The AfD’s success stems from a deep economic and political crisis. The Merz administration is taking risky chances with Russia, but this approach is misguided
Sergio CESARATTO, former full professor of European Monetary Policy and International Economics at the University of Siena
This article originally appeared in Italian at Il sussidiario
On 7 September – the day following the Saxony-Anhalt election – the Federal Statistical Office reported a 1.1 per cent drop in manufacturing output for July. This decline has persisted since early 2023. How do these figures – essentially signalling an industrial recession – connect to the results in Saxony-Anhalt?
It appears that Germany’s economic challenges intertwine with the longstanding depression in East Germany, which was politically catalyzed during reunification. I recall my friend Vladimiro Giacché’s book “Anchluss” (Diarkos 2019), which explores the damaging economic backdrop of the Federal Republic’s absorption of the GDR in 1989: a rushed monetary union that triggered industrial decay in East Germany. The “Anchluss” example was also used to illustrate the consequences that monetary unification would later inflict on Italy’s economy. That said, while both monetary unions contributed substantially to the present European economic and social crises, additional factors also play a role, which I hope to revisit later.
What issues does Germany’s economy face today – is it a problem of supply or demand?
Until recently, I would have unequivocally pointed to demand. Germany’s mercantilist success relied heavily on exports rather than domestic consumption: within Europe during the European Monetary System years and especially the first decade of the euro, and subsequently in global markets from 2010 onward. In each case, Berlin benefited from exchange rate advantages—some concealed by the euro, more explicit against non-European currencies—rendering German policies destabilizing for its partners. Naturally, German products, notably cars, were also of high quality. Yet this strength is now faltering, largely due to a recognized technological deficit. Mystifyingly, despite extensive operations in China, German firms seem to have overlooked China’s rapid tech advances, which now appear irreversible. Had Germany prioritized growth over rigid fiscal austerity—enforced not just on its European neighbors but also at home—perhaps the current crisis might have been averted. After all, when Germany sneezes, Italy invariably catches a cold.
How and why does an economic policy focused on supply over demand:
i) fail to truly identify the core German problem, and
ii) contribute to the AfD’s electoral success?
Ironically, Germany’s challenge today also relates to supply (the demand factor was managed within its mercantilist framework). It seems that German companies, even with their Chinese presence, underestimated or failed to detect this issue—perhaps the Chinese concealed much effectively.
Following the AfD’s victory, Merz called for ‘reforms,’ blaming Germans for having overly generous wages and pensions, and signaling cuts to the latter. How would you characterize the Merz administration’s economic strategy?
The government clearly misses the mark. Discussions are underway about reducing healthcare and social welfare expenditures next year. The Saxony-Anhalt vote reveals widespread disquiet among Europeans, whose social protections—and, whether they accept it or not, their identity—are eroding. Europe itself is deeply unpopular, unsurprisingly given its betrayal of social achievements under a hollow, now militaristic, form of liberalism.
What is the connection between ECB monetary policy and the crisis in Germany—and, by extension, the AfD’s rise?
We must consider the surge in inflation from 2022 onward, coinciding with the conflict involving Russia; while the ECB is performing its role (a separate discussion), the real issue is this devastating war.
Regarding warfare, *Il Sole 24 Ore* notes: “In the draft of Germany’s 2027 federal budget, defense and armament spending will hit 110 billion euros.” What consequences might this bring? Further public impoverishment and growing AfD support?
Undoubtedly, German elites see military buildup as a way to boost demand and manufacturing. An external adversary can temporarily unify and energize production. Eurointelligence confirms this view. Yet, this hope is illusory: producing more tanks won’t compensate for unsold cars by the millions. German rearmament poses concerns not just for Russia but also for France. Moreover, the covert cooperation with Israel on missile defense—leveraging Israeli tech—is hypocritical; in attempting to atone for past genocidal crimes, Germany is now collaborating with those committing contemporary ones.
Despite the efforts of Merz & co., symbolized by the ‘Swabian housewife,’ stagnation persists. Looking at the AfD’s platform, does it offer a realistic alternative to German ordoliberalism? Why or why not?
I remain skeptical. Ultimately, political actors do what they can, and on the right, token anti-immigrant policies or deportation centers in Albania conceal a lack of substantive ideas. The political landscape is truly complex for anyone seeking governance. Priority must be ending the conflict.
What might be the combined impact of green policies, European rearmament, aggressive posturing towards Russia, and Germany’s economic challenges?
Green initiatives appear to be the main victims, while the climate crisis grows dire. Unfortunately, the right exploits the inherent difficulties of green policies, revealing their ignorance. Effective implementation demands profound shifts in consumption and production patterns—impossible without social costs. Yet Europe has failed to formulate equitable, collective transition plans, instead favoring free market forces and austerity. Meanwhile, war with Russia and other conflicts aggravate the climate emergency.
The German government seems headed down a perilous path…
There is a real witch hunt targeting anyone who voices thoughtful opposition to the NATO—and now NATO-EU—war against Russia. In Germany, those seeking to understand Russia are derogatorily labeled ‘Putinversteher’ (“Putin sympathizers”). Living in Germany reveals how much tighter freedom of expression is there compared to Italy. Without striving to comprehend Russia’s perspective—which is not the same as agreeing—lasting peace remains elusive. Hybrid