The German government's reform agenda centers on internal issues like welfare and pensions. However, these are generational problems. The immediate crisis of stagnation is driven by more urgent threats, including Chinese export dumping, stifling bureaucracy, and severe labor shortages, which remain largely unaddressed.
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Beyond its long-term growth benefits, rational immigration policy can be a powerful short-term tool against inflation. By addressing labor shortages in critical sectors like construction, agriculture, and elder care, an increased and targeted immigrant workforce can directly reduce cost pressures on essential goods and services.
The narrative blaming AI for job insecurity is misdirected. The true cause is decades of government promising services it can't efficiently deliver, leading to inflation and distorted markets. AI is a convenient, visible target for problems with deeper roots in policy.
Wage stagnation is not accidental but a result of two concurrent policies. By sending manufacturing jobs overseas and simultaneously bringing in low-wage labor, corporations create a market where domestic workers lose nearly all leverage to demand higher pay for remaining jobs.
The chronic lateness of Germany's long-distance trains has shattered the nation's self-image of efficiency and punctuality. For many Germans, the rail system's decline is a tangible, daily reminder of a broader national malaise and a loss of faith in the state's ability to function effectively.
Arguing to redirect inefficient government spending towards populist policies like free buses is a trap. It doubles down on a broken system by replacing one form of poor allocation with another, ultimately accelerating economic decline rather than fixing the fundamental problems.
Facing deep economic stagnation, German Chancellor Friedrich Merz’s coalition has outsourced key reforms to commissions. This strategy allows them to publicly acknowledge problems like pension and welfare system unsustainability while deferring politically difficult decisions, revealing a lack of consensus for immediate, disruptive change.
While the upcoming 2026 German/EU fiscal stimulus is expected to boost industrial demand, the benefits won't materialize immediately. The key investment strategy is identifying companies with the cash flow and balance sheet strength to survive the interim period before the stimulus-led recovery begins.
As China's domestic growth slows, it is flooding the world, particularly Europe, with cheap exports. This acts as a powerful disinflationary force that may compel the European Central Bank (ECB) to cut interest rates sooner than anticipated, regardless of their current hawkish rhetoric.
Including government employment in GDP calculations is a form of double-counting tax revenue that masks the true health of the private sector. A major reduction in federal workers would reveal a startlingly low real growth rate, exposing decades of underlying economic stagnation.
Germany is planning significant fiscal stimulus via infrastructure and defense spending. However, as a highly trade-open economy, the positive domestic impact could be largely offset by headwinds from a slowing China and potential U.S. tariffs. This limits its ability to meaningfully boost overall European growth.
