Germany: Europe’s Growth Engine or Basket Case?

here is growing frustration in Germany over the nation’s economy. The stagnant economy has caused enormous political problems in Berlin, where tax revenue is nowhere near enough to pay for the perennially growing demands on the welfare state. Like in most of Europe, the stagnant German economy is also permanently impoverishing the young generation. 

Echoing these frustrations, on January 5, Deutsche Welle business writer Arthur Sullivan asked if 2026 will be the year when Germany breaks free from its economic stagnation:

Any return to economic growth in Germany in 2026 is expected to be slower and weaker than previously anticipated, according to several economic forecasts. 

Yes. Mine is one of them. Back in August, I reported:

Chancellor Merz has conceded that Germany can no longer sustain its expansive welfare state—a fiscal surrender to economic reality that other nations may soon be forced to replicate.

I also explained in detail how the German welfare state consumes two-thirds of the government budget and how it suppresses economic growth. This suppression, in turn, works as a feedback loop of unaffordability into the welfare state: the weaker the economic growth, the weaker the growth in tax revenue as well. The result is a budget deficit that erodes the nation’s economic future and makes it excessively difficult to form a sustainable government.