Germany Goes into Recession, Scholz Likely to Retire Prematurely

Following German farmers, who had blocked Berlin with thousands of heavy tractors for several days, a mass demonstration of truck drivers was held in Germany’s capital city on Friday, January 19, protesting against toll increases and the CO₂ tax. Trucks clogged many Berlin streets around the Brandenburg Gate, where a rally was held in the afternoon. Many farmers remained in Berlin and joined their colleagues’ protest to once again call on the federal government to withdraw the repeal of agricultural diesel subsidies.

Labor unrest reflects the plight of the German economy, which ended the year 2023 in recession. The banner, displayed on the homepage of the Statistical Office of Germany (Statistisches Bundesamt, DESTATIS) speaks clearly: the German economy contracted by 0.3% last year, while the inflation rate increased by 3.7 percent.

The German media recalled that since the now distant year 1951, there have been only 9 years in Germany when the GDP of the “former industrial locomotive of Europe” has shrunk. The government of the chancellor, Olaf Scholz, is trying to put on a good face: official estimates shared by the Organization for European Economic Cooperation (OCEE) predict 0.6% growth for 2024, but according to the forecasts of several expert economists, 2024 will be in the balance, with “zero” growth or even below zero. The “sick man of Europe” does not want to know how to recover. “Overall economic development is weak,” said Statistics Bureau President Ruth Brand, “in an environment that continues to be marked by multiple crises.”

For German Finance Minister Christian Lindner, “Germany is not the sick man of Europe,” the country is “tired” after years of successes and crises, from the Covid-19 pandemic to the war in Ukraine, which have caused “great changes, especially in Germany.” For Linder, chairman of Germany’s Liberal Democratic Party (FDP), who spoke at the World Economic Forum (WEF) in Davos, Switzerland, the country’s old economic model, which for many decades was based on cheap imported gas from Russia and exports to China, “no longer works.” Now, in order to recover, Germany needs “a strong cup of coffee,” meaning structural reforms.

Controversy at Germany’s political leadership is running high. Germany’s Ministry of Economy and Climate Protection, headed by Robert Habeck, said it expects “only modest” growth for Germany through 2028, from 0.6 to 0.8 percent. The weekly Der Spiegel reported this, based on the draft of the same ministry’s annual economic report. The text states that there is “the risk of a prolonged phase of weakness” for Germany with a “low growth scenario for the foreseeable future.”

The year 2024 in Germany has begun under the banner of strikes. Farmers, train drivers, and truck drivers have already crossed their arms. As German newspaper Bild noted, “for Chancellor Scholz, difficult months lie ahead.” But some argue that this is an “overly optimistic” assessment of Scholz’s political prospects. And this after the Bundestag committee just approved Germany’s draft budget for 2024, which calls for 476.8 billion euros in spending and the issuance of 39 billion in debt.

As the daily Sueddeutsche Zeitung wrote, citing “some very well-informed sources” in the German Social Democratic Party (SPD), “there is increasing discussion of replacing Scholz with the current Defense Minister, Boris Pistorius, at the post of chancellor.” The SPD’s goal would be to “regain support” ahead of three important elections. These are the European elections, which will be held in Germany on June 9, the vote to renew parliaments in Brandenburg, Saxony, and Thuringia, scheduled for September, as well as the federal election in 2025. Recent opinion polls put Scholz’s popularity at an all-time low of 19-20%, making him the least-liked chancellor in German history. Pistorius, on the other hand, is the most liked German politician at the moment, with an approval rating touching 40-42 percent. According to an opinion poll, conducted by the demographic institute INSA for the Bild newspaper, 64.3% of Germans would like Scholz to hand over the leadership of the federal government to Pistorius before the next Bundestag elections in 2025.

Chancellor Olaf Scholz’s cabinet “governs against the people of Germany,” Christian Democratic Union (CDU) President Friedrich Merz told the Bundestag. Leading the main opposition party, Merz accused the federal government of “increasingly undermining trust in institutions” with its policies, which “no longer have a majority.”

The head of the Social Democrats’ group in the Bundestag, Rolf Mutzenich, told reporters that he “knows nothing of such speculation” about a change at the top of the cabinet. And as if to deny the growing rumors about Scholz’s “days are numbered,” it was announced that the German chancellor will meet with the French president, Emmanuel Macron, in Berlin on Januaru 22. A representative of the federal government specified that the “talks will focus on the preparation of the extraordinary European Council scheduled for February 1 in Brussels.” In addition, Scholz and Macron will discuss international issues, including the conflict in Ukraine and the situation in the Middle East.