The End of Modell Deutschland?

Stephen F. Szabo

Senior Fellow

Dr. Stephen F. Szabo is a Senior Fellow at AICGS, where he focuses on German foreign and security policies and the new German role in Europe and beyond. Until 2017, he was the Executive Director of the Transatlantic Academy, a Washington, DC, based forum for research and dialogue between scholars, policy experts, and authors from both sides of the Atlantic. Prior to joining the German Marshall Fund in 2007, Dr. Szabo was Interim Dean and Associate Dean for Academic Affairs and taught European Studies at The Paul H. Nitze School of Advanced International Studies, Johns Hopkins University. He served as Professor of National Security Affairs at the National War College, National Defense University (1982-1990). He received his PhD in Political Science from Georgetown University and has been a fellow with the Alexander von Humboldt Stiftung, the Woodrow Wilson International Center for Scholars, and the American Academy in Berlin, as well as serving as Research Director at AICGS. In addition to SAIS, he has taught at the Hertie School of Governance, Georgetown University, George Washington University, and the University of Virginia. He has published widely on European and German politics and foreign policies, including. The Successor Generation: International Perspectives of Postwar Europeans, The Diplomacy of German Unification, Parting Ways: The Crisis in the German-American Relationship, and Germany, Russia and the Rise of Geo-Economics.

It has become abundantly clear that both the United States and Germany are going through their own versions of a Zeitenwende. Marc Fischer points out how both countries have been the pillar of a Western order that is now in existential peril. While much has been written about the American case, the German malaise has been underestimated in the United States. As Anna Sauerbrey has written in the New York Times, “The Germany We Knew is Gone.” A recent trip to the United States revealed to her how little the sad state of Germany has registered with Americans who still have an outdated image of what Helmut Schmidt called Modell Deutschland. The choreographed fall of the Scholz government has suddenly revealed the fragility of the key European pillar of the transatlantic alliance.

To understand what has gone wrong the reasons for the success of the German model need to be examined. David Audretsch in his co-authored book The Seven Secrets of Germany, published in 2016, placed an emphasis on the importance of the Mittelstand, the small to medium enterprises based in small towns that have created success based on niche technologies and specialization.[1] Arguing that “small is beautiful,” these companies rely on a highly skilled workforce and family ownership going back generations. These enterprises linked to research centers like the many Max Planck Institutes and universities combined research with technology and expertise in a “small is beautiful” setting. These firms were also tied into a network of local and regional banks which provided the necessary investment capital and were also the beneficiaries of an excellent infrastructure. Reading their account of German infrastructure then is telling: “Visitors returning from Germany invariably gush about the high speeds they drove their rental Mercedes or BMW on the autobahn others recount their impressively comfortable journeys traveling on the ICE and the high-speed long-distance trains.”

Anyone traveling the German rail system today or trying to navigate its aging autobahns realizes how much has changed since 2016. It is ironic that in a television debate Olaf Scholz criticized Friedrich Merz’s proposal to privatize German trains by warning, “That will end as badly as in England, where nothing works anymore and you only have broken tracks and bad trains.” Give him credit for Chutzpah. The lack of investment in infrastructure, which many have pointed to, has been crucial to the current malaise in the German model. This in turn is the result of what used to be a German strength but now has proven to be a major vulnerability, namely an excessive concern over deficit spending and inflation. The so-called constitutional debt brake has resulted in a massive underinvestment in infrastructure and defense, which is now showing its effects on the German economy. This includes technology and the weak position of Germany in wireless and AI.

This brings out another strength that has become a weakness, namely the consensus-oriented nature of the German political system and the coalition politics that the electoral system has produced. Wanting to avoid another Hitler, the German constitution was designed to make strong executive leadership very difficult, if not impossible. The system worked for many years because it relied on two large and one small party (the Christian Democratic Union/Christian Social Union, Social Democrats, and Free Democrats). This has morphed into what has become a Weimar-like party system of seven parties including at least two or three that are either anti-system or bordering on anti-system parties. It is no surprise that the current three-party government coalition, the least popular in postwar German history, produces a leader like Olaf Scholz rather than an Adenauer or a Helmut Schmidt.

