Submitted by Thomas Kolbe

Germany’s economy has endured a terrible 2025. Chancellor Friedrich Merz’s government has set the course for further decline in the coming year.

If German politicians’ salaries were linked to private sector growth, lawmakers would likely have to take out loans in the deeply recessive year of 2025 and compensate citizens for parliamentary inaction and ideological foolishness.

Although the term diät derives from the Latin dieta, loosely meaning “compensation,” in the context of Germany’s collapsing industry it more accurately reflects the German meaning: deserved frugality and material austerity. Economically, Germany is now facing the end of the illusion of prosperity, which follows the catastrophic policies of the government.

Shrinking Private Sector and Rising State Burden 

After eight months under Chancellor Merz, the record is not just meager—it is pitiful. Assuming a 50% state quota and calculating real GDP growth of 0.2% with net new debt over 4%, the net result for 2025 is a roughly 3.8% contraction of the private sector compared to the previous year.

What is scarcely known in Berlin—likely a form of economic esoterica not taught in party seminars or union courses—is that only the private sector produces the goods and services people actually consume. It is no surprise that heavy regulation and crushing taxes—Germany is surpassed only by Belgium in the OECD in fiscal extraction—strangle private enterprise.

Investment fell roughly 6.5% below long-term averages—a quantum leap in the wrong direction, deeply impacting labor markets, public budgets, and social security. While Finance Minister Lars Klingbeil attempts to mask deficits and exemptions as mere cosmetic fixes, municipalities face a €35 billion shortfall this year.

Crisis Becomes Visible 

At the lowest levels of the state, in cities and towns, the bill for decades of political mismanagement is now arriving first.

The trigger is collapsing business tax revenue, a direct result of a record number of corporate bankruptcies: 24,000 companies will have exited the market in 2025.

The labor market’s seeming stability is misleading. Hundreds of thousands of new public sector jobs and age-related retirements obscure the collapse of the real economy in official statistics. Merz executed the debt brake with the outgoing Bundestag in April, catapulting Germany into a debt spiral with a €500 billion special fund—a clear indication that policymakers knowingly ran the economy into a wall.

Neither the green “art economy” nor the heavily subsidized military sector will adequately fill freed industrial capacity. Core sectors such as chemicals operate at just 70% capacity, 10% below break-even—a stark signal that the creeping productivity erosion and economic depression since 2018 will worsen, regardless of state credit funneled into centrally planned subsidies.

Welfare State and Refusal to Reform 

Berlin has fully submitted to Brussels’ dreadful climate-socialist doctrine and now faces the challenge of hiding its ideological failure. Merz and his team continue the known media-political strategy: as with migration, a continuous camouflage is maintained.

When it comes to deceiving the public, party headquarters show remarkable creativity, leaving no lie too bold. A deportation flight may be staged for optics, while borders remain wide open, family reunification is promoted, and German passports are handed out freely. The aim is to cultivate new voter bases and apply a “divide et impera” strategy to erode cultural and traditional societal cohesion.

Time is bought and the course maintained—just as in climate policy. Pseudo-reforms, such as the ostensible end to the combustion engine phase-out, serve only to give the struggling auto industry an illusion of technological openness while creating a new bureaucratic monster, ultimately fulfilling Brussels’ objective: halting German automotive production.

From the Eurocrats’ perspective, the results are impressive if the goal was deindustrialization. Around 300,000 industrial jobs were cut in the last five years. And when a nation loses its industrial core, much of its value creation disappears with it.

In 2025, German production hovered about 20% below the 2018 peak. An economic and social catastrophe looms, whose consequences seem intellectually incomprehensible to functionaries and eco-centric elites with regard to social cohesion.

Collision with Reality 

If 2025 was already catastrophic, the coming year will likely be a collision with reality for many Germans. Social contributions and taxes must rise sharply to sustain social security amid migration and demographic pressures.

Merz’s government continues the legacy of Angela Merkel and Olaf Scholz: a Brussels-bound green central planner in the guise of the Ludwig-Erhard party, a political scarecrow devoted solely to consolidating power in Brussels.

The German people, particularly the shrinking class of economic achievers in the middle market, will face an accelerated decline after a dreadful 2025—one the government’s media games can no longer conceal.

Merz’s illustrious “Made for Germany” entrepreneur café was a media fake; “Made in Germany” increasingly belongs to the past. The bitter truth: Germany is done

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About the author: Thomas Kolbe is a German graduate economist. For over 25 years, he has worked as a journalist and media producer for clients from various industries and business associations. As a publicist, he focuses on economic processes and observes geopolitical events from the perspective of the capital markets. His publications follow a philosophy that focuses on the individual and their right to self-determination.