Garvan Walshe is a former National and International Security Policy Adviser to the Conservative Party
Germans in the former DDR states of Saxony and Thuringia go to the polls on Sunday. Anti-system parties, of which the extreme-right AfD is only the most famous, are expected to do extremely well, and it may be impossible to form a regional government without them.
As well as the AfD, these include Die Linke, the direct successor to the East Germany’s communist party, and the new BSW, described by its leader Sara Wagenknecht as a “left-wing conservative party” (historically-minded readers may note that Germany has had such a thing before). The BSW and AfD, in particular, are hoping to exploit last weekend’s stabbing in Solingen, in Germany’s far west, which was carried out by a Syrian whose aim for asylum had been rejected and was in line for deportation, to reinforce their anti-immigration message.
The anti-system parties are entwined with Russia (Wagenknecht even chose to join the Communist Party in 1989) and want to end German support for Ukraine. Yet the malaise in these states is broader, and is beginning to undermine Germany’s reputation, even in countries that recently looked up to it.
At a conference I found myself at in Warsaw earlier in the summer, the delegates had a bit of fun despairing about their neighbour that had suffered under Soviet domination: deteriorating infrastructure, including terribly late trains; the impossibility of getting a decent internet connection; stifling bureaucracy, impossible inflexibility, persistent Russian interference, and an eccentric fondness for cash – all made Germany the butt of jokes.
On the surface, its problems can be laid at the door of its fractious three-party coalition involving the centre-left SPD, neocon-environmentalist Greens, and liberal-right FDP. Olaf Scholz, the Chancellor, has all the stolidity of his predecessor Angela Merkel, but none of her political skill. Merkel was Machiavellian under her uncharismatic exterior; Sholz is simply stubborn.
Go a little deeper and some of the problems can fairly be attributed to Merkel herself. She neither weaned Germany off Russian gas nor sought to rebuild Germany’s armed forces after Russia first invaded Ukraine in 2014. The Minsk Accords she negotiated would have given Russia a constitutionally-legitimate instrument to meddle in Ukrainian politics.
She pursued an aggressive green agenda, the Energiewende, without thinking through the consequences of decarbonising the car industry for the internal combustion engine supply chain that sustains so much of German industry.
Admitting two million refugees from the Middle East to German has, last weekend’s stabbing notwithstanding, not produced the social unrest that many predicted at the time. But Germany’s thicket of labour market regulations, professional licensing, and conservative business culture has prevented it taking advantage of this unexpected influx of culturally-distinct, but nevertheless well-educated, immigrants to a country facing significant demographic decline.
Germany’s problems are more fundamental than this, and many of them stem from the way it has gone about reunification and integration of the former German Democratic Republic.
Where ex-Communist countries from Poland to Bulgaria were forced into radical and painful adjustment (the Russian reformist Yigor Gaidar even called his own policies “shock therapy”), East Germany was brought straight into the embrace of its Western neighbour. It was immediately given a strong democratic system, huge subsidies of €1.2 trillion (£1 trillion) between 1990 and 2004, and instant membership of the European Community (later the EU) and NATO.
Though this eased the transition significantly, it also forestalled reforms. The former East German states of Thuringia and Saxony have grown just 33 per cent since 2000, whereas the region surrounding Warsaw has more than doubled its output has more than doubled since 2003 (the time for which comparable data are available).
Even the relatively poor and unsuccessful Lublin region has grown 80 per cent, despite East Germany having access to the European market fourteen years before Poland. Accounting for cost of living differences, income per household in the Warsaw Region is now higher than in Berlin (and that includes wealthy former West Berlin).
If East Germany didn’t suffer the worst effects of the collapse of the command economy, like Bulgarian hyperinflation of the mafia state that arose in Slovakia under Vladimir Meciar, its eastern regions have suffered something close to stagnation: the growth rate of a mature economy when they should have benefited from fast catch-up growth.
The culprit is the excess conservatism of the German economy. While it protected East Germans against the downside risks of a transition from communism, which, as Russians know, can be catastrophic; and secured the gains made by West Germany, it likewise entrenched relative losses in the communist East. Though economic life in the former DDR has been transformed, it has neither improved as quickly as in other ex-communist societies, nor reached the level of Western Europe.
This mix of stagnation and envy is toxic, and it is little surprise that populists have made huge strides, stoking fears of immigration, general cultural anxiety and resentment of authoritarian covid policies as well as pointing to this economic malaise.
The German government’s dogmatic refusal to countenance debt, sanctified by constitutional amendment, has distorted much of its policy, causing underinvestment in railways, and even forcing aid to Ukraine to be cut, while its up-and-coming tech sector has to struggle with outdated regulation on stock options, limited internet infrastructure, and backward looking regulation.
A court this year even ruled that unmanned, automated convenience stores had to close on Sundays.
All this as one of Western Germany’s main areas of technological excellence, the internal combustion engine, ages into obsolescence. The big car makers, already half way through their switch to simpler electric engines, will survive, but the mid-sized firms that make up their supply chain and employ hundreds of thousands of Germans have their work cut out to adapt.
A wave of creative destruction is coming Germany’s way, this time to the former industrial West, where populists have already made some gains. Its economy willl need flexiblity to adapt, yet flexiblity is precisely what is beyond the ability of its current political class.