The fragmentation of the party system is not unique to Germany but has certain German origins, namely the incomplete nature of national unification after 1990. The impact of over four decades of separation between east and west Germans is apparent in a divided political culture. Generational change has always held out the prospect that the lessons learned that led to the success of the German model would be forgotten by generations shaped by very different historical and economic conditions.

The excessive export orientation of the German economy is a recent development and a vulnerability at a time when protectionism has become increasingly prevalent in the international economic system. Germans have become too dependent upon export surpluses and have neglected to develop a more robust domestic consumer market. It is therefore vulnerable to changes beyond its control from countries like Russia and China and now the United States as well.

A combination of mercantilism and what might be called commercial realism has led to a worldview heavily dependent upon economic calculations and categories and an imbalance with other factors such as strategic concerns. The Wirtschaft über alles mode of thinking has been one-dimensional. The lack of substantial domestic natural resources, especially in energy, resulted in an overly optimistic idea that Russian energy would be sustainable and nuclear energy should be phased out. A similar naiveite also characterized the German views of China where the lure of the large market, especially for German automobiles, blinded Germans to the dangers of dependence on a country, which has created competition in automobiles, undermining the key sector of the German economy.

Underlying all this is a major demographic challenge that has been recognized for decades now as Germany has become one of the oldest and aging societies in the world. The Mittelstand model relied on a highly skilled workforce willing to live in small towns. The declining population has substantially weakened the pool of labor necessary for this highly skilled work while the attraction of urban life has made living in smaller towns much less attractive for younger generations. While immigration is an important factor in adjusting for this lack of German labor, the cohesiveness of German society, like that of most Western societies, has been challenged if not undermined by excessive and uncontrolled immigration.

What is to be done?

Sauerbrey makes the case against excessive pessimism arguing that the prospects for the party system creating a stable coalition in the next election can open the door for changing the policy on the debt brake and investing in infrastructure and the German future. She also contends that Germans have been effective in integrating generations of immigrants in the past and should be able to do so in the future. Much will depend on the new generation of leaders that will lead Germany over the next two decades.

The prospect for a two-party Grand Coalition of the CDU/CSU and SPD will be enhanced if two of the three small parties currently hovering around the five percent barrier fall below it. This would mean that the two larger parties would only need around forty percent of the vote to form a majority. Both the Free Democrats and Sahra Wagenknecht Alliance (BSW) are likely candidates to fall out of the Bundestag. Die Linke are also in peril of falling out but seem to have a better prospect as support for its rival BSW has been losing ground.

The resilience of postwar Germany has been proved a number of times from the management of unification to the reforms of Agenda 2010 when many had labeled Germany the sick man of Europe. A government led by Merz and Boris Pistorius (SPD) would suspend the debt brake and spend on both infrastructure and defense. Unlike the United States, it would lessen rather than deepen partisan divisions and provide a realistic possibility of a return of German leadership in Europe at a time when France is faltering and the United States is unpredictable. It has the possibility of bringing in a new generation of leaders, as Sauerbrey suggests. It would provide backing for a coherent and sustained EU policy toward a more antagonistic American administration and provide hope for a revitalized West, including support for Ursula von der Leyen’s proposal to allow the EU and its member states to spend more on defense. While the German model may be in trouble and faces a number of long-term adjustments to its comfort level, it seems in far better shape than the American alternative.

[1] David B. Audretsch and Erik Lehmann, The Seven Secrets of Germany: Economic Resilience in an Era of Global Turbulence (New York: Oxford University Press,2016); for a more recent analysis see Wolfgang Münchau, Kaput: The End of the German Miracle (London: Swift, 2024).