What is needed is not the 47th master plan or the next emergency program, but a common basic economic policy model

Energy, bureaucracy, demographics: How Germany is holding itself back

Enough with party egoism: What the German economy urgently needs now

Germany's economy is mired in an unprecedented structural crisis – but we don't lack solutions, rather the ability to reach consensus. Real GDP is shrinking, energy-intensive industries are relocating, and rampant bureaucracy is stifling all innovation. But the real problem facing our economy isn't a lack of good ideas. On the contrary: political desks are groaning under the weight of master plans, expert reports, and emergency programs. The paradoxical result of this overabundance, however, is profound economic policy paralysis. Instead of pulling together, the political camps are neutralizing each other in endless ideological trench warfare. Supply-side economists argue with Keynesians, climate targets clash with cost accounting. What Germany needs now more urgently than ever is not the 47th reform proposal, but political maturity. This in-depth analysis sheds light on the structural deficits – from the energy crisis to the investment backlog and the demographic trap – and shows why we need a common, cross-party economic policy model as a foundation for the future in order to stop deindustrialization.

The economy in a stranglehold – a detailed analysis of the German economic crisis

Germany's self-inflicted stagnation: Why numerous existing solutions remain worthless without a common basis

Germany doesn't have a problem with understanding the issues. It has a problem with implementation. For years, reports, expert opinions, party platforms, position papers, and master plans have been piling up on the desks of economic policymakers – from business associations, research institutes, NGOs, trade unions, and government commissions. The German Council of Economic Experts offers its diagnoses, the Federation of German Industries (BDI) makes demands, the German Institute for Economic Research (DIW) presents its calculations, the Macroeconomic Policy Institute (IMK) disagrees, and the Friedrich Ebert Foundation and the Konrad Adenauer Foundation each publish their own reform agendas annually. Paradoxically, the result of this multitude of proposed solutions is not progress in reform, but rather increasing economic policy paralysis.

The cause of this paradox lies not in a lack of ideas, but in the way these ideas are fed into the political debate. Every concept comes with the implicit or explicit claim to refute the others. Growth-oriented approaches emphasize what distribution-oriented concepts overlook. Ambitious climate policies calculate what cost-oriented, restrictive approaches ignore. Supply-side economists dismantle Keynesian investment logics, and Keynesians respond by criticizing the failure of market orthodoxy. In this climate of economic policy competition for the supposedly only correct solution, no common ground is created—only noise.

What Germany needs now is not the 47th master plan, nor the next emergency program. What it needs is the political maturity to pause and listen. Specifically, this means not reflexively dismissing the solutions proposed by other political camps, but rather objectively examining their substance. It means acknowledging that the CDU/CSU, the SPD, the Greens, the FDP, and other parties each offer real diagnoses of problems that reflect different aspects of economic reality. And it means identifying the common ground among these different diagnoses and approaches—not to resolve all differences, but to develop a shared basic economic policy model that can serve as a framework for orientation.

Such a basic model is neither an ideological compromise nor a one-size-fits-all solution. It is a binding agreement on which goals take precedence, what role the state and the market should each play, how future investments are mobilized, and how distributional conflicts are resolved fairly. On this basis, measures can be evaluated, coalition negotiations conducted, and reforms implemented—not in a vacuum of competing particular solutions, but on a common foundation. Germany has taken this step several times in its history when the pressure to act was great enough. Today, the pressure to act is greater than it has been in decades.

Three years of shrinkage: The extent of the economic misery

Germany is experiencing a recession of historic proportions. Real gross domestic product (GDP) fell by 0.3 percent in 2023 and by a further 0.2 percent in 2024. This means that Europe's largest economy has recorded two consecutive years of decline – a phenomenon last seen in the early 2000s. Furthermore, the Federal Statistical Office had to revise its figures downwards in a comprehensive revision: GDP fell by 0.9 percent in 2023, not 0.3 percent, and by 0.5 percent in 2024, not 0.2 percent. The recession is therefore significantly deeper than initially assumed.

