(Last update Sep. 2025)
Read Part 1 for the story’s beginning: https://breakingnasdaq.beehiiv.com/p/wtf-happened-with-germany
Germany's Economic Decline Since 2019
Germany, Europe’s economic powerhouse, has lost ~20% of its industrial growth potential since 2019 due to:
Overreliance on Russian energy and phasing out nuclear power.
Underinvestment in infrastructure and modernization.
Heavy export dependence and underestimating China’s manufacturing rise.
Bureaucratic inefficiencies, an aging population, and migration-related social strains.
Why It Matters: Germany’s struggles ripple across Europe, impacting regions like Russia and Ukraine, and risk Eurozone stagnation.
Evidence of Decline
Industry: Major firms like Deutsche Bahn and ZF cut jobs; SMEs downsize.
Energy: Soaring costs despite $1T in renewables, with heavy import reliance.
Social Unrest: Over 40% of Germans prioritize financial struggles; trust in leadership erodes.
Global Context Germany lags behind economies like the U.S. (+11% growth since 2019). Potential U.S. tariffs under a Trump administration add pressure.
Defense Sector Uptick Defense production is growing, contrasting with broader industrial decline.
Outlook Rooted in decades-old policy missteps, Germany’s economic and social challenges threaten its European leadership. Rising far-right extremism, including AfD, underscores the need for urgent, inclusive reforms.
Germany Loses Its Safe Haven Status: A comparison of German and Swiss bond yields suggests the dramatic extent to which Germany has suffered a loss of both its safe haven status and its prestige, as its ability to confront its fiscal deterioration and that of its neighbors has declined.
The universe of safe havens is shrinking, with Germany losing that status this year. The two charts above illustrate what’s going on. The left chart shows the 10-year government bond yield for Germany (blue line) and the 10y20y forward yield (red line) that I’ve backed out from 20- and 30-year bond yields. This 10y20y forward yield is what markets price for the 10-year yield in 20 years’ time. The right chart shows the same for Switzerland. The difference between the two is striking. A true safe haven like Switzerland is seeing yields fall sharply across the yield curve, even at the very long end. That’s no longer true for Germany, where the 10y20y forward yield is up very sharply this year, at a time of elevated global uncertainty that - in the past - would have seen German yields fall. The loss of safe haven status for Germany has a negative externality for the world. It means there’s one less place to hide when global uncertainty rises, which may explain why gold has seen such a massive rally this year. After all, there’s only so much hiding you can do in tiny Switzerland.
Source: Robin J Brooks
The United Kingdom offers a sobering precedent for what we are now witnessing in Germany. Historical budget data show that Britain’s deepest deficits occurred almost exclusively during major wars – the War of the Spanish Succession, the Napoleonic Wars, the World Wars. Crucially, those wartime deficits were followed by rapid debt reduction, driven by post-war growth, inflation, and disciplined fiscal consolidation.
In contrast, today’s deficits in Britain – and increasingly across Europe – are peacetime phenomena. They lack both the political legitimacy of wartime borrowing and the natural reset mechanisms of post-conflict reconstruction. The result is a slower, more fragile downward trajectory, where debt burdens accumulate without relief.
This is precisely why war begins to look like an economic solution: it legitimises deficit spending, accelerates the destruction of unsustainable liabilities, and creates the conditions for rapid restructuring once the conflict subsides. Germany’s militarisation therefore cannot be understood in isolation. It fits into a broader historical pattern: when peacetime deficits become permanent and politically untenable, war is reframed as both necessity and cure.
The French case underlines the same historical pattern we observed in Britain – but with an even sharper warning. For almost two centuries, France’s deepest fiscal deficits coincided with wars: the Franco-Prussian War, World War I, and World War II. In each case, extraordinary wartime borrowing was followed by a clear reset mechanism – reconstruction, inflation, or political restructuring – that allowed deficits to be reduced.
