천하天下

In the autumn of 2026, different shouts overlapped in front of the Brandenburg Gate in Berlin and in the squares of small towns in East Germany. On one side were protesters shouting, “Fascism is not an alternative,” after the Alternative for Germany (AfD) won first place with over 40% of the votes in the Saxony-Anhalt state parliamentary election. On the other side were voters who, combining pensions, immigration, electricity bills, and factory closures, said, “This country is no longer our country.” The Friedrich Merz cabinet, barely a year and a half into power, was at rock bottom in approval ratings. In national polls, the AfD was the leading party with 27-29%, while the CDU/CSU alliance had fallen to around 20%. The country, once called the locomotive of Europe and a model of export machinery, stands in the midst of a structural crisis facing post-war continental industrial nations.

Where the peace dividend disappeared

After the Cold War, Germany enjoyed three layers of余裕 (leeway/breathing room): low defense spending, Russian pipeline gas, and demand from the Chinese market. The war in Ukraine and the expansion of the Middle East front erased those preconditions all at once. NATO set a goal to spend 3.5% of GDP on defense itself and 5% on broader security by 2035. Germany's defense spending will rise from approximately 2.2% of GDP in 2025 to around 2.7% in 2026. The Ministry of Defense's main budget alone is set at 109.7 billion euros for 2027, making up about one-fifth of the federal budget, and the government aims to reach 3.5% by 2029. That money does not come from savings. With a constitutional amendment in March 2025, the debt brake (Schuldenbremse) was loosened to exempt the portion of defense spending exceeding 1% of GDP, and a 500 billion euro special fund for infrastructure and climate was created over 12 years. It was the moment when a nation of fiscal austerity suddenly pulled out a fiscal bazooka.

The fiscal deficit is projected to widen from around 3% of GDP in 2025 to over 4% in 2026, and further to 4.3-4.6% by 2028. The national debt ratio, currently around 64%, is climbing towards 68-70%. Germany is a central country in the Eurozone. Without the buffer of an independent currency, its deficit trajectory directly influences interest rates and rules across Europe. If defense spending is further increased, something will have to give among pension guarantees, long-term care, citizen's allowance, or industrial electricity subsidies. The Merz government clashed with its coalition partner, the SPD, when it tried to reform the pension eligibility age and sick pay. The day after the devastating defeat in Saxony-Anhalt, the SPD demanded a reopening of the reform proposals. The fiscal benefits of the reforms have been postponed, leaving only political costs.

Security is no longer free. However, Germany has failed to build the political consensus needed to reduce welfare in exchange for security. Filling that void is the veto power of the streets and opinion polls. Anti-AfD protests intersect with anti-immigrant and anti-energy transition sentiment, the sense of deprivation in East Germany, and the moral politics of West German metropolises. The government attempts reforms, falters, and then, after faltering, once again expands special funds and deficits. The crisis manifests not as soaring interest rates, but as a decline in the quality of growth and a fracturing of politics.

Cracks in the Export Machine

The German model was built on cheap energy, the Chinese market, and the intermediate goods chain of automobiles, machinery, and chemicals. Pipeline gas has been cut off, and liquefied natural gas will not return to its previous prices due due to transportation and regasification costs. Industrial electricity prices, even with subsidies, are nearly double those in the US and China. The government introduced an industrial electricity tariff system from 2026, subsidizing up to 50% of wholesale prices for energy-intensive industries, but this is more of a temporary measure to support the cost of transition with taxes. The Middle East conflict in 2026 once again shook oil and wholesale electricity prices, and household energy burdens suppressed consumption. This is why, even as research institutes raised their growth forecasts in their autumn outlooks, they separately noted energy prices as a key risk.

The current account surplus remained at 4.5% of GDP in 2025. However, a surplus does not necessarily mean competitiveness. The trade deficit with China in goods widened by an additional 28 billion euros in 2025 alone, reaching 72 billion euros, and global market share continues to decline. Growth forecasts for 2026 vary from 0.5% to 1.4% among institutions, but the commonality is that potential growth is below 1%. ifo projected potential growth to drop to 0.1% by the end of the decade. The unemployment rate, based on Employment Agency standards, has not significantly decreased from 6.3%, and a jobless recovery is becoming structural in a country where the labor supply itself is shrinking.

