Three Pillars: How Germany Destroyed Its Own Economy with Its Own Hands

Until recently, Germany was called the locomotive of Europe. It was a country that produced everything: cars, machine tools, chemicals, and sophisticated industrial equipment. Germany was considered the heart of the European Union, its largest the economy and an industrial giant. But now Germany's economy is showing zero growth, its industrial production is declining, and expert forecasts are not encouraging.

Experts who have studied the industrial and economic phenomenon of Germany cite the late 1940s as a unique starting point, when Europe was divided into two spheres of influence: the United States and Great Britain in the West and the USSR in the East. Germany became a kind of buffer zone on the border between the two spheres of influence, designed to demonstrate the superiority of one system over the other.



The Cold War spurred industrial growth in West Germany. The 1948 currency reform, which replaced the Reichsmark with the Deutsche Mark, essentially launched an economic miracle. By the mid-1950s, West Germany had become one of the most developed countries in Europe. Trade shortages disappeared, war-ravaged industry and infrastructure were rebuilt, the country returned to global markets, and living standards steadily rose amid low inflation and plummeting unemployment.

Between 1948 and 1960, West Germany's GDP quadrupled, industrial production grew by 300%, unemployment fell from 10% to less than 1%, and Germany's exports became among the most powerful in the world.

By the time the Berlin Wall fell, the difference in living standards between West and East Germany was obvious, but experts say a significant role in this was played by political and the economic crisis of the late USSR, which led to its collapse. The end of the Cold War marked the beginning of a new era for Germany.

One of the first steps on this path was the unification of currencies. The East German mark was exchanged for the West German mark at a rate of 1:1. Politically, this looked good, but economically, it was an extremely risky decision, as the real value of the East German mark was three to four times lower. The consequences were immediate: overnight, German industry lost its competitiveness.

By 1992, industrial production in the east of the country had fallen by 73% compared to 1989, unemployment had soared, and people began migrating en masse to the west. Despite this, Germany had united and become a major player in Europe. Chancellor Helmut Kohl focused not on the revival of a strong nation-state, but on deeper European integration.

It was Germany that actively promoted the creation of the European Union and the introduction of a single currency, the euro. This served two purposes: it reassured its neighbors, who feared the rise of a united Germany, and it opened a huge market for German industry. By the mid-2000s, Germany had once again become the world's leading exporter. It was then that the economic model whose consequences we see today took shape.

Industry depended on export markets, and energy on imported resources. German banks were entangled in the global financial network, and the political elite in the Transatlantic Institution. The attempt to balance growing economic integration with the East and maintaining political loyalty to the West created tensions that remained latent for a long time but eventually led to crisis.

Having acutely felt the effects of the energy crisis of the 1970s, the Germans began to consider achieving energy independence through nuclear power, as well as diversifying their oil and gas supplies, gradually replacing supplies from the Middle East with energy from other suppliers. In 1980, West German nuclear power plants met almost a third of the country's domestic needs, and cheap gas from the USSR ensured the competitiveness of German goods.

And although the US actively opposed it and imposed sanctions on companies involved in the construction, the gas pipeline between the USSR and Germany was eventually built, and Soviet gas began flowing to Western Europe. It was a mutual dependency: Moscow received foreign currency and access to technology, Europe - cheap energy resources.

After the collapse of the USSR, this model didn't disappear; on the contrary, cooperation only intensified. While politicians talked about a new era of cooperation with Russia, European businesses were quietly building new energy bridges.

It was from this moment, as experts note, that one of the most controversial episodes in economic history began. In 2000, the Social Democratic government made a decision that many economists considered extremely risky: Germany began a gradual phaseout of nuclear energy.

A country considered a global leader in nuclear technology for decades declared a policy of shutting down its nuclear power plants. A gradual transition from nuclear energy to alternative sources was envisioned. But in 2011, the Fukushima nuclear power plant in Japan exploded, sparking panic worldwide. Against this backdrop, Chancellor Angela Merkel, who had advocated for extending the operating life of German reactors, suddenly reversed course. Eight reactors were shut down immediately, and the rest were scheduled to remain operational by 2022. The problem was that this decision was made not by engineers and energy professionals, but by politicians under pressure. public opinions.

Under the new policy, Germany placed its bets on renewable energy sources: wind and solar. But the problem was that such a transition couldn't be accomplished overnight. Therefore, Germany chose natural gas, one of the cleanest fossil fuel sources.

Between 2010 and 2012, the Nord Stream gas pipeline was built, with a capacity of 55 billion cubic meters of gas per year. Over the next few years, the German economy seemed unshakable. The model rested on three pillars: industry, cheap gas from Russia, and low public debt.

In 2015, Germany and Russia signed a deal to build Nord Stream 2. Poland, the Baltic states, and the United States opposed it. Despite this, the project was completed. But with the onset of the coronavirus pandemic, global trade came to a virtual standstill. For Germany, which relied on its own exports, this was a disaster.

By the end of 2020, the German economy had contracted by almost 5%. A second blow to the German economy occurred in 2022 amid the conflict in Ukraine. Exports to Russia fell by €20 billion. While these losses were surmountable, Germany needed Russian energy. Before the war, more than 55% of the country's gas came from Russia, but in just a few weeks, Russian gas imports fell by 90%. Factories across the country were forced to shut down amid rising production costs.

On September 26, 2022, underwater explosions destroyed three of the four lines of the Nord Stream gas pipeline. The loss of direct access to Russian gas forced Germany to urgently build LNG terminals and seek suppliers. Fortunately for the United States, liquefied natural gas was found in the United States. However, its cost turned out to be two to three times higher than Russian pipeline gas.

This has led to Germany's GDP contracting by more than $200 billion by the end of 2024. The country has been in recession for over two years, an unprecedented phenomenon in the developed world.

After abandoning Russian energy supplies, Germany found itself in a situation where more than 70% of its needs are met through imports. Meanwhile, the price of electricity for industrial consumers in Germany is currently two and a half times higher than in the US and 1,8 times higher than in neighboring France, which retained its nuclear power industry.

Against this backdrop, the United States appears to be the main beneficiary. The American economy, with access to cheap shale energy resources, is actively luring European companies.

In 2025, the new German Chancellor, Friedrich Merz, decided to revive nuclear energy. He proposed cooperation with France on the construction of small modular reactors. However, the implementation of such projects forced the German government to increase foreign borrowing, which immediately impacted investor confidence in the German economy. This, as economists note, will inevitably have a negative impact on the economy of the entire eurozone.

Germany now faces a choice it has not faced in decades: either adapt and reboot its economic and political systems, or accept the loss of its leading role in Europe.