The German financial superpower isn't flying high these days. Europe’s largest economy, which was in a technical recession in early 2023 as its blue-chip index hit a record high, continued shrinking in the third quarter of 2023. Famously a long-time net exporter to other countries, global demand has chipped away at exactly that strength, leading to stagnancy and reversal.
But its woes extend beyond the global trading flows. This week, Germany faced protests by farmers and a national train drivers’ strike, both of which have disrupted travel in the country. The transport snarls stand the risk of lasting longer than this week, but their ripple-effects could go on to impact major elections at the country this year amid overwhelming dissatisfaction with Germany's ruling coalition government led by Chancellor Olaf Scholz.
What's prompted it all?
On Monday, German farmers took to the streets, blocking numerous roads and highways with tractors. Their cause: The sudden loss of government subsidies. The reason why the federal cash dry up are a bit complex, but show how tricky the situation is in Germany.
Scholz got an unpleasant surprise last year, when a court ruling left him staring at a a €60 billion hole ($65.6 billion) in the budget—the ruling held that Scholz couldn't keep using COVID-19 funds the way he had been, for policy-related incentives and subsidies. As the government scrambles to cover the shortfall, the tax breaks for the agriculture sector went out the door. The COVID-19 funds had been earmarked for subsidies in chipmaking and green energy, so the farmers don't see why they should pay the price.
The government walked back on some of the planned cuts following a round of protests in Berlin in December, but the remaining ones could still hurt the livelihoods of those dependent on agriculture, farmers argue.
Signs at the protest read “when farmers are ruined, food has to be imported” and “no farmer, no food, no future,” CNBC reported earlier this week.
The protests are gripping Germany at a time when polls have shown the increasing unpopularity of Scholz’s leadership. This has bolstered the far-right Alternative for Germany party, which is backing the protest in an effort to gain political ground in the state elections later this year.
As the farmers' protests carried on across Germany, a three-day rail strike kicked off on Wednesday. A strike by Germany’s GDL Union resulted in thousands of trains—serving both, cargo and passengers—operated by state-owned Deutsche Bahn to pause.
“The strike by the train drivers’ union GDL has had a massive impact on train services in Germany,” DB spokeswoman Anja Broeker said, multiple outlets reported. “We regret the restrictions and hope that many people who were unable to reschedule their journey will get to their destination.”
The union of train workers are fighting to bring working hours down from 38 to 35 hours, while on full pay. GDL is also demanding a pay hike of roughly $606 a month along with a one-off inflation bonus. The GDL chief Claus Weselsky said that the union would “compromise and reduce weekly working hours gradually” but if by Friday an agreeable offer isn’t made, the union would launch another round of industrial action, according to the Financial Times.
These protests, which have resulted in 80% of long-distance trains grinding to a halt, are also adding to pressures on Scholz as Germany also navigates macroeconomic tightrope. Germany is at the brink of contracting in the fourth quarter, pushing it closer to recession territory. The country’s manufacturing and construction sectors, which are core to its economy, have also been struggling and are expected to have modest recovery, at best.
Even if few signs point to a rapid bounce-bank, Germany’s central bank Bundesbank anticipates some positive news for its economy. Last month, the bank predicted inflation to cool down, GDP growth to increase slightly and real household income to rise in 2024.
“Inflation in Germany is on the decline, but it is still too early to sound the all-clear,” Bundesbank President Joachim Nagel said in a report. “As from the beginning of 2024, the German economy is likely to return to an expansion path and gradually pick up speed.”