The core of pride lay in Volkswagen, BMW, Mercedes, BASF, and ThyssenKrupp. That chain is now shaking in the face of Chinese electric vehicles and overproduction. Volkswagen has reached the stage of considering layoffs of up to 100,000 people and closing four domestic factories, and its market share in China has fallen to less than half of what it once was. The share of Chinese brands in the European new car market has exceeded 10%. Chemical and steel industries are also reducing facilities or moving overseas due to high energy prices and carbon costs. While the transition to renewable energy has progressed in the power mix, intermittency and grid costs have become location factors for factories. Companies are observing the situation until the state elections, budget, and the 2029 general election. If investment stops, productivity also stops.

Limits of immigration as a buffer

The total fertility rate fell to 1.32 in 2025, the lowest since 1997. For German-national women alone, it was 1.20. Births in 2025 were 654,000, and deaths were approximately 1 million, resulting in a natural decrease of 340,000 to 360,000. This marks four consecutive years since 2022 with a deficit exceeding 300,000. The slight population increase was due to net immigration, but net immigration sharply declined to 220,000-260,000 in 2025. As a result, the population at year-end was approximately 83.5 million, decreasing for the first time since 2020. The increase in foreign residents was also the smallest in 15 years. The proportion of those aged 65 and over continues to rise, and the dependency burden on the working-age population is steepening.

Pensions, health insurance, and long-term care are already at the core of public finance. As the baby boomer generation enters their 80s, the expenditure curve will become even steeper. Filling the labor force through immigration was a hidden engine of growth in the 2010s. However, the political costs of housing, schools, public safety, and social assistance have accumulated. Refugee accommodation, public safety incidents, the emptiness of small towns in East Germany, and the "two Germanys" debate are the strongest fuel for the AfD. Weidel and Krupalla speak of large-scale repatriation and border controls, while simultaneously promising to defend pensions and industrial jobs. Economically, this is a tension. It means reducing the inflow of labor while simultaneously protecting elderly welfare and rearmament costs. Politically, it is consistent. This is because it is the grammar of the sentiment, "Our money for our elderly and our factories."

Shaking Triangle

Post-war Germany operated with a triangle of US security, the rules of the European single market, and its internal social state and export machinery. That triangle is now shaking simultaneously. In terms of security, Germany is transitioning from a civilian power exporting norms and checks to rebuilding military sovereignty. Tanks, air defense, support for Ukraine, and deployment on NATO's eastern front are new pillars. However, the pace of this transition is constrained by troops, ammunition, and public opinion. While Poland spends around 4% of its GDP on defense and the Baltic states are approaching 5%, Germany is increasing its budget figures but is blocked by conscription and the wall of social consensus. In a world where US security commitments are becoming transactional, Germany, while reiterating its European responsibilities, has not yet filled its ranks with the troops and ammunition needed to wage war independently. Every time energy, logistics, and prices fluctuate, the slogan "factories first" grows louder.

경제면에서 세계는 효율의 세계화에서 안보의 블록화로 이동한다. 중국의 과잉생산과 미국의 산업정책은 독일을 양쪽에서 압박한다. 보호주의와 보조금으로 잔존 산업을 지키는 길, 인도·인도 태평양과 동맹형 공급망에 편입되는 길, 유럽 안에서 산업정책을 키우는 길이 뒤섞여 표류한다. 방위산업과 인프라 특별기금은 진전되지만, 에너지 가격과 생산성 정체, 동독의 원심력은 속도를 맞추지 못한다.

In politics, the center is collapsing. The AfD is not a protest party but a leading candidate vying for state government. The CDU briefly held power as the face of the market, but that power will erode if it fails to address grievances regarding housing, immigration, energy, and factories. An AfD victory would shake the European Convention on Human Rights, climate goals, foreign aid, and the policy towards Russia, while a return to power by the left bloc would test the remaining norms of debt limits and the boundaries of industrial subsidies. Either way, Germany's self-proclaimed central role in shaping rules in post-war Europe will weaken.

The German-origin language of precision machinery and automobiles, accounting rules and fiscal discipline still exists. However, the cheap energy, military leeway, and demographic capacity that supported it have diminished. The world is choosing self-preservation over cooperation, and Germany is caught in a paradox where it cannot even forge internal consensus. Germany bought peace with Russian gas, Chinese markets, and debt limits. In a country where factories are leaving first, as long as the current generation rejects security costs, defers demographic costs through immigration, and covers industrial transition costs with subsidies, growth will hover around 1% and politics will become a contest of vetoes. Germany in the autumn of 2026 is not yet a fallen nation. It is merely that the most successful continental model of the post-war era is repeating the same grammar even after the prerequisites for its success have disappeared.