbitant and persistent current account surpluses, Germany is considered the nightmare of the world economy. Now, its growth model is in deep crisis.
How will the elites react? Will they change course and place greater emphasis on increasing domestic demand? Or will they remain within the typical German pattern of reacting to economic shocks and conclude that the competitiveness of the German export sector must be increased —through cost reductions and high industrial subsidies that other countries cannot afford due to greater budgetary restrictions? So that the Germans end up contributing even greater imbalances to the global economy?
The results of the elections suggest that the government will remain in the traditional pattern. The German export orientation is supported by all political parties, with only minor differences at best. One might assume that the SPD particularly stands for an adjustment strategy focused on domestic demand. However, this is not the case, as the Social Democrats historically emerged from the industrial workforce and have maintained this focus to this day. Even more than the Christian Democrats, with whom the SPD will form a coalition, they stand for the protection of the industrial sector —at almost any cost.
The Greens, who will not be part of the next government, do not make much of a difference here either. They started out as a post-industrial party but turned into a party that merely wanted to make the oversized German export sector greener. It is remarkable that even the more radical, sometimes populist fringes of the German party system share the radical export ideology. They are not attacking the political center with accusations of an over-focus on industry; rather, they argue that the established centrist parties have failed because they have not done enough for industry.
Only the economically liberal FDP is a peripheral participant in the German industrial coalition. It stands for cost-cutting and competitiveness, too, no question — but it is critical of subsidies. The FDP is not primarily a party of industry, but one of doctors and lawyers. However, it has clearly failed the 5% clause, will no longer be represented in the Bundestag and will therefore not be part of the next government.
Foreign observers hoping for a correction of Germany’s overly export-orientated strategy should therefore not raise their expectations too high. Cost-cutting strategies and even more state aid will probably not put Germany back on a solid growth path. But that does not mean that the government will not try to do just that. This is not good news for Germany’s neighbors and trading partners.
Martin Höpner is the Research Group Leader on the Political Economy of European Integration at the Max Planck Institute for the Study of Societies in Cologne. Contact: hoepner@mpifg.de.
Mischa Stratenwerth
The second part of this question is easiest to answer: The new government, likely a coalition between the CDU/CSU and the Social Democrats, will continue to view manufacturing as the backbone of the German economy and seek to protect ailing industries. Whether it can halt the industrial recession and prevent manufacturing from shrinking is another matter. The challenges are as severe as they are manifold. High energy prices, geopolitical uncertainties, and the demands of digital and ecological transitions are just a few of the issues that add up to significant structural and cyclical problems.
The election manifestos propose some more and some less promising policies. Many are aimed at supply-side cost reduction (lowering corporate taxes, mitigating electricity price growth) and deregulation (cutting red tape, rolling back climate regulations). A few are aimed at more targeted investment promotion (“Made in Germany” premium). A potential coalition agreement could thus bring some relief to struggling industries and firms. But it is unlikely to sufficiently address Germany’s underinvestment problems and the substantial demand-side difficulties associated with the profound export dependence of German manufacturing. Some contraction in areas such as energy-intensive sectors and the automotive industry seems inevitable. This will hurt Germany’s industrial identity. But, despite the increasing prominence of doomsday prophecies, the overall degree of deindustrialization will probably not be enough to drastically alter manufacturing’s economic and political status.
“Sozialstaat” reforms are to be expected, but it is uncertain how significant they will be. In general, we will not see an agenda to reduce inequality in the next legislative term. The SPD will at best succeed in watering down the CDU/CSU’s inequality-increasing tax reform plans. But its wealth tax proposals, for example, stand little chance. The harshest changes are expected in the field of immigration, where the potential coalition parties outbid each other to be perceived as hardliners. Another key issue is the conservatives’ intention to replace the “citizen’s benefit” (Bürgergeld) with a less generous and more stringent benefit system for the long-term unemployed. This is indicative of a return to the mindset of “Agenda 2010” and implies a U-turn on efforts to correct some of its shortcomings. However, while undoubtedly harmful to those affected, none of this can be seen as heralding a significant shift in the German welfare state approach.
In sum, there is not much sign of an active political remaking of the German model in terms of its industrial focus or its social policy outlook. There is, however, another possible way in which the new government might break with an important element of the model.