At the end of 2024, GDP was only 0.3 percent above the pre-crisis level of 2019. For five years, the German economy has effectively stagnated. Gross value added in the manufacturing sector – the traditional backbone of the German economy – plummeted by 3.0 percent, while the construction sector fell by 3.8 percent. Gross fixed capital formation declined overall by 2.8 percent, with machinery and vehicles dropping by a staggering 5.5 percent. Forecasts for 2025 range from minimal growth of 0.2 percent (ifo Institute) to a further decline of 0.1 percent (RWI). Should the latter materialize, it would mark the third consecutive year of contraction – an unprecedented event in the history of the Federal Republic.

These figures are not merely cyclical fluctuations. They are the result of deep-rooted structural deficits that have accumulated over decades and are now erupting simultaneously. The central thesis of this analysis is: Germany does not have too few proposed solutions – it lacks a consensus on how these proposals can be combined into a viable common foundation.

Energy costs as the Achilles heel of industry

No other single factor is driving industrial relocation as strongly as structurally inflated energy prices. The industrial electricity price in Germany is around 25 cents per kilowatt-hour, while companies in the USA calculate with about 15 cents and in China or India with approximately 10 cents. For households, Germany was even the most expensive location in the entire EU, at €39.50 per 100 kWh. A study by the think tank Bruegel quantified the difference in industrial electricity tariffs between the EU and the USA for the year 2023 at a staggering 158 percent.

The situation is also dire for industrial gas. In 2022 and 2023, European industrial customers paid five to six times more for gas than their US competitors. Despite the normalization following Russia's war against Ukraine, Germany remains in the upper price range for gas, at almost 8 cents per kilowatt-hour. A reversal of this trend is not in sight: Bertram Brossardt, CEO of the Bavarian Business Association (vbw), stated unequivocally that competitive energy prices are a fundamental prerequisite for a strong industry, and no structural improvement is currently apparent.

The consequences are dramatically measurable. According to the Simon-Kucher Location Perspectives Study 2025, 73 percent of energy-intensive companies in Germany are relocating their investments abroad. Of these, 42 percent are moving to other European countries and 31 percent even to other continents. Among producers of basic chemicals, 86 percent are relocating their production, 36 percent of them intercontinentally. Corporations like ArcelorMittal have canceled their planned climate-neutral production facilities in Bremen and Eisenhüttenstadt and are instead looking to France. Miele, Bosch, Continental, Viessmann, Stihl, and ZF Friedrichshafen are converting production facilities, either entirely or partially, to Eastern Europe. German investments in Eastern and Central Europe rose by 22 percent in 2024, creating 29,000 new jobs there – not in Germany.

The tragic aspect is that this exodus is not a sudden phenomenon, but a long-term structural trend. Economists warn that with increasing automation and digitalization, energy as a production factor is gaining importance compared to labor. Countries with low energy prices are thus becoming systematically more attractive. The lack of a long-term energy price outlook is a fundamental competitive disadvantage that is further entrenched with every investment decision made by international corporations.

The investment backlog: decades of neglected maintenance of the building stock

The German government's weak investment is a structural phenomenon that extends far beyond current economic concerns. Between 2000 and 2020, public investment in Germany averaged 2.1 percent of GDP – the European average was 3.7 percent. In 2023, only Portugal and Ireland invested less in public infrastructure than Germany across the entire EU. The share of public investment in GDP nearly halved between 1970 and the financial crisis. The US spends 3.3 percent of its GDP on infrastructure, France 3.7 percent, and China even 5 percent.

The German Institute for Economic Research (DIW) estimates the total investment backlog at German municipalities alone at €136 billion. Bardt and colleagues estimated the additional investment required by 2030 at around €450 billion, or €45 billion per year. The result of this decades-long underinvestment is visible: collapsing bridges, dilapidated schools, sluggish bureaucracy, a lack of digitalization, and a rail network that is more reminiscent of bygone decades than a future technology. The DIW aptly puts it: Germany has been living off its capital for the past decades.

