A commentary by our author Klaus Batian:
In 2026, Germany is experiencing a profound crisis regarding its viability as a business location—a crisis with causes that extend far beyond a mere economic downturn. Industrial jobs are vanishing, and infrastructure is falling into disrepair. Government spending continues to rise, while tax revenues—stifled by weak economic growth—are falling short of budgetary projections. This widens the funding gap, forcing the state to take on ever-increasing amounts of additional debt. Decades of flawed political decisions—concerning energy, migration, bureaucracy, and public investment—have exacerbated these problems. Particularly critical is the political system’s inability to reform itself, as it largely clings to its existing structures. The consequences are taking a toll on businesses, employees, and taxpayers, and are increasingly affecting the budgets of local municipalities as well.
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The crisis of Germany as a business location is the result of decades of poor decision-making
For decades, Germany was one of the most economically successful industrial nations. Reunification was achieved despite enormous financial burdens, while the country’s industrial sector captured markets across the globe. Yet, this economic success increasingly masked underlying structural weaknesses. Policymakers and the administration relied on a steady rise in tax revenues rather than consistently implementing necessary reforms. Consequently, there is now a lack of financial flexibility, while the costs of these past omissions continue to mount.
The economic warning signs have become impossible to ignore. In August 2026, industrial orders fell by 10.6 percent compared to the previous month—though this figure was significantly skewed by a few exceptionally large contracts. Excluding these one-off factors, orders remained virtually stagnant. At the same time, the number of employed persons dropped by approximately 235,000 compared to August 2025. Germany is thus losing jobs, even as policymakers continue to pin their hopes on an economic recovery.
Energy Policy Exacerbates Industrial Challenges
Political decisions regarding energy supply are particularly burdensome. In April 2023, Germany shut down its final nuclear power plants, even as the previous supply of Russian natural gas had already fallen away. In doing so, the federal government opted to forgo a reliable source of electricity generation. Instead, it is increasingly relying on weather-dependent wind and solar energy, the expansion of the power grid, storage solutions, and new gas-fired power plants. However, during periods of low wind and darkness, coal and gas-fired plants must still step in to fill the gap. The cost of electricity generated by these facilities is further inflated by CO₂ certificates under the European Emissions Trading System. Consequently, rising certificate prices increase the production costs for fossil-fuel power plants and can also drive up electricity prices on the wholesale market.
Furthermore, the expansion of wind and solar energy—which in many areas is progressing faster than the necessary grid infrastructure—entails significant costs. Although the former renewable energy surcharge (EEG-Umlage) has been abolished, the associated subsidy costs are now covered by the federal budget—and, ultimately, by the taxpayer. For 2026 alone, approximately 16.2 billion euros have been earmarked for this purpose. At the same time, grid bottlenecks necessitate costly “redispatch” measures, requiring power plants to adjust their output and, in some cases, forcing the shutdown of renewable energy installations. Including other grid-congestion measures, these interventions cost approximately 3.08 billion euros in 2025, with the burden passed on to electricity consumers through grid fees. Moreover, high levels of wind and solar generation frequently lead to negative wholesale electricity prices, while existing subsidy entitlements can generate additional costs. In effect, electricity consumers and taxpayers are financing the continued expansion of wind and solar capacity, even though the existing power grid is already, at times, unable to fully transport the electricity being produced. Nevertheless, additional power generation facilities are being built, while the necessary expansion of the grid is lagging years behind the original schedule. This exacerbates existing grid bottlenecks, while costs for redispatch measures—adjusting the output of power plants to manage grid congestion—and the curtailment of generation facilities continue to accrue. On top of this, there are government subsidy costs for renewable energy. At the same time, conventional power plants remain indispensable for ensuring a reliable electricity supply. Consequently, additional costs are incurred for new generation capacity, grid stabilization, and guaranteed power plant output, even though the existing grid infrastructure is already reaching its limits.