It has become a growing consensus that meeting the widely agreed need to increase public investment and defense spending will require either reforming or circumventing the constitutional debt brake that excessively constrains the German budget. This will be a key issue to watch in the next few weeks. The extraordinarily export-led 21st-century version of the German economic growth model has been coming apart at the seams. Doubling down on price competitiveness — the typical German modus operandi — is unlikely to be of great help under the current circumstances. Finally, tackling the immense public investment gap could be crucial for ensuring that economic rebalancing does not occur solely through weakening export performances. The momentum for reform seems stronger than ever, but everything is up in the air with the CDU/CSU leadership still somewhat undecided and the necessary support for a constitutional change from the Left party uncertain. The latest news suggests that the incoming government will instead ask the outgoing parliament to approve large special funds for infrastructure and defense.
Mischa Stratenwerth is aPostdoctoral Researcher at the Max Planck Institute for the Study of Societies; his research focuses on the politics of the German growth regime. Contact: st@mpifg.de.
Mounir Zahran
The breakthrough in the talks between the CDU and SPD on Germany’s “debt brake” may sound impressive at first, but the devil is in the detail: defense could tap unlimited borrowing, while a 10-year €500bn “special fund” for infrastructure remains largely an exception. Any further infrastructure investment would be heavily dependent on the contingency of a fragmented political landscape.
This special fund is no Keynesian stimulus: its main aim is to keep the government afloat by covering already approved projects and current spending. A reform of the debt brake, and therefore a genuine solution, has been postponed to the end of the year. This means that it would have to be adopted in the new parliament. Although there seems to be hope for a tactical alliance with the Greens and the Left, whether this will actually materialize is uncertain. Meanwhile, social costs continue to rise, driven by rising pension obligations and fewer contributors.
Merz is likely to have won some concessions from the Social Democrats, particularly on social policy. However, it is unclear how far these will go. Any major welfare cuts are likely to face resistance from several political quarters: the Bundesrat, a fragmented party landscape, a Federal Constitutional Court keen on defending substantial rights, as well as powerful unions and assertive corporate leaders. The most likely outcome is a degree of “de-liberalization” of unemployment benefits: tighter work acceptance rules and reduced entitlements. Rather than shrinking the low-wage sector to make work more attractive, the government is likely to cut benefits and increase pressure on recipients.
But what if a severe recession hits? Would the government be able to take drastic steps, and would the welfare state truly be at risk?
Deindustrialization is already happening. Normally, Volkswagen’s plan to cut 35,000 jobs over six years would send shockwaves through the political landscape. But in this anything-but-normal election season, homeland security and immigration have dominated the headlines, pushing aside deeper tremors: looming energy costs, eroding Chinese demand, and fading US-backed security. Meanwhile, Thyssenkrupp plans to cut 11,000 jobs – almost half its workforce. Supposedly crisis-proof chemical giants such as BASF are closing sites, and scores of car suppliers are facing massive layoffs. Germany is on the verge of losing hundreds of thousands of well-paid industrial jobs, with no white-collar sector waiting in the wings.
Although Germany has repeatedly tinkered with or trimmed its system, continuity has tended to prevail. From its Bismarckian roots to the present day, reforms have mainly been incremental – tweaking benefit formulas or adding private pension pillars – while preserving the core contributory structures. Even the Hartz reforms of the 2000s, a package of neoliberal labor market reforms which restricted the scope of unemployment assistance, adjusted labor policy within the existing framework, leaving the social insurance principle intact. This preference for change within institutions is partly due to the broad acceptance of social protection, which is interpreted differently by political camps but applied similarly: the center-right foregrounds family support, and the center-left support for low-income earners.
Each wave of neoliberal austerity has collided with the seemingly unshakable historical path dependency of German social policy. Neither the neoliberal ambitions of Helmut Kohl nor the Hartz legislation fundamentally altered its DNA. Each of these attempts and aspirations is confronted with a series of powerful veto players, entrenched in public expectations, that make it impossible for even the boldest neoliberal politician to imagine an alternative outside the status quo. The same goes for any “radical” social democrat. In essence, the foundations of the German welfare state have always remained intact, and they are likely to endure despite the headwinds.
Mounir Zahran is a doctoral candidate in democracy and constitutional theory at Freie Universität Berlin and Humboldt Universität zu Berlin. Contact: m.zahran@fu-berlin.de.
