## Deutschland’s Denouement

## Source details

**Canonical URL:** [Deutschland’s Denouement](https://www.imf.org/-/media/files/publications/fandd/article/2025/03/br-rosenberg.pdf)

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### Summary
- Review of Wolfgang Münchau’s Kaput: The End of the German Miracle (Swift Press, London, 2024, 211 pp., $33).
- Central claim: Germany has made many economic missteps and wrong turns over the past 30 years.
- Tone: scathing account of Germany’s recent policy and structural choices, grounded in anecdotes about politicians, corporate CEOs, labor leaders, bankers, and the media.

### Structural weaknesses identified
- Germany’s fixation on manufacturing, especially fossil-fuel-powered cars.
- Dependence on energy imports from Russia and on exports to China (recently replaced by the United States).
- Scarcity of skilled labor.
- Excessive bureaucracy and the slow pace of digitalization.
- Parochial financial system.
- Gross neglect of infrastructure investment because of rigid fiscal rules.
- National obsession with a neo-mercantilist economic model centered on exporting high-quality goods (motor vehicles, chemicals, and mechanical hardware).

### Macroeconomic perspective (critic’s additions)
- Germany’s historically high national saving rate and related capital account surpluses shape incentives:
  - Households that save rather than consume incentivize companies to export rather than sell domestically.
  - Government obsession with keeping budget deficits low discourages necessary investment.
  - Banks channel household savings into risky foreign investments, as happened in the run-up to the euro crisis in the 2010s.
- Cultural mindset: deep-seated aversion to incurring debt and desire not to put at risk what has been attained — “Besitzstandswahrung” — linked to weak start-up culture, foot-dragging on new technologies (fiber-optic networks, electric vehicles), and extreme fiscal conservatism.

### Critique of Münchau’s prescriptions
- Münchau largely refrains from proposing detailed policy remedies.
- Only concrete proposal: advance the European capital market union — presented in the epilogue and immediately dismissed by the author as unrealistic.
- Missed opportunities for a realistic reform agenda noted by the reviewer, such as:
  - Modifying the suffocating fiscal debt brake to increase public investment.
  - Supporting start-ups.
  - Advancing digitalization in earnest.

### Hopeful signs and scenarios
- Debate on whether neo-mercantilism can work in a postglobalization era is opening up—Münchau contributes to that debate.
- Existence of successful nonmanufacturing German companies, including large firms like software developer SAP.
- Possibility that expat German entrepreneurs and researchers may decide to return if conditions improve.
- Conclusion: All may not be lost for Germany, despite the book’s downbeat, almost defeatist ending.

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2025/03/br-rosenberg.pdf_