Germany's economy on the brink: structural reforms urgently needed!

Germany's economy on the brink: structural reforms urgently needed!

Germany's economic prospects are showing initial positive signals, but structural weaknesses remain alarming. Without far-reaching reforms, the Federal Republic risks sinking into a second-class economic status. The focus is on important topics such as competitiveness, education policy, technological sovereignty and global positioning. Currently, competitiveness in ten key industries is seen as crucial to Germany's economic relevance. These sectors are increasingly losing ground, while Germany is only a side effect in some areas. So stated Focus that short-term measures such as economic stimulus packages are necessary, but a long-term strategy remains essential.

The challenges are diverse. A particularly pressing problem is the shortage of skilled workers. This is seen as self-created because the education system has not responded to the needs of the economy in line with the market. Although the number of new students rose from 33.3% in 2000 to 56.5% in 2023, important areas such as crafts and nursing were not sufficiently academicized. In order to counteract the shortage of skilled workers, workers must be recruited from abroad or trained in Germany.

Need for reform in key areas

Three central points for reforms should be particularly highlighted: Firstly, a change in the training system is necessary. Second, the state could take a more active role in key industries to protect know-how and secure long-term returns. Alternatively, it would be conceivable to set up a “people's fund” that supports strategically relevant companies. Thirdly, the infrastructure requires comprehensive renovations in order to improve the framework conditions for companies. These include reducing bureaucracy, renewing transport routes and reducing energy costs and taxes.

The effects of the structural problems are already noticeable. Companies like Thyssenkrupp Steel plan to cut thousands of jobs, highlighting the growing challenges facing the German economy. Deutschlandfunk reports that Germany has fallen to 24th place in the IMD World Competitiveness Ranking from 2023 to 2024, having previously been in 15th place. Many in German industry have viewed competitiveness negatively and, according to the Ifo Institute, this represents the biggest deterioration since 1994.

Costs and challenges

Several factors are driving this decline. High energy prices, especially as a result of the nuclear phase-out and the Ukraine conflict, as well as a dilapidated infrastructure represent considerable burdens. Apart from that, there are political uncertainties, for example due to the current upswing of the AfD, which can also endanger economic stability. In addition, experts predict a further increase in the shortage of skilled workers, with up to 728,000 skilled workers missing by 2027.

Nevertheless, there are also positive aspects. Germany remains a leader in innovation with 121 billion euros invested in research and development in 2022. The country also has a stable political situation and is a pioneer in green technologies, with over 50% of the relevant patents in the EU coming from Germany.

Various measures are now being discussed to strengthen competitiveness. These include the abolition of the EEG levy, the reduction of the European electricity tax for small and medium-sized companies and the introduction of a bridge electricity price for energy-intensive companies. The Bureaucracy Relief Act for 2025 is also up for debate, although there is skepticism among companies about its effectiveness. There are also considerations about reforming the debt brake in order to promote investments in climate protection and infrastructure.

Experts show different opinions on the debt brake. While Michael Kellner from the Greens supports a reform to make investments easier, Niklas Potrafke from the Ifo Institute still sees the debt brake as an important growth instrument. The comprehensive reforms that are needed now will be crucial to securing Germany's long-term economic stability.