Episode 117: Germany in 2025
Jeff Rathke
President of AGI
Jeffrey Rathke is the President of the American Institute for Contemporary German Studies at the Johns Hopkins University in Washington, DC.
Prior to joining AICGS, Jeff was a senior fellow and deputy director of the Europe Program at CSIS, where his work focused on transatlantic relations and U.S. security and defense policy. Jeff joined CSIS in 2015 from the State Department, after a 24-year career as a Foreign Service Officer, dedicated primarily to U.S. relations with Europe. He was director of the State Department Press Office from 2014 to 2015, briefing the State Department press corps and managing the Department's engagement with U.S. print and electronic media. Jeff led the political section of the U.S. Embassy in Kuala Lumpur from 2011 to 2014. Prior to that, he was deputy chief of staff to the NATO Secretary General in Brussels. He also served in Berlin as minister-counselor for political affairs (2006–2009), his second tour of duty in Germany. His Washington assignments have included deputy director of the Office of European Security and Political Affairs and duty officer in the White House Situation Room and State Department Operations Center.
Mr. Rathke was a Weinberg Fellow at Princeton University (2003–2004), winning the Master’s in Public Policy Prize. He also served at U.S. Embassies in Dublin, Moscow, and Riga, which he helped open after the collapse of the Soviet Union. Mr. Rathke has been awarded national honors by Estonia, Latvia, and Lithuania, as well as several State Department awards. He holds an M.P.P. degree from Princeton University and B.A. and B.S. degrees from Cornell University. He speaks German, Russian, and Latvian.
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Stefan Mair
German Institute for International and Security Affairs (SWP)
Dr. Stefan Mair is a director of the German Institute for International and Security Affairs and Executive Chairman of the Stiftung Wissenschaft und Politik (SWP). He studied Political Sciences, Economics and Sociology at the Ludwig Maximilians University in Munich. From 1989 to 1991 he held a scholarship from the ifo-Institute for Economic Research. He was subsequently awarded his doctorate in Political Sciences by the Ludwig Maximilians University in Munich. In the following years he worked as an advisor on Africa at the Foundation for Science and Politics (SWP), becoming head of the research group Africa and Middle East at the SWP in 1997.
From 2002 to 2010 he was a member of the management of the SWP and from 2007 to 2009 he also held the post of director of research. In 2010 Dr. Stefan Mair moved from the SWP to the Federation of German Industries (BDI) as a member of the Executive Board. From May to October he was head of the Department of International Markets. He rejoined SWP in 2020.
The second Trump administration will take office in just over one month—how will it approach the European security order and trade with the European Union? What risks and opportunities does a new administration represent for Germany? How will relations with China affect Germany’s competitiveness and the transatlantic relationship? As Germany’s federal election campaign begins, it is clear that the next coalition will be made up of different parties than Chancellor Scholz’s “Traffic Light” coalition that broke up on November 6. Berlin faces major domestic challenges, such as diverging views on how to address Germany’s faltering economy. What can we expect from the political transitions in both countries, and how will that shape the international agenda?
Host
Jeff Rathke, President, AGI
Guest
Stefan Mair, Director, German Institute for International and Security Affairs
Transcript
Jeff Rathke
Let me welcome all of our listeners to this episode of the podcast and let me welcome Stefan Mair. Stefan, thanks for being here.
Stefan Mair
Thank you for having me.
Jeff Rathke
Well, we are talking in person, which is great—not that we don’t like video calls as well. And we are talking on December 5, 2024. Stefan, you may remember this: this is actually your second time being a guest on this podcast. The first time was back in 2019–
Stefan Mair
And I was still at the Federation of German Industries.
Jeff Rathke
Exactly. And I’m sure we will come back to the topic that we were discussing then, which is the German relationship with China, which remains a quite interesting topic. Stefan is now the director of the German Stiftung Wissensschaft und Politik, which in English is the German Institute for International and Security Affairs. We are delighted to have you in that capacity. Stefan has been for over thirty years in some of Germany’s leading public policy institutions, including with the Federation of German Industries, where he was a member of the Executive Board, and also going way back to your start with SWP back in the 1990s.
If I look at the last couple of weeks, naturally the U.S. election on November 5th was a major development that will affect the transatlantic relationship for years to come. But also, the day after the U.S. election, we had the dissolution, essentially, of the governing coalition in Berlin as Chancellor Scholz fired his finance minister, Christian Lindner. So we have these two things which set the stage really for the coming months and years, and I thought we might talk about the ways in which those may interact.