In 2025, the new German government established a special fund for infrastructure and created exceptions to the debt brake for defense spending. However, the Institute for Macroeconomics and Business Cycle Research (IMK) of the Hans Böckler Foundation criticizes the fact that the leeway for defense spending is significantly greater than for growth-promoting investments. Moreover, the capacity to implement investments is just as serious a problem as the lack of funds itself: many municipalities are simply unable to efficiently launch projects due to a lack of planning resources and personnel. Money alone will not solve the investment backlog.

Bureaucracy as a silent growth killer

When 85 percent of German companies consider the bureaucratic onslaught a serious obstacle to productivity, this isn't a complaint, but an economic policy diagnosis. The ifo Institute, commissioned by the Munich Chamber of Industry and Commerce (IHK), calculated that excessive bureaucracy costs Germany up to €146 billion in lost economic output annually. Between 2015 and 2022, this loss amounted to an almost unimaginable sum. A boost in digitalization within public administration could increase real GDP per capita by 2.7 percent – ​​even with unchanged levels of bureaucracy.

The National Regulatory Control Council noted in its 2023 annual report that the ongoing compliance burden for companies has reached an unprecedented level. The GDPR and national regulations have created over 300,000 additional administrative positions in Germany alone – with limited economic benefits. While other countries are achieving new leaps in efficiency with artificial intelligence, Germany is still struggling with the practical implementation of digital standards. The land of downloadable forms in the age of AI – this description hits the nail on the head.

The consequences are not merely economic. In Germany, permitting processes often take years, while in other industrialized countries they take months. Companies cite lengthy permitting procedures and regulatory uncertainties as the biggest obstacle to implementing investments in climate-neutral energy production. This is structurally self-destructive: A country that truly wanted to accelerate the green transition would have to radically streamline its permitting and regulatory machinery. Instead, policymakers are piling regulation upon regulation. This dissatisfaction with bureaucracy has steadily increased in recent years, despite all the political promises to reduce red tape.

Demographics and skills shortage: The underestimated time bomb

Germany is facing a demographic turning point, the full impact of which will only unfold in the next two decades. The birth rate is around 1.4 children per woman, far below the replacement level of 2.1. By 2025, approximately 23 percent of Germans will already be over 65 years old – by 2040 this figure will rise to over 28 percent. The baby boomer generation is retiring, and no comparable cohort is entering the workforce.

The economic consequences are already being felt. According to the OWF Transformation Barometer 2025, more than half of East German companies cite the shortage of skilled workers as their biggest challenge. In East Germany, the proportion of people of working age is only 57.5 percent, and in some districts like Dessau-Roßlau, it is as low as 53.4 percent. Companies are having to turn down orders, innovations are being delayed, and investments are being postponed. Current analyses predict that by 2040, there will be around 900,000 fewer jobs available.

The shortage of skilled workers not only weakens current production capacity, it also slows down the urgently needed transformation: Without sufficient skilled labor, neither digitalization can progress nor the transition to climate neutrality can succeed. The German Economic Institute points out that the skills gap is hindering economic growth and reducing companies' willingness to invest. Demographic change is not an abstract future problem – it is an ongoing economic drag on progress.

The reform paradox: Many proposals, no common framework

Herein lies the crux of the problem, which deserves particular attention in this analysis: Germany does not suffer from a lack of reform proposals. On the contrary – NGOs, political parties, business associations, and research institutes are outdoing each other with master plans, position papers, and economic agendas. The paradox is that this abundance of individual solutions without a common framework actually exacerbates political paralysis.

