Bloomberg: Germany is suffering from an identity crisis stockpiled for over 80 years ago

German Chancellor Olaf Scholz crisscrossed the country, holding a series of meetings with his fellow citizens that continued through September.

This was a time of growing public discontent over political disputes and an economic slowdown, which culminated in the collapse of the three-party coalition he led.

Scholz’s trips were a last-ditch effort to improve his reputation after perceptions that he was an indifferent and underperforming leader.

His last stop on the tour was Berlin, where he was confronted by a man working in childcare who spoke to him in a calm voice, asking why members of the ruling class were behaving like a bunch of mischievous children.

Scholz acknowledged the validity of the criticism without equivocation or denial, and asked the man to propose a solution, smiling, adding that he was asking on behalf of a friend.

This incident confirmed that the government’s dysfunction was now clear to all, as Germans responded through the ballot box on February 23, demanding radical change.

In the chaotic weeks following the election, the traditional parties exacerbated the confusion by making decisions without consulting citizens, abandoning the country’s long-standing austerity policy under the pretext of rearmament and improving its crumbling infrastructure.

Amid all this, Germans found themselves once again asking themselves, “Who are we? And where are we heading?”

Although the new Chancellor Friedrich Merz appears to be a more dominant figure than Scholz, he is unlikely to be able to unite the various factions.

A lawyer and former BlackRock executive, Merz travels by private jet and has described war refugees in Ukraine as “social tourists”.

On the eve of the election, he collaborated with the Alternative for Germany party to pass a resolution calling for stricter immigration procedures, violating a long-standing German political taboo against cooperation with the far right.

The only coalition between the traditional parties currently available is between Merz’s Christian Democrats and Schulz’s center-left Social Democratic Party.

If they fail to bridge their differences, it will strengthen the right-wing populists, threatening a rupture with the rest of Europe.

All these factors have combined to cause Germany’s worst identity crisis since World War II.

After years of cautious policies, roads and bridges have fallen into disrepair, while the digital transformation has stalled and industrial production has declined.

These conditions were exacerbated by the energy crisis that erupted after Russian President Vladimir Putin’s decision to cut off cheap gas supplies, followed by President Donald Trump’s threats to increase tariffs, and a decline in demand in China.

This presented Germany’s export-driven industrial model with major challenges.

The result was two years of economic contraction, with a bleak outlook for 2025.

Germany’s declining standard of living has awakened alarming ethnic nationalist sentiments, contributing to the rise of far-right parties.

The Alternative for Germany party came in second in last month’s elections, doubling its share of the vote compared to the elections held four years ago.

Meanwhile, the only two parties to have brought chancellors to power since World War II have seen their support fall below 45% each.

The conservative coalition led by the Christian Democratic Union (CDU) and the Social Democratic Party (SPD) received over 70% of the vote 20 years ago, and nearly 90% before German reunification.

With the decline of traditional centrist parties, Germany may face the future of ineffective governments, similar to Olaf Scholz’s coalition, which suffered from a lack of unity and political will to address the country’s major challenges, from rising state pension costs to poor student academic achievement.

If Germany doesn’t find a solution soon, the consequences could destabilize the entire European continent, but the problem in Germany isn’t limited to late trains, slow internet speeds that aren’t even half those in the United States, or even the challenges Volkswagen faces in competing with Chinese electric cars.

The core of the crisis lies in an incomplete national identity that impacts all the country’s dilemmas.

The fragility of national identity in Germany opens the door to xenophobic movements.

The Alternative for Germany party leader Alice Weidel attacked Muslim immigrants in a speech at the Bundestag in 2018.

More recently, she described Germany’s Holocaust-remembrance culture as a “cult of guilt” (a position supported by Elon Musk during an appearance at the party’s pre-election conference).

The Alternative for Germany party won the elections in one of the former communist eastern states, a first for a far-right party since World War II, worth noting, in the February elections, the AfD party doubled its seats in the Bundestag.

None of this negates the fact that Germany has a strong economy.

It produces cars, chemicals, and medical equipment that it sells worldwide.

Therefore, thanks to its engineering and research resources, its capable of improving its situation by strengthening internal unity and investing in its vast innovative potential, but to achieve this, Germans must do what has eluded them for eight decades: embrace change.