Since 1974, however, France has not recorded a single budget surplus. The extraordinary has become permanent. Deficits are no longer linked to existential wars but to the day-to-day functioning of the state. What was once exceptional wartime finance has turned into chronic fiscal imbalance.
This shift is dangerous because it removes the “reset button” that wars once provided. Without either genuine growth or the destructive-cleansing cycle of conflict, deficits accumulate endlessly. For policymakers, this makes war appear—paradoxically—not as a calamity but as the only remaining tool to compress obligations and restart the fiscal cycle.
Germany’s Constancy Trap – How a Nation Castrates Itself in the Name of Stability
It’s no coincidence that in Germany, even emigration requires a government form. We are the country of insurance policies, certificates, and the sanctified Thermomix. But beneath that polished surface: exhaustion, quiet frustration, a collective paralysis. Welcome to the Constancy Trap – Germany’s national illness, dressed up as rationality.
In short, Europe’s sovereign debt crisis is reaching a crossroads. Bond markets are no longer a distant abstraction – they are now visible constraints on policy. As yields climb and ratings wobble, governments face a choice: keep borrowing in open markets at ever-higher cost, or turn to domestic savers. The latter path can be framed as patriotic – “buying Bunds” or “funding defense” – but it carries a heavy historical risk. War bonds, silent rearmament bonds, Cyprus bail-ins and Argentine corralitos all show that promises of national unity can quickly give way to involuntary sacrifices. Analysts like IMF’s Gopinath and Era Dabla-Norris warn that we are in a “fragile” fiscal moment . If crisis rhetoric ramps up, European governments might well pivot to the “people’s purse”.
Citizens should heed these warnings. History teaches that once a government begins even limited tapping of private savings, a little coercion can turn into a lot. For now it’s a political and rhetorical gamble, but not an impossible one. Europeans would do well to remember the past: the next “loan” could come with terms the public never imagined.
“They need war because they are in a sovereign debt crisis, and pensions, banks, and bonds are in deep trouble.”
Martin Armstrong, the legendary financial and geopolitical cycle analyst renowned for his “Socrates” predictive computer program, has delivered a dire forecast for the world’s economic and political future beginning in 2025. According to Armstrong, the coming years will witness a cascade of depressions, sovereign defaults, debt crises, and large-scale wars that will reshape global power dynamics and economies alike.
Providers of private bunkers report a surge in demand in Germany. The manufacturer BSSD Defence recorded a 50% rise in inquiries since January. Landlords are also inquiring about shelters for their tenants.
According to company boss Mario Piejde, more than half of the inquiries come from companies and landlords. "Companies are calling us because they want bunkers on their premises for their employees." The German Shelter Center (DSZ) in Munich also confirmed a sharp increase in inquiries for small bunkers. "Especially after the recent events in Poland, we have seen an increased demand for consultation appointments."
According to the DSZ, there are various options for building a private bunker: The cheapest is to construct the shelter in the basement of a house. Building a bunker in the garden is also possible in most federal states with a building permit.
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The two pieces of news somehow fit together and illustrate the absurdity of German politics:
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In Germany, the short-lived rally at the start of the year has already fizzled out. The country is losing ground on the global stage: German stocks now make up just 2.1% of global market capitalization, down from 2.4% only three months ago.
The German auto industry is expected to eliminate nearly 100,000 jobs by 2030. Carmakers and their suppliers are struggling w/waning demand, high labor, energy costs and intensifying competition from Chinese manufacturers. Overall, Germany’s auto sector has lost roughly 55,000 jobs over the past 2 years. Tens of thousands of additional positions are set to disappear by 2030, in an industry that employs more than 700,000 people.
Lufthansa to cut thousands of jobs in pursuit of efficiency - the airline group intends to reduce its administrative staff by 20%. A total of 15,000 employees work in administration, and 3,000 jobs are to be cut.
Sources: Handelsblatt, Reuters
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