How Germany declined under Olaf Scholz — in charts

Olaf Scholz became German chancellor with a pledge to modernise and jolt Europe’s largest economy from its long-lasting paralysis.

But just two months after taking office, Russia’s full-scale invasion of Ukraine in February 2022 ripped the Social Democrat’s plans apart and strained his coalition with the Greens and the Liberals.

The legacy of Scholz’s shortlived government is one of ruptures in security and defence policy and a failure to stop the nation’s economic decline.

Economy

Scholz promised another Wirtschaftswunder — a reference to the post second world war economic boom — through significant investment in Germany’s green transition, but the economy barely grew during his term. After increasing 1.4 per cent in 2022, GDP decreased in the two following years and is stagnating on the pre-pandemic level.

Stretched public finances, made worse by the lack of growth, turned into a bone of contention among the three coalition parties.

Some of the headwinds, including the energy price shock after Russia invaded Ukraine and slower world trade, were out of Berlin’s control.

But ING’s global head of macro Carsten Brzeski argued that the Scholz government made matters worse by creating “policy uncertainty” with its constant quarrelling and miscommunication. International investors took note and increasingly shunned the country.

Germany’s heavily export-dependent manufacturing sector — the backbone of its economy — has been hit hard.

The pressure started with America’s first Trump administration that took office in 2017. German manufacturing then nosedived in the Covid-19 pandemic of 2020-21, when factories shut down and global supply chains were heavily affected — and has struggled to recover since.

After years of relative stability in the labour market, unemployment started to rise again after the start of the Ukraine war.

As demand for workers in healthcare, education and public administration is still increasing and many older workers will retire over the coming years, economists do not expect a return to unemployment levels seen at the start of the century.

With Germany’s largest industrial employer Volkswagen planning to slash 35,000 jobs in the country by 2030 and dismantling domestic production capacity for more than 730,000 vehicles, the crisis of the automotive industry reached a boiling point last year.

German carmakers struggling to offer competitive electric vehicles lost market share in China — their most important export market — and are starting to face new Chinese competitors at home.

A sudden end to subsidies for electric cars, decided by the Scholz government in late 2023 to address budget constraints, dented EV sales when the industry had just converted many of its domestic factories to produce battery cars.

Germany’s long-running housing shortage has been aggravated in recent years by falling construction activity, citizens’ desire for larger flats and houses, and rising pressure from a growing number of migrants settling in the country.

The problem is particularly acute in larger cities, with Scholz failing to deliver on his promise to build 400,000 flats every year.

Despite government attempts to legally limit rent increases in an already tightly regulated market, rents for new contracts have risen sharply in a country where more than 50 per cent of all households rent.

One of the biggest reforms of the Scholz government was a relatively generous overhaul of benefits for the long-term unemployed, who can now claim support with fewer strings attached.

Individuals without work in 2024 were entitled to €563 a month — a 12 per cent increase compared with the year before — plus “adequate” housing costs and up to €471 per child.

While poverty fell, large parts of the public and the conservative opposition argue that the new system created disincentives to work.

Energy

Long dependent on cheap Russian gas for its energy-hungry manufacturing sector, Germany was left racing to find alternatives after Russian President Vladimir Putin cut supplies to most of Europe in 2022.

Green party vice-chancellor and energy minister Robert Habeck quickly pivoted to building terminals for more expensive liquefied natural gas from the US and the Middle East.

The government “did a great job” under great pressure, according to Ottmar Edenhofer, director of the Potsdam Institute for Climate Impact Research.

Habeck had in 2023 pressed ahead with plans to shut down the country’s three remaining nuclear power plants, even though it forced him to reopen polluting coal-powered facilities.

While Germany has avoided the blackouts some had feared, the country continues to struggle with high energy costs not only for consumers but also for industry, hampering its competitiveness.

It has also had a mixed bag when it comes to the green targets of a coalition that put climate protection at the heart of its mission. Renewables now make up more than half of Germany’s electricity generation.

