Germans will remember 2022 as a year marked by the shattering of apparent certainties and a growing sense of insecurity.

The year started with a strong sense of optimism and change. After 16 years of Chancellor Angela Merkel’s reign, in December 2021 a new government was sworn in under the leadership of Olaf Scholz. The new governing coalition of Social Democrats, Greens and Liberals set themselves the task to “dare to make more progress” and to modernize Germany: pushing the digital agenda, setting ambitious carbon neutral policy targets, and making German society more equitable. Germany had also come through the coronavirus pandemic comparatively well and the second pandemic winter was also less severe than expected.

War in Ukraine: the collapse of political realities

The Russian invasion of on 24 February 2022 was a watershed moment and immediately put Germany in an altogether different reality. The maxim "never again war in Europe" profoundly shaped political attitudes of German post-war generations but war had suddenly become a reality. Since the beginning of the Russian invasion, Germans and Poles have been the most concerned?about being drawn into a military conflict accroding to Ipsos Public Affairs data.

The principle of "change through trade" that had characterized German foreign and economic policy during the Merkel era is now a relic of the past

Three days after the Russian invasion, Chancellor Olaf Scholz announced in the Bundestag his intention to spend 100 billion euros on the Bundeswehr (German armed forces) on top of the existing budget. He announced that Germany must take a leading role in European defense. Scholz’s "Zeitenwende" (Turning Point) speech marked a radical break with old conventions. The war has also forced Germany to reconsider its relationship with Russia. The principle of "change through trade" that had characterized German foreign and economic policy during the Merkel era is now a relic of the past.

?New economic woes

Cheap Russian energy had contributed significantly to the success of the German economic model. With the loss of cheap energy from Russia, the foundations of Germany’s prosperity are shaking. The transition to renewable energy will undoubtedly take time and its costs weigh heavily on German business and consumers. The current situation seriously threatens the competitiveness of German industry. Rapidly-rising prices are a consequence of the current energy crisis and inflation is by far the biggest concern among the German population. While in August 2021 only 8% of Germans were worried about inflation, the number has risen to 47% in November 2022 (see 益普索 Global Advisor Data)

The Russian-Ukrainian war is not the only geopolitical challenge; German politicians and business leaders are also worried about growing tensions between China and Taiwan. German companies are highly dependent on Far East Asian export markets and many German companies established production sites in Asia.?Because of expansionist Chinese foreign policy, German leaders are evaluating the dependency of the German economy on China.

German society is aging rapidly and the economy is experiencing a chronic lack of skilled workers. This has become manifest across industries from catering to manufacturing, construction, and healthcare services. The shortage of skilled labor jeopardizes Germany’s ambitious energy transition policies: according to a recent study, the German economy currently lacks more than 200,000 skilled workers required to successfully expand solar and wind energy production. Aging also threatens intergenerational solidarity and puts pressure on the pension system. There is little doubt among industry leaders and politicians that future economic growth and prosperity depends on attracting foreign labor. Whilst liberal migration policies are urgently needed, the majority of Germans reject increasing the influx of foreign workers. A recent survey by Ipsos Germany?showed that only 30 percent of Germans are in favor of relaxing laws facilitating migration of workers from non-EU countries to Germany.

Energy transition and climate protection

The topics of climate and environmental protection traditionally play a very important role in German society and have shaped public debate for decades. In hardly any other country are people as concerned about the consequences of climate change as they are in Germany. A few weeks after the devastating floods in Western and Central Europe in the summer of 2021, Germans' fear of climate change?reached a record high.?Moreover, for some years now, the environmental movement has been gaining political influence. In the last federal election, the Green Party achieved its best-ever result and the Greens are now part of the governing coalition.

Germany will abandon energy generation from fossil fuels in the coming years. The government is also vehemently pursuing a radical nuclear phase-out strategy despite the current energy crisis. This contradiction came to the fore in recent debates about extending the operating lives of the remaining three German nuclear power plants, which almost caused the government coalition to fall apart. Given the rising cost of living, the current energy policy has the potential to divide society and to radicalize the fringes of the political spectrum.

A strong democracy that defies adversity

Regardless of the current polycrisis situation, Germany remains a stable and trusted partner with a high repuation?and the strength of German democracy has been demonstrated during the federal elections in 2021. Despite all homemade and external challenges, populist parties emerged from the election weakened. Moreover, the German economy showed its robustness during the COVID-19 pandemic, which most companies weathered surprisingly well.

Ralf Ganzenmueller Rouven Freudenthal Harald Hasselmann

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