Dilapidated infrastructure despite high government revenue
The state of Deutsche Bahn (German Railways) illustrates the consequences of decades of neglected investment. In September, only 52.4 percent of long-distance train arrivals met the operational punctuality threshold. Meanwhile, damaged bridges, railway lines in need of renovation, and outdated facilities require massive investment. Germany is now paying the price for failures that timely maintenance could have, at least in part, prevented. Instead, policymakers funded an ever-expanding array of new tasks while existing infrastructure fell into increasing disrepair.
Schools, government agencies, and municipalities are also grappling with significant challenges. Protracted approval processes drive up the cost of investments, while complex regulations place a burden on businesses and citizens alike. Simultaneously, government spending and the funding requirements for social security systems are rising. Yet, high levies alone are no guarantee of better administrative services or functional infrastructure. The disparity between the financial burden imposed and the actual services delivered is, therefore, particularly problematic.
Migration and the welfare state: a lack of coordination
Given its aging population, Germany is in need of skilled labor. Yet, for decades, the country has failed to consistently align labor migration, qualification recognition processes, and integration efforts with the needs of the labor market. At the same time, additional immigration increases the short-term demand for housing, school places, and municipal services. These burdens vary significantly depending on the region and the composition of the immigrant population. A responsible policy would therefore need to better align a society’s capacity to absorb newcomers with their qualifications and the integration process.
Furthermore, there are growing challenges regarding pensions, long-term care, and health insurance. In the future, a shrinking number of working-age people will have to support an increasing number of elderly individuals. Consequently, social security systems require sustainable reforms rather than a constant stream of new financial subsidies. This necessitates a combination of incentives for employment, skills development, and faster processing of work permits. A state that hinders employment through excessive bureaucracy undermines its own financial foundation.
Political Power Structures Hinder Necessary Reforms
The crisis facing Germany as a business location also reveals a fundamental problem within the political system. For decades, the CDU and SPD have shaped key decisions and helped construct extensive administrative structures. Added to this are various associations, publicly funded institutions, and numerous institutionalized interest groups. While such structures may perform important functions, they can also slow down change and protect the status quo. It is particularly problematic when political decisions prioritize the funding of existing organizations rather than achieving measurable improvements.
At the same time, growing polarization makes it difficult to engage in an objective debate about flawed political decisions. In areas such as energy policy, migration, and the welfare state, fundamental objections are frequently evaluated along ideological lines. Yet, democratic parties must be capable of refuting even uncomfortable positions through reasoned argument. Moral judgments are no substitute for functional policy concepts. When political accountability is lost amidst mutual finger-pointing, the root causes remain unaddressed.
Without a Fundamental Change in Course, Long-Term Loss of Prosperity Looms
The federal government is banking on additional investment and economic relief measures. However, new debt and subsidy programs alone cannot resolve the fundamental problems affecting Germany’s standing as a business location. Above all, companies require predictable energy costs, swift decision-making, and a reliable regulatory framework. Meanwhile, the self-employed are struggling with restricted access to credit; according to the ifo Institute, 54.4 percent of micro-enterprises and self-employed individuals negotiating for loans recently reported such difficulties. Yet, without private investment, economic renewal is unlikely to succeed.
Germany continues to possess significant industrial and scientific potential. However, this potential cannot be sustained in the long term through higher government spending and an ever-increasing number of regulations. Political responsibility spans multiple federal administrations and decades. For this very reason, neither short-term economic stimulus packages nor superficial administrative reforms will suffice. The real scandal is that many problems have been known for years, yet their resolution is repeatedly postponed. The price is paid by employees, businesses, and future generations.
Author: Klaus Bastian – Blackout News
Sources: Destatis (19.10.26) – NDR (22.10.26) – Bundeswirtschaftsministerium (14.10.26) – Destatis (Stand: 22.10.26) – ifo-Institut (08.10.26) – Deutsche Bahn (Stand: 22.10.26)