The first signs of Germany’s austerity era

With industry weakening and spending rising, the government is starting to pass costs on to the public.

Dear Reader,

Here’s the big picture.

German companies are losing market share across the world as importers turn to cheaper Chinese products that appear to meet the same standards. After peaking in 2018, the value of German exports has been declining ever since. As profits fall, so too does the tax revenue the state can extract from them. At the same time, these same companies are pressing the federal government to reduce their tax burden so they can compete on price again.

That would be easier to grant if the state did not need the money so badly.

On one side, there is the return of great-power conflict. A revanchist Russia has forced Germany to dramatically increase defence spending in an effort to prevent the war in eastern Europe from spreading beyond Ukraine. On the other, an ageing population is driving up the cost of pensions and healthcare, placing ever greater demands on the public purse.