In the aftermath of World War II, the focus was on purging civil, political, and economic life of Nazi ideology and strengthening West Germany as a bulwark of democracy and capitalism against the Soviets.

Therefore, the identity of the nations was deliberately kept ambiguous, it was generally based on commercial success, the fruits of which were to be shared through one of the world’s most comprehensive social welfare systems.

Former Chancellor Ludwig Erhard coined the original slogan in the 1950s, “Wohlstand für Alle” (prosperity for all).

This collectivist spirit contrasts sharply with the prevailing principle in the United States, which prioritizes individual rights and freedoms.

Today, Germany’s social contract is irrevocably broken, with nearly one in five people live near the edge of poverty, compared to one in seven two decades ago, and the country has one of the worst wealth inequalities in Europe.

Once a source of national pride, the welfare system has become a costly failure.

Total annual social spending has exceeded €1 trillion ($1.05 trillion), equivalent to a quarter of GDP.

These expenditures will inevitably rise to finance pensions and healthcare for millions of retired baby boomers, placing an even heavier burden on the younger generations.

The solution has been more austerity measures, which will further strangle the most vulnerable, a recipe for further social discontent.

Thomas Wasilowski , who has used social media and talk show appearances to counter the stereotype that welfare recipients are lazy and live comfortably at taxpayers’ expense, exemplifies the flaws in the German system.

The father, who works as a caregiver for young people with learning difficulties, developed a heart condition in 2007 when he was in his forties and was deemed unfit to work.

However, the disability benefits he receives are insufficient to support his family of five, forcing him to constantly search for bargains in stores and resort to food banks at the end of the month.

“A state that fails its most vulnerable citizens doesn’t fix anything, it collapses,” he said,

Housing is another under-reported concern, with only about 49% of Germans own their homes, the lowest rate in the European Union, where the average is 70% (compared to about two-thirds of the population in the United States).

Renters, meanwhile, face a shortage of affordable housing, a problem exacerbated by the lack of investment in new public housing projects.

In major cities like Berlin, Frankfurt, and Munich, high rents eat up a significant portion of income, with limited opportunities for wage increases, particularly in sectors like logistics, hospitality, and nursing, where wages haven’t kept pace with inflation.

The lack of a path to property ownership, which could have mitigated the effects of the decline of the welfare state, is a self-inflicted problem.

Potential buyers are forced to pay upfront taxes and fees that add approximately 10% to the property price, a nearly insurmountable obstacle for those struggling to make ends meet.

It’s no surprise, then, that the opening of any shelter for asylum seekers would ignite anger among Germans who feel abandoned by the political class.

Violence and other crimes targeting refugees increased by 75% to approximately seven crimes per day in 2023, following the arrival of nearly one million Ukrainian refugees in Germany seeking safety.

The Alternative for Germany party has successfully exploited these fears to bolster its political standing.

Its campaign posters have emphasized the importance of securing borders and protecting the homeland.

In a pre-election propaganda effort, party activists distributed images of one-way plane tickets to immigrant families.

Germany’s traditional parties have cooperated for decades to create a bulwark against far-right parties, preventing them from coming to power.

However, efforts to counter the AfD have resulted in fragile government coalitions and negatively impacted German democracy.

Merz’s call for debt relief to increase defense spending, despite the urgent need to revive the economy and enhance security, has sparked controversy, ignoring the will of the more than 10 million voters who voted for the AfD last month.

Efforts have been aimed at preserving the status quo rather than adopting policies that require broad support to help lead the country into the future.

Merz, a new face in German politics, campaigned on an economic platform focused on spending and tax cuts, while left-leaning parties such as the Social Democrats and the Greens advocate debt-fueled investment to stimulate growth.

But the economy is only part of the problem, as the most important question yet to be answered is: Where is Germany headed? And how does it define itself?

Even if the country can adapt to the tensions between the United States under Trump and China, while Russia wages war close to its borders, the transition from recession to modest growth won’t change the reality of millions of Germans who are under immense pressure.

With ethnic nationalism on the rise, filling the void left by decades of lackluster attempts to build a national identity, the solution doesn’t appear to come from within the political class.

When Merz sought to force a vote on his proposal to tighten immigration restrictions in late January, lawmakers traded accusations of lying, while Foreign Minister Annalena Baerbock of the Green Party likened the chaotic scene to a “kindergarten,” and it seems German politicians still have a lot of growing up to do!