The first thing, as we look at the U.S. transition that is taking shape, most of the cabinet positions have nominees now. We’ll see how quickly people get confirmed. We have essentially control by the Republican Party in the Congress as well as in the executive branch. As a candidate, Donald Trump talked a lot about his view of the world, his desire to use things like tariffs, his skepticism or even animosity toward America’s alliances. These are not new themes; we heard about them when he was president the first time. So, maybe to start there. From a German perspective, Stefan, what are the big opportunities and risks that arise?
Stefan Mair
I think from a German perspective, it’s quite difficult to think about opportunities. We mainly see the risks for the next month and two of them are quite obvious. And the impact of these risks, if they really realize, will be huge. First, of course, we are concerned about the support—both the financial as well as military support—to Ukraine. We heard from those around Trump that he might not only decrease the military support, but he himself said that he might negotiate a peace agreement within 24 hours. We all know that on the basis of the present military balance, this peace agreement can only be to the disadvantage of Ukraine and will have, of course, serious repercussions on the European security order. So that’s the biggest concern we have in Europe and in Germany.
The second one was already mentioned by you. It’s on trade and tariffs. Trump already announced that he would declare punitive tariffs on his first day of 25 percent on Mexico and Canada and an additional 10 percent on China. If this continues somehow, Europe might be indirectly or directly affected. From my point of view those are the two biggest immediate risks.
But after that, there’s more to come. You already mentioned such a relationship to China, might there be a trade war with China, but also the future of the transatlantic relationship, especially with regard to NATO, the Paris Agreement on climate change, the Middle East there are several of those. The risks certainly dominate the perception in in in Germany.
Jeff Rathke
Are there any opportunities?
Stefan Mair
Abstract ones, I would say. Of course what we’re somehow are afraid of, all the uncertainties that come with the Trump administration will also affect our opponents, so to speak. They will also be quite uncertain, what these next steps might be, and that might lead to that they are perhaps a little bit less adventurous than they’ve been in the past. Because they don’t know how he will react, that might be one.
The second one is perhaps in this field of more restraint. We know that the Trump administration might be less interested in interfering in domestic affairs of other countries in dealing with conflicts. The role of the United States in the past decades and one or the other conflicts, or in one or the other countries, was not so positive that they would say, okay, perhaps this is an opportunity. If there’s a more restrained United States, which opens up a window of opportunity for some of the countries, but on a very abstract level.
The third abstract opportunity might be, we had a clear trend toward another bipolar bloc confrontation in the past years between autocracies and democracies, a China-led camp and the United States-led camp. And these trends had, from my point of view, four layers: economic-technological, systemic, military, and geostrategic. So Trump is definitely interested in an economic and technological one. I don’t know how much he is really interested systemic rivalry and how much he’s interested in the military rivalry or in a geostrategic one. So it might mitigate that a little bit, the trend we had to bipolar bloc confrontation, and might lead to a different world order, which some of us call multipolar or something like that. But from my point of view, opportunities are on a very abstract level. It’s difficult for me to make it more concrete.
Jeff Rathke
Right. And it’s not really clear that, at least from my reading of things, that Donald Trump and the people closest to him are interested in a multipolar world order. They may not like the arrangement as it exists now, and especially the values-driven component of foreign policy. But whether they would favor a multipolarity is a different question.
Stefan Mair
I think they’re more at ease with a world in which certain major powers have spheres of influence, with regards to Taiwan, for example, the South China Sea, perhaps also with regards to Eastern Europe, which again contains some risks to us if he accepts spheres of influence controlled either by China or by Russia. Or by any other country that might also negatively affect us.
Jeff Rathke
And so that brings me then to the German transition. There will be an election, it appears that will happen on February 23rd, in just over two months. We can be certain that the current coalition will change, because there seems to be no basis or willingness on the part of Chancellor Scholz to work with the FDP, The Liberals, once again if he were to win the election. So there’s going to be some different constellation. And this is at a time when Germany is facing major challenges of its own in addition to the things we were just talking about. The economy, generally, is in a situation of stagnation, I think it’s fair to say. If you look at the OECD predictions or estimates for growth in 2025, Germany is in last place. And it’s also for 2024, among the slowest growing economies. You have several key industries that are under significant challenges, especially the automotive industry, as we’ve seen with, not only the situation surrounding Volkswagen, but that’s a good example. And then you also have this sort of fragmentation of politics in Germany with growing support for the far-right and far-left parties. That narrows the space, then, in the middle, for the traditional mainstream parties. And that’s to say nothing of the foreign challenges: Ukraine, China’s role, etc. So, without offering an opinion about what the outcome of the election is going to be, but do you see the perceptions of German decision-makers changing about this more challenging environment? In other words, will this be potentially a spur to some significant reforms of whatever kind in the next government?