For the 2025 federal election, all major parties presented comprehensive economic policy programs. The SPD advocated for lower electricity prices through a cap on grid fees at 3 cents, a 10 percent tax investment premium – the so-called "Made in Germany Bonus" with a volume of up to 18 billion euros annually – and government stakes in companies to safeguard jobs. The CDU and CSU focused on tax relief, deregulation, and strengthening entrepreneurial freedom. The FDP called for a consistent supply-side economics approach with tax reform and deregulation. The Greens combined climate protection with investment initiatives and supported a reform of the debt brake. The Left Party and the German Solar Association (BSW) advocated for greater redistribution and government intervention.

The result of this pluralistic landscape is not a fruitful debate, but a political deadlock. An analysis by the Friedrich Ebert Foundation on the 2025 federal election shows that the blocs are almost irreconcilably opposed on tax policy, investment policy, climate measures, and basic income. The CDU and FDP want to lower taxes, even for top earners, while the SPD, Greens, and Left Party want to raise them. The CDU and FDP categorically reject new debt, while the SPD and Greens consider it unavoidable. This binary logic leads to coalition negotiations becoming a petty bazaar of compromises, in which each party treats its core demands as non-negotiable.

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The ideologization of the economic debate and its costs

What's missing is the ability to adopt a political perspective: listening, understanding, and appreciating the arguments of other political camps before passing judgment. The Frankfurter Allgemeine Zeitung (FAZ) observes that the CDU lacks a coherent economic policy concept – its proposals are primarily aimed at pleasing its own members rather than seriously reforming Germany. The Handelsblatt is even more critical: German politicians simply lack the competence for an active industrial policy. Conversely, the economic institute of the Hans Böckler Foundation criticizes the fact that the new federal government has significantly restricted the scope for investment by prioritizing defense spending over fiscal spending.

These criticisms from different ideological camps converge on one common point: a lack of strategic coherence. The federal government spends too little on infrastructure and too much on consumer subsidies. It demands competitiveness without systematically addressing structural barriers such as bureaucracy and energy prices. It promotes climate protection but, through sluggish permitting processes, extends the implementation time for renewable energies to years or even decades. This conflict of objectives between climate ambitions and economic development policy is real, but is rarely addressed openly.

Added to this is a fundamental weakness in the public economic debate: economists and political actors talk past each other because they have different models in mind. Some think supply-side and see tax cuts and deregulation as the key. Others think demand-side and see government investment and social security as the key. Both perspectives address important realities – but neither provides the answer on its own. Evidence-based economic policy would have to employ both approaches where they are each effective, instead of pitting them against each other.

The missing base model: Why a common reference is so important

A key weakness of German economic policy is the lack of a widely accepted, simple, yet viable basic model that definitively defines the major goals and priorities. Instead, many competing frameworks exist: growth-oriented versus distribution-oriented, industrially controlling versus market-oriented, and maximally ambitious versus cost-driven and restrictive in climate policy.

Numerous NGOs, political parties, business associations, and expert networks each present their own master plans, heavily focused on specific problem areas: climate protection, social justice, competitiveness, debt brakes, digitalization, and so on. These plans often aim to highlight the weaknesses of other approaches instead of identifying common ground and openly addressing contradictions. As a result, instead of a clear framework, a glut of particular concepts that mutually block each other emerges.

A viable basic model would have to do precisely the opposite. It wouldn't regulate everything down to the last detail, but would define in a binding way which economic policy goals are prioritized and in what order, what role the state and the market should each play, how many resources are mobilized for future investments, and how distributional conflicts are fairly balanced. Individual measures could then be evaluated on this basis, instead of existing in a vacuum.

Comparisons with other countries show what would be possible. South Korea, the Netherlands, and Denmark are economic systems where there is a broad societal consensus on the direction of economic policy—not unanimity, but a shared understanding of what economic policy should achieve and where the limits of government action lie. In Germany, this basic consensus has been lacking for decades. Agenda 2010 was the last attempt at such a reorientation of policy goals—and its implementation was so controversial that it remains politically toxic to this day.