The country’s greenhouse gas emissions reached their lowest level since the 1950s last year, according to the think-tank Agora Energiewende. But this was driven partly by a slump in production by energy-intensive companies because of the troubled economy.

Germany continues to miss its targets for reducing CO₂ emissions from transport and buildings. Habeck’s plans to make homeowners phase out oil and gas heating and replace it with heat pumps turned into a political catastrophe.

One of the government’s successes, according to Edenhofer, has been overseeing a big expansion of solar power and speeding up the approval of wind turbines.

Defence

Scholz said Putin’s war had prompted a Zeitenwende — a watershed moment — in German security and defence policy. He committed to arming Ukraine and announced a €100bn special fund to make the Bundeswehr fit for purpose after years of under-investment.

But despite his bold statement, Scholz soon infuriated allies by dragging his feet on supplying Kyiv with heavy artillery and tanks. The chancellor also refused to send long-range Taurus missiles to Ukraine, citing fears of escalation with Moscow. Still, Germany has become the second-biggest bilateral supplier of military support to the war-torn country.

Christian Mölling, Europe director at the Bertelsmann Foundation, described the German positioning as a “paradox”. “In relative terms we are doing a lot. But we don’t need to be champions — Ukrainians need to be champions. And that’s what we have not achieved,” he said.

When it comes to its own military preparedness, Germany in 2024 reached the Nato target of spending 2 per cent of GDP on defence for the first time since the cold war.

It has embarked on a drive to overhaul the armed forces — a task that remains an uphill struggle, according to one western defence official, who pointed to overbearing bureaucracy and the Bundeswehr’s persistent struggle to recruit professional soldiers.

But the official cited the decision to buy new F-35 fighter jets and to station a permanent brigade on Nato’s eastern flank in Lithuania as examples of Berlin’s commitment. “From where Germany was to where it is now — and where it is going — it is fair to call it a transformation,” the official said.

Infrastructure

Germany’s transport, energy and communications infrastructure suffers from years of under-investment, in part because of the country’s strict public deficit rules.

The debt brake, a constitutional provision introduced under former chancellor Angela Merkel in 2009, prevents regional governments from taking on any new debt and the federal state from borrowing no more than 0.35 per cent of GDP in any given year.

The result is an ageing railway network, crumbling highways and collapsing bridges. Deutsche Bahn, whose trains increasingly run late — if at all — has estimated it needs €45bn to modernise.

The country’s adoption of new technologies has been slow. In a 2023 survey, 82 per cent of companies in Germany said they were still using fax machines. Germany also has one of the lowest penetration rates of fibre broadband in the OECD.

Volker Wissing, the transport minister who left his liberal FDP after it pulled out of the coalition last year, has compiled a list of 4,000 bridges in need of repair. He launched a €27bn decade-long programme to improve the railway network and set out to build 40 high-speed rail “corridors”.

However, the funding of these projects remains uncertain because the government collapsed before the 2025 budget could be passed.

Society

Scholz’s chancellorship has been marred by street protests, encompassing pandemic lockdowns and vaccination sceptics and farmers railing against fuel tax increases.

In February last year, hundreds of thousands marched against the far-right Alternative for Germany (AfD) party over its “remigration” plans, involving the mass deportations of migrants and even German citizens with immigrant roots.

The outcry following a fatal knife attack in the western town of Solingen by a Syrian national whose asylum application had been rejected forced the government to tighten its immigration policy.

Scholz, who had previously resisted such a move after similar attacks, also introduced temporary border controls and vowed to accelerate deportations.

Whoever becomes Germany’s next chancellor will have to tackle the structural vulnerabilities of an economic model heavily reliant on manufacturing and exports to China, according to economists.

Timo Wollmershäuser, head of forecasts at economic think-tank Ifo, said Germany was stuck in its longest period of stagnation since the second world war.

“Compared to other locations around the world, the burden of taxes, bureaucracy and energy costs on companies is high, the renewal of the digital, energy and transport infrastructure is progressing more slowly, and the shortage of skilled workers is more pronounced,” he added.

Additional data visualisation by Alan Smith