Stefan Mair
I think all the decision-makers in Germany are well aware that there are some fundamental changes needed and that we need some very groundbreaking reforms. I think the difficulty is really to agree on what kind of reforms and then here we have two different approaches. We have one approach, which says that the main problem for the German economy is over regulation, too high taxes, we have to give companies more freedom to decide and less burden on taxes and social expenses. And the other one says we need a more active industrial policy, we have to support the companies in this transformation period; we need more reforms in this direction, and we need more investment in public infrastructure. So I think all the decision-makers really have realized that there’s a real necessity for deep reforms, but there a consensus has not really emerged on which direction reforms should go to.
Jeff Rathke
So if you wanted to take an optimistic view of that, there is at least a recognition that major changes are necessary and that could then characterize the next government. As you say, these the prescriptions that you hear, there’s quite a lot of distance between them.
Stefan Mair
Yes, and forming the next coalition might be particularly difficult, based on the opinion polls we have so far. It’s possible that we have a coalition government which has just two parties, as we had in for decades in the past, but there’s also the probability that we have another three- or even four-party coalition then. This makes first, the finding of a consensus, but also governing, extremely difficult as we have realized in the past three years. It very much depends on the on the outcome of the elections and how many parties will be in parliament, how many parties will be necessary to have a majority in parliament. And do those parties who to form a coalition really share basic consensus on the necessities of reforms and what kind of reforms that are needed.
Jeff Rathke
Looking at the opinion polls, they are fairly consistent in that the CDU/CSU is far and away in first place with around 31-32 percent of the vote, the AfD in second around 18 percent, the Social Democrats of Chancellor Scholz in third right now in the 15-16 percent range, and then the Greens with 12-13 percent. As you mentioned, that could lead to a two-party coalition of one kind or another. We’ve seen over the last three years the difficulties of having three parties that shared perhaps a fundamental desire to govern but broke down when it came to some of the particular details, especially when it comes to finances.
Stefan Mair
To be fair, I think this three-party coalition really went through a period of unforeseen stress and pressure. They just were formed in the last month of the so-called COVID-19 pandemic. They were, I think, a few weeks in government when Russia invaded Ukraine. And there was really a lot of pressure on them externally. To deal with this would even have been for a two-party coalition quite difficult. And when you look at the coalition treaty, they formed in November, December before the invasion in Ukraine. They really had a quite ambitious program and tried to present themselves as a progressive coalition government and had set ambitious goals. And then they had to deal with all the difficulties and challenges coming upon them.
Jeff Rathke
That brings me also to the timelines, because with the likely dissolution of the Bundestag and a new election, it means that probably the earliest we would expect to see a new government taking office would be April, and that would be extremely fast. It might be more like May. That means that the first three to four months of the Trump administration, there will be a caretaker government in place and not a government that has been recently elected with a mandate and that will serve out the next four years on an agreed program. To what degree is that a risk? That the United States might set its course, including on some of these key issues that relate to Europe, whether it’s Ukraine, whether it’s tariffs and the economy, without a fully empowered German government, able to engage and try to shape that?
Stefan Mair
This certainly will be a problem, but compared to the other risks and challenges we talked about, it’s not a major one. I think we have a political culture in Germany where even the decisions of a caretaker government are well accepted that they have to take these decisions. It will be a caretaker government with some experience; they have been now for more than three years in power. It’s a problem, but I wouldn’t see it as a as a major risk or something like that.
Of course, I would have loved to see a government in power dealing with the Trump administration right from the beginning, but it is as it is. I think we can deal with this. It very much will depend on Europe and the European Union. We have now the new Commission in place. We have a President of the Commission who is in a quite powerful position. I think the Commission certainly will try to somehow take over because you know it’s not only Germany that is in a quite a delicate political situation. We had the vote yesterday in the French Parliament. There is no French Prime Minister, so the other big country within the European Union is also in a quite problematic position right now.
Jeff Rathke
Yes, absolutely. And this problem of—my word, not yours—a vacuum of power in Europe, just as U.S. administration takes office, especially one that has some desires, but it doesn’t really have much in the way of policies that relate to Europe. That is certainly going to be something to watch.