What a national basic model would specifically have to achieve

The idea of ​​a national basic model may sound abstract at first. It isn't. Such a model would answer three key questions on which there is currently no consensus:

First, the question of investment priority: Which public goods are so fundamental to economic viability that they must take precedence even in times of fiscal constraints? Infrastructure, education, and digital transformation undoubtedly belong to this category. There is more cross-party agreement on this than political rhetoric suggests – but without formal consensus, this agreement remains ineffective because it invariably takes a back seat to particular interests in coalition negotiations.

Secondly, there is the question of financing: How can future investments be paid for without violating the fiscal sustainability rule? This is where the debate is most deadlocked. According to renowned economists, the debt brake in its current form is an obstacle to investment. A reform that distinguishes between consumption-oriented government debt and growth-promoting investments would be rationally justifiable and could facilitate a consensus – if there were the political will to conduct the debate on this substantive level.

Thirdly, the question of the regulatory framework: What conditions must be in place to encourage private companies to invest and innovate in Germany? Energy costs, bureaucratic burden, and planning certainty are crucial here. A national basic model would define these conditions not along political or ideological lines, but functionally – based on the actual needs of entrepreneurs, not on party platforms.

The debt brake as a symbol of a blocked reform debate

No economic policy issue polarizes Germany as much as the debt brake. This is symptomatic of the fundamental problem. The debt brake is not simply good or bad – it is an instrument with clear strengths and serious weaknesses, the relative importance of which depends on the priorities set. Those who prioritize debt stability as their highest goal will find it an important tool. Those who prioritize investment in future viability will see it as a serious obstacle.

With the special fund for infrastructure, the German government has taken an important first step, enabling structural borrowing totaling around 4 percent of GDP. However, the IMK (Institute for Macroeconomics and Business Cycle Research) of the Hans Böckler Foundation points out that the practical implementation favors defense spending and disadvantages growth-promoting civilian investments. The Federal Ministry for Digital and Economic Affairs (BMDV) itself emphasizes that the pressure to act is high and that bureaucracy is hindering economic potential.

The Bundesbank and the Council of Economic Experts have repeatedly emphasized the need to differentiate between public debt used for consumption and public debt used for investment. Germany ranks among the lowest in net public investment compared to other OECD countries. Without fundamental reform – or at least an intellectually honest examination of the conflicting objectives of the debt brake – Germany remains trapped in an investment dilemma: too little public investment for sustainable renewal, but sufficient public consumption to limit fiscal leeway.

Cross-party common ground: What is actually capable of achieving consensus?

The analysis of the election manifestos for the 2025 federal election shows that political polarization is less complete than the public debate suggests. There are specific areas where a broad consensus either already exists or could be achieved:

All parties agree that the infrastructure is dilapidated and needs modernization. All parties are committed to digitalization. All parties see bureaucracy as an obstacle. All parties want investment – ​​they only differ in how it should be financed and which projects should be prioritized. All parties want to strengthen the competitiveness of the German economy – even if their approaches are diametrically opposed.

The crucial methodological step would be to first enshrine these commonalities in a binding basic consensus and only then – on this shared basis – negotiate the questions of financing and the mix of instruments. Instead, the financing question (debt brake yes or no) is treated as an ideological prejudgment that prejudges all other questions. This is the real obstacle to reform.

The structural failure of the political economic debate

Behind the lack of a basic model lies a deeper problem: the structure of the German political economic debate is resistant to reform. Coalition negotiations follow a logic of mutual vetoes and quid pro quo. Each party brings its indispensable core concerns and, in return, expects the others to remain silent on their core issues. The result is coalition agreements that resemble a comprehensive package deal more than a strategic reform program.

Added to this is the short-term orientation of the political cycle. Structural reforms—whether in the education system, infrastructure, or pension system—take effect over decades. Politicians, however, are elected and judged in four-year periods. Those who enact painful reforms today receive no electoral support for their positive effects. Those who make campaign promises and offer short-term relief are rewarded. This structural incentive system produces poor economic policy—across party lines and systemically.

