What Happened to Germany's Economy: A Deep Dive into Europe's "Sick Man"
Germany's economic crisis explained. We explore the facts and what's needed to rebuild Europe's powerhouse. 🇩🇪
Key Takeaways
- Germany faces a “polycrisis,” a perfect storm of problems that have turned Europe’s economic powerhouse into a “sick man.”
- High corporate and income taxes, plus some of the world’s highest electricity costs, are hurting Germany’s economy.
- Germany is losing billions to bureaucratic inefficiency and a failed digitalization push, slowing growth.
- An aging society and skilled worker shortage are pressuring the pension and healthcare systems.
- The crisis is not inevitable; solutions include infrastructure investment, reduced bureaucracy, and smart immigration policies.
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More InformationFrom Powerhouse to Polycrisis: The Challenges Facing Germany
Germany was once known as the unshakeable economic powerhouse of Europe. But after years of slow growth and decline, we are now being called the “sick man of Europe.” What exactly happened? How did one of the richest and most stable countries in the world end up in this situation? Experts have a term for it: a “polycrisis,” a perfect storm of three major problems hitting all at once. Now, the big question is: Is this just a temporary downturn that will be over soon, or is it the beginning of a collapse Germany might never recover from?
In this article, we’re going to dive into the facts behind Germany’s fall and explore what must be done to rebuild the country’s future. For many expats living here, this isn’t just a distant political issue; it directly impacts your financial security, career prospects, and quality of life. Understanding these underlying issues is the first step toward navigating them effectively. We’ll examine the economic, bureaucratic, and social challenges that have put Germany on this difficult path, and we’ll also discuss the solutions that are already on the table.
The High-Cost Environment
Let’s start with the hard economic facts: Germany’s economy has come to a near standstill. While the U.S. economy has grown by almost 15% since the pandemic, and China’s by more than twice as much, Germany’s economy is still stuck at pre-pandemic levels. We’re essentially standing still while the rest of the world moves forward. And if current forecasts are right and our economy shrinks again in 2025, it would mark the longest recession in post-war German history. Why is this happening, and what can be done?
The first major issue is taxes. Germany has one of the highest corporate tax rates in the developed world. Companies here pay around 30% on their profits, a significant reason why many businesses are moving their investments and operations abroad. The good news is that a corporate tax reform is planned for 2028 with the goal of lowering the burden to around 25%, bringing us closer to international standards. A 5% reduction might not sound like much, but we’re talking about billions of Euros here. If done correctly, this could help revive investment, boost innovation, and attract global companies back to Germany.
But it’s not just businesses. Employees also face heavy deductions. The German government takes about 20% in income taxes and another 32% in social security contributions. That puts us near the top of the global rankings, second only to Belgium. It’s not exactly a list we want to be leading, to be honest. Lowering this burden would give people more disposable income, boost consumer spending, and strengthen the economy from the inside out. But so far, the current government hasn’t presented any concrete plans to make that happen, leaving people to take everything into their own hands. If you’re wondering how to make the most of your money despite high taxes here, our advisors specialize in optimizing finances for expats, and the first meeting is 100% free.
Finally, Germany also has the second-highest electricity prices in the world, which isn’t just bad news for households; it’s a disaster for industries that rely on large amounts of energy, like chemicals, metals, and manufacturing. To fix this, we need a massive investment from the government itself, funded by the high taxes we pay.
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More InformationBureaucracy and Digital Failure
The economic problem isn’t the only issue; we also have a massive execution problem. Germany’s bureaucracy has reached absurd levels. It’s a labyrinth of rules, paperwork, forms, and signatures, often followed by even more forms. The ifo Institute estimates that Germany loses an astonishing €146 billion every single year just from bureaucratic inefficiency. While that sounds like a lot—and it is—it’s “only” 3% of Germany’s GDP, which puts its scale into perspective.
For many businesses and expats coming here, navigating German regulations feels like a Sisyphean task. It’s simply exhausting. And speaking of frustration, building just one wind turbine in Germany takes, on average, seven years to get approved. Seven years for one wind turbine! Meanwhile, other countries are streamlining their public services while Germany is still stuck in the past.
The digitalization of the public sector is another total disaster. The government promised us the Onlinezugangsgesetz in 2017—a law that said we’d be able to handle administrative services digitally. Guess how many of those services are actually online three years after the deadline? A generous estimate is around 30%. And even those are often just a PDF you still have to print and mail. Overall, we rank 23rd in global digitalization, behind countries like Estonia, Malta, and Latvia. So, what’s the solution? Just like with the economic problems, we need massive investment in both digital and physical infrastructure. Tens of thousands of bridges need repairs, our average internet speed is below the global average, and only 62% of trains arrive “on time” (which means up to six minutes late).
But unlike the economic issues, money alone won’t fix this. Because one of the biggest roadblocks isn’t funding—it’s rigid data protection laws. While protecting personal data is important, in Germany, these laws are often used as an excuse to block innovation. Other countries are using smart data systems to fight cancer, optimize infrastructure, and improve everyday life. Here, we’re still arguing whether school grades can be stored in the cloud.
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More InformationThe Demographic and Social Strain
Germany’s economic and political struggles have real, human consequences. When growth slows down and governments fail to deliver, it’s everyday people like you and us who pay the price. One of the biggest challenges is that our society is aging, and it’s aging fast. Sixty years ago, there was one retiree for every six working people. That’s a very healthy social security system because you have a lot more people paying in than people taking money out. But today, that ratio is less than two to one. This puts massive pressure on our pension system, overloads the healthcare system, and forces younger generations to pay the bill.
To make things worse, Germany is also facing a massive shortage of skilled workers. Almost two million jobs are unfilled, costing us a projected €90 billion every year in lost productivity. So what’s the solution? It’s people like you—expats coming to Germany to live, work, and build your future. Now, we just need smart migration policies that help skilled workers succeed and give you maximum opportunity once you’re here.
But if there’s one more crisis that everyone feels, it’s the housing crisis. Rents are exploding. In cities like Berlin and Munich, affordable housing is nearly impossible to find. Why? Because Germany is missing almost two million affordable apartments. The government wants to build more homes, but rising construction costs and interest rates have only made things worse.
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More InformationA Path to Recovery
The good news is that this crisis—the housing crisis and the overall crisis Germany is in—is not inevitable. Germany has the resources, the know-how, and the immense potential to turn this around. And many of the solutions are already on the table. We need to upgrade our infrastructure and downsize our government restrictions. We need to invest in education and retrain workers for the jobs of the future. We need smart immigration policy to fill labor gaps and stabilize our social security system. And most urgently, we need to build more homes—a lot more affordable homes. Because real estate isn’t the problem; it’s part of the solution.
If you want a deep dive into what’s really wrong with the German real estate market, then our video on that topic is for you. This is a challenge, but with the right reforms and a shared commitment to a better future, Germany can regain its status as an economic powerhouse. Thanks for watching until the very end—and bis zum nächsten Mal!