Episode 135: Reenergizing the German Economy

What this episode covers

The German economy is stagnating, and Chancellor Friedrich Merz has promised an autumn of reforms. But are the government’s policies enough to restore competitiveness? Berenberg Chief Economist Holger Schmieding joins this episode of The Zeitgeist to analyze the domestic, European, and international dynamics with which German economic policies must contend and what the government can do to ensure the country’s prosperity and security. Host Jeff Rathke, President, AGI Guests Peter Rashish, Vice President and Director, Geoeconomics Program, AGI Dr. Holger Schmieding, Chief Economist, Berenberg Transcript Jeff Rathke I want to welcome all of our listeners back for this episode of The Zeitgeist. We are speaking on November 10, 2025. I’m joined by Peter Rashish, Vice President of the American-German Institute. Hello, Peter. Peter Rashish Hello, Jeff. Jeff Rathke And we are delighted to have as our guest, as a return visitor to this podcast, Holger Schmieding. Hello, Holger. Holger Schmieding Hello, Jeff. Jeff Rathke Holger Schmieding is the chief economist of Berenberg, and we are going to talk today about the performance of the German economy, European dynamics, and other interesting things that relate to economic performance and economic policy. With that, we’ll get launched right into it. The basic question to start with, Holger, what’s your assessment of the state of the German economy? The growth rates have not appeared particularly impressive. What do you see happening on the German economy? Holger Schmieding Well, the German economy is stagnating. Abstracting from details, the German economy has been stagnating for about five years. More precisely, after all these pandemic downs and ups, we are back at the level of pre-pandemic economic activity. This prolonged stagnation is partly a response to external shocks, to Xi Jinping, Vladimir Putin, and Donald Trump. That is to fierce subsidized competition from China. That is to the spike in energy prices caused by Putin’s invasion of Ukraine. That is to the trade wars, the tariff chaos caused by Donald Trump. But it’s partly also a response to domestic structural problems. Germany had a golden decade in the previous decade. I had talked a lot about that. I had announced a golden decade in 2010, but the golden times were over in 2019. And the German problem is, to some extent, that in its ten years of outperformance, 2010 to 2019, it became complacent. Germany was like an athlete who had won the trophy, the gold medal, and thought he is much better than the competition and stopped exercising, whereas the competition exercised harder and got better. And now Germany has found out over recent years that the competition has improved and Germany has not. The domestic structural problems are excessive bureaucracy, wage costs, especially the payroll taxes paid by employers and employees, which are too high. And of course, an energy policy, which is not exactly rational. Jeff Rathke Okay, so I think that’s pretty clear and succinct. And that gets us started well. One of the reasons that the German voters put a new government in place or created the conditions for a new coalition in February of this year was dissatisfaction with the lackluster economic performance. It wasn’t the only reason but played a significant role. And Chancellor Friedrich Merz came into office promising to address these causes for the economic slowdown. Do you think the government’s policies, Holger, are the right ones? Are they showing signs of impact? Holger Schmieding By and large, the government’s policies are the right ones,