A national baseline model could partially address this problem by creating an institutionally anchored long-term perspective that is not renegotiated with every government. Just as the fiscal framework of the debt brake is intended to limit short-term election promises, an economic policy framework could limit strategic incoherence. Such a framework would be functional, not ideological: it would define the overarching goals and leave the details of implementation to policymakers.

International learning opportunities: What Germany has overlooked compared to others

Looking abroad is sobering for a country that was considered an economic role model for decades. The USA has launched a massive industrial investment program with the Inflation Reduction Act, combining private investment in clean energy and technology with government incentives. China is orchestrating targeted capacity building in key technologies through its industrial policy. France has defended its industrial core with targeted government stakes and energy price subsidies. Denmark and Sweden demonstrate that ambitious climate protection and economic competitiveness need not be mutually exclusive, provided the framework conditions are right.

Germany is observing these developments, but the economic policy conclusions are controversial. The Federation of German Industries (BDI) states that Germany has massive opportunities in green and digital technologies: these technologies could create a global market worth more than €15 trillion annually by 2030. Germany has the technological base, the research infrastructure, and the industrial history to play a leading role in this market. But this would require a coherent strategy, not a collection of competing approaches.

Prerequisites for serious consensus building

A national basic model is not created by a government commission or a panel of experts. It emerges through a political process that must meet several prerequisites:

First, a willingness for reciprocal recognition is needed. The CDU must acknowledge that government investment in certain sectors complements the market, not undermines it. The SPD must acknowledge that the tax burden and regulatory density do indeed discourage investment. The Greens must acknowledge that climate protection measures that destroy industrial competitiveness ultimately undermine climate protection goals because they lead to the relocation of emissions abroad. The FDP must acknowledge that pure supply-side economics reaches its limits in a world of state-driven competition from China and the USA.

Then we need institutional structures that enable consensus-building. Parliamentary inquiry commissions that are not partisan, but rather pluralistic in terms of both scientific and societal representation. Long-term economic programs that last beyond election cycles. Strengthening independent economic policy institutions such as the Council of Economic Experts, whose recommendations should carry more political weight.

Ultimately, a different quality of public economic debate is needed. Too many actors are interested in using the complexity of the economic situation as an argument against reforms. Yet the situation is clear enough: Germany is losing competitiveness, investment, and industrial substance. The causes are known. The building blocks for solutions are available. What is lacking is the political will to assemble these building blocks into a coherent whole.

The hour of political maturity

Germany's economic problems are solvable. This is not a naive statement – ​​it is based on a sober assessment of the available instruments and existing potential. Energy prices can be reduced in the long term through an accelerated energy transition and targeted reforms to grid fees. The investment backlog can be reduced through a smart reform of fiscal rules and a strengthening of municipal implementation capacities. The bureaucratic burden can be dramatically reduced through consistent digitalization and standardization. The shortage of skilled workers can be alleviated through a combination of targeted immigration, improved labor force participation of women and older people, and skills development initiatives.

What all these measures have in common is their dependence on a stable political framework. None of these reforms can be implemented by a single party alone. All require compromises and decisions on priorities that will only endure if they are supported by a broad political and social consensus. This is not a demand for unanimity—that is politically and intellectually unrealistic. It is a demand for political maturity: for the ability to think outside the box, to listen to the arguments of others, and to develop a shared point of reference.

Germany has taken this step several times in its history: during the founding of the Federal Republic, its integration into the West, the reconstruction of East Germany, and with Agenda 2010. Each time it was painful, controversial, and politically risky. Each time it was also necessary. The difference today is that time is running out. With each passing year of structural gridlock, companies make investment decisions that cannot be reversed. With each passing year of demographic change, Germany loses human capital that cannot be replaced quickly. With each passing year of infrastructural disinvestment, a backlog grows, becoming more expensive the longer it remains unaddressed.

It is time to stop rushing around with new proposals and instead take the proposals and solutions from all political camps seriously from a state policy perspective, working together to develop the urgently needed basic model. Not as an ideological compromise, but as an economic imperative.