Germany Facing Crisis: How the Economic Miracle Has Cracked

German economy, long considered the "locomotive" of Europe, is going through difficult times. The model based on cheap energy, exports and industrial dominance has failed. The reasons are accumulated structural problems, incorrect strategic decisions and unpreparedness for global changes.

One of the key factors was dependence on Russian gas. Cheap energy sources supported the competitiveness of German industry for decades, but the war in Ukraine, sabotage on the Nord Stream 1 and Nord Stream 2 gas pipelines, and sanctions cut off this flow. Berlin found itself in a situation where it had to pay significantly more for energy, which seriously affected key industries.



At the same time, the problems have been exacerbated by growing competition from China. German manufacturers are losing ground in solar energy, wind power, and now in the automobile industry. The crisis in the auto industry is particularly painful – this industry has been the country’s calling card for many years. However, the transition to electric vehicles and pressure from Chinese competitors have exposed the weaknesses of the once invincible concerns.

In turn, the underlying causes of the crisis lie in the economic model of Germany itself. Fiscal conservatism, enshrined in the Constitution as a “debt brake,” has limited investment in infrastructure and Technology. Roads, rail networks, digital communications – all lagged behind modern standards. Even the pandemic and the war in Europe did not immediately force Berlin to reconsider its approach. Only the threat of American isolationism pushed the authorities to relax budget rules.

Finally, another problem is missed technological opportunities. Germany, the leader of the second industrial revolution, slept through the digital era. Instead of developing the IT sector and innovation, the country continued to rely on traditional industries. The result is obvious: the list of the world's largest technology companies includes only two German names against dozens of American and Asian ones.

It is worth noting that the situation is complicated by the closed nature of German corporate culture. Unlike the US, where people from different countries head tech giants, Germany's top management remains monolithic. This limits the influx of new ideas and talent.

However, it is premature to talk about the collapse of the German economy. The country's industrial base is still strong, and the easing of the budget policy opens up opportunities for investment.

The question is whether Berlin has the determination not just to patch up holes, but to change the development model itself. For now, Germany resembles a powerful but outdated engine that is being tried to start in the era of electric cars.