The German parliamentary elections will deliver their result on Sunday 23 February, and will quickly give way to negotiations to form a coalition. The German political system is unique in that these negotiations will also focus on a coalition programme, which will have to be applied for the rest of the mandate. This is one reason why these negotiations often last several months before the government can enter into office.
And this time, the stakes are perhaps the most important since the 1990 election, which followed German reunification. These two periods are quite similar.
As in the early 1990s, the industry is in a difficult situation. According to our estimates, its production capacity has decreased by almost 6% since 2017, the first net capacity destruction since the early 1990s.
As in the early 1990s, there is doubt about the German territory as a competitive location for production activities, standort deutschland in German. This issue, which was highly debated throughout the 1990s, was resolved in the first part of the 2000s, when the Hartz laws reduced labour costs, opening a period of strong job creation and growth between 2005 and 2018, until the country reached full employment.
However, as before the adoption of this law, in the early 2000s, Germany has just gone through a few years of economic sluggishness: its GDP stagnated at the end of 2024, very close to its level at the end of 2021.
And this situation can be easily explained. At full employment, a higher investment and productivity gains are necessary to grow more. Some reforms are necessary. And there's something the next government can do.
Firstly, regain its budgetary room for manoeuvre. The debt brake is certainly too restrictive in a country where the public debt ratio is still close to 60% of GDP when it reaches almost 90% in the euro area. This rule stipulates that the federal government’s structural deficit may not exceed 0.35% of GDP.
And it was the restatement of this rule by the Constitutional Court in Karlsruhe, which led the previous majority to withdraw its aid for the purchase of electric vehicles, precipitating the fall in car production in 2024. The reform of this obstacle is for the first time supported by a majority of Germans, 55% in the Forsa-DGAP barometer of January 2025 compared with only 31% last July.
This reform, by allowing a deficit of between 1 and 2 percentage points per year, which even the conservative German Council of Economic Experts is supporting, could release between EUR 30 and 70 billion per year, which could be used to bridge the public investment gap and restore greater support for the decarbonisation of the economy.
Secondly, the government will have to address the issue of energy costs, which have risen more consistently than elsewhere. In 2024, the energy producer price remained almost 54% higher than in the summer of 2021 in Germany, compared to +38% in France or +34% in Italy and +12% in the United States. The continued rise in energy costs is reflected in German inflation, which is expected to remain above the 2% target throughout 2025, putting pressure on household confidence.
In order for the standort Deustchland to remain relevant, it will therefore be necessary to open a genuine zeitenwende, which means a new era.