Stefan, I wanted to come back to your previous appearance on this podcast, because I went back and looked at the at the report which we were discussing in those days. You came to Washington in January 2019 from your previous job at the Federation of German Industries, and the organization had just released a really remarkable report, which was about relations with China. The title was “Partner and Systemic Competitor: How do we deal with China’s state-controlled economy?” I think that was remarkable for a few reasons. First, I think you were ahead of government and political parties and others in Germany. You set the course for the discussion in really meaningful ways. Also, it was unexpected for many people to see an industry organization be the first to to wave their hands and say there are some issues here that we need to think about more carefully. So, praise to you for that. And now here’s the question. There was a sentence in the summary which said the challenges posed by China cannot be ignored. Have they been, almost six years later? How do you feel about the way Germany, whether it’s the German private sector or the German government, have taken to heart some of the things that that you and your colleagues were warning about then?
Stefan Mair
Not ignored anymore. We had last year the publication of our China strategy of the German government, which takes up many of the points the Federation of German Industries already made some five years ago. And also very much focused on this difficult relationship of having China as a systemic rival, competitor, and partner and concrete conclusions out of that. We know that the strategy was also quite controversial within the government for many months, but at least they had a consensus on that. More difficult, I think is the private sector, because especially the four to five companies who are heavily engaged in China are three automotive companies plus a chemical company and another one. They have heavily invested there, and the Chinese market is very important to them. I think it makes about 45 percent, for example, of BMW’s profit, and to withdraw from there without having a real alternative is very difficult. But I think they realize that they have to derisk somehow. They don’t really have a real plan for how to diversify because it’s not so easy to replace the Chinese market with other markets. We always think about India, but it’s not really on the on a comparable level. So they pursue alternative derisking strategy to build local, regional supply and value chains. So the moment they’re forced to decouple from their business in Europe and the United States, they can do so without threatening the whole company. That’s the de risking strategy they pursue? It’s different in other sectors. I have the impression that, especially in the sector of machine and equipment, which is also quite important for Germany, and which is very much dominated by family-owned businesses, they are really de-investing and looking for different markets, but that’s a different story. The five major companies I referred to, they are still determined to remain in China but to follow a derisking strategy of being able to decouple their Chinese business.
Jeff Rathke
Right. So many things you said are quite important. First of all, that internationally, the perception of the German economic relationship with China is really defined by those major companies, the names of which everybody knows, and there’s less appreciation and understanding about the ways that SMEs have been approaching their engagement in China, and there are some big differences there. That’s an important thing to keep in mind. You’ve described also the sort of derisking strategy, the kind of regionalization model which does make a lot of sense, and certainly we’ve heard this from a lot of German companies that we’ve talked to that they think about this quite carefully. That’s different from a competitiveness strategy, though, because if I look at the German automotive sector, the problem is not just the derisking one, it’s that their sales, their percentage of the Chinese market, is declining. It’s declining fastest in those parts that is EVs, which are increasingly driving the Chinese market. So it’s not just a derisking problem, it’s a more fundamental one.
Stefan Mair
It’s a special fundamental problem for the automotive sector, the transformation toward EVs. They were very late in going to this direction and for them it’s additional pressure they certainly have. But in general, I think the German business model is quite under stress. Our business model has been based in the past 20-30 years on two pillars. First on exports, very much so. I always quote the number that more than 80 percent of German GDP are exports or imports. We are a really very outward-oriented economy.
Jeff Rathke
Of the most open economies in the world, especially for a large one.
Stefan Mair
Yes. And the other one was that we gained competitiveness by building, establishing global value chains, which were quite efficient to use the economies of scale, which were provided by these global value chains. Then we saw, first, under the financial market crisis, later under COVID-19 and also by issues like piracy in the Red Sea, how risky it is and how vulnerable we are to these global value chains. And now we have to restructure to a certain degree, and this means in addition to what I said with regard to EVs, additional pressure on the German business model, and I’m quite optimistic that we’ll get through this. But the next two or three years will be very difficult.
Jeff Rathke
And I think we will have ample opportunity to come back to many of these topics as we see how the incoming Trump administration chooses to engage or not to engage with its European partners with respect to Russia and with respect to the war in Ukraine; how it affects the global economy, whether we see trade wars, trade disputes, and trade frictions increasingly defining the international economic relationships; and as we’ve just been discussing, how relations with China both from Europe and from the United States develop. Stefan, I want to thank you for taking time to be with us here today, giving us a lot to think about and a lot to look forward to.
Stefan Mair
Thank you very much, Jeff.
