Inflation, a likely recession and exploding energy prices: Germany is expecting tough years ahead with diminishing prosperity, a shrinking middle class and growing inequality. This is uncharted territory for the government and society, and both are…
Nicole Geithner's family ought to be doing well. Really well. And the Geithners know it. Their apartment, in a historical building located near Dresden, is freshly renovated, her job as a paramedic and his as a project manager for an IT company are decently paid and secure. With a gross household income of 90,000 euros, they are firmly anchored in the middle class. They should be living pleasant lives.
That the German economy will slide into recession this winter is no longer really a question. And there is growing evidence that it could become particularly severe – with a tenfold increase in the exchange electricity price, numerous corporate bankruptcies and a permanently damaged economy. The losses in prosperity, says economist Michael Fratzscher, will be permanent. Germany, according to the forecasts, is in decline.
In good years, this could be ignored politically, because it was mainly the bottom 20 percent who suffered. As harsh as it may sound, it is a demographic that traditionally hasn't had much of a say in the country. Today, though, it's also about the center of society, even comparatively well-off people like the Geithners.
The federal government is turning to its usual practice of trying to smother the problems with money and is working on its third relief package within just a few months, this time with the aim of calming the lower middle class. The plan calls for things like a flat-rate energy price for pensioners, a flat-rate national public transportation ticket and increased monthly child benefit payments for parents.
At the same time, the government and taxpayers will be faced with hundreds of billions of euros in additional costs over the next several years. Industry must be transformed to become climate-neutral, and the country's energy supply must be shored up to ensure independence from Russia. The country must be reformed, digitized and made more competitive for the increasingly tough systemic competition against autocracies like China.
During that plenary debate in the Bundestag last week, Scholz spoke of a"division" in the country, of peace that is endangered. He even recited lyrics from the club anthem of the English football club Liverpool FC,"You'll Never Walk Alone," and proclaimed it to be the"motto of this government.
Scholz won his election campaign based on promoting more societal fairness. Those close to him often relate anecdotes of Scholz addressing stagehands, drivers and security staff at big events. Hard-working people, say his confidants, are a primary focus of his. Presumably because the government expected the enormous sum to have a greater political impact than the individual measures. The pool of recipients is again large, with more child benefits for families, energy allowances for students and pensioners, and housing benefits for a greater number of low-income earners.A family with two children and an income of around 66,000 euros will be provided with around 1,000 euros per year in relief, according to government figures.
People like Timo Wollmershäuser, who has been researching the ups and downs of retail and industry for the past 17 years. Chief economist at Munich's Ifo institute, Wollmershäuser has experienced the global slump following the Lehman Brothers insolvency, the euro crisis and the economic shock of the coronavirus pandemic. But the barrage of issues seen in recent months is uncharted territory even for him.
In the meantime, many companies have the feeling it could be an extremely deep crash, with no immediate return to growth. They fear that energy prices will remain high for years to come and that de-globalization will make many products increasingly expensive. Probably not, as the latest economic data from the eurozone shows. For more than 15 years, Germany had been the economic motor of the continent. In the second quarter of this year, though, Germany was the economic laggard, outpaced by former crisis countries such as Spain and Portugal. The formula is simple: If globalization slows down, Germany struggles.
Right now, Germany's"debt brake" balanced budget law is impeding an increase in borrowing. But Schnitzer believes it is possible for the government to suspend the borrowing rules in the coming year, just as it did during the coronavirus crisis."That's quite justified because there is a temporary shock: In one fell swoop, we have much higher prices.
Schnitzer can't understand some of the outrage."These are people who haven't yet recognized the signs of the times," she says."We won't be going around in sackcloth. But we will be faced with some constraints for a period of time.
Political philosopher Wolfgang Kersting criticized during the financial crisis back in 2008 that the welfare state was not originally about fair distribution, but about preventing misery or balancing power imbalances between employees and employers. Over time,"expectations of care and redistribution" have developed that"can no longer be met as usual by the all-providing state as economic conditions worsen.
The situation is even worse when it comes to assets. According to the German Institute for Economic Research , the top 10 percent of Germans now own more than two-thirds of the country's assets. The approximately 40 million citizens who belong to the bottom half have to make do with 1.3 percent. Those who are right in the middle of society had a net worth of just under 23,000 euros in 2017, including their car, private pension and grandpa's gold watch.
It is a feeling that often manifests itself as a diffuse fear of decline. Rampant inflation is acting as an accelerator. Of course, it will be difficult to convey to the citizens that two weeks of vacation in Mallorca are no longer possible, but that good medical care and a functioning legal system also have their merits. Still, Bude says, the government must seek to convey such collective prosperity in a credible way. At least as a kind of temporary diversionary measure, if only out of self-interest.
But while the right-wing extremists want a common front, and say so clearly, the far-left distance themselves from the often bluntly anti-state slogans on the other side of the tracks, where government politicians are declared"traitors of the people." The distancing was necessary. After all, the left had deliberately chosen a Monday evening for its demonstration, a day that has been marked by extreme right-wing protesters for the last eight years.
Experts and politicians aren't currently expecting a popular uprising, but they do believe that some radicalization is likely. Protest expert Piotr Kocyba speaks of violent fantasies, and says it's possible that more domestic terrorist groups could emerge – as witnessed during the 2015 refugee crisis, when the"Freital Group" began a series of attacks on asylum-seekers and dissidents in Germany.But some things are quite likely to be different this autumn.
"The government is putting burdens on people that they won't be able to shoulder in the future," Hück says. He views the planned gas levy as"a blatant social injustice" because, he says, it will burden pensioners and low-wage earners."As soon as the living rooms get cold in the winter," he predicts,"people will take to the streets en masse."Lower Saxony is just the beginning, a first test.
The social policy ideas of the Greens, by contrast, seem much clearer. In the coalition government, they are pushing for money for those who are either already on or are about to receive welfare benefits.
But the debt brake also plays a role in the party's own search for a social policy: Less government debt, the thinking goes, would have the effect of slowing inflation. Stefan Birkner, the FDP's leading candidate in the Lower Saxony election, describes it as such:"Leave money for people, especially those in the middle, and let them decide what to do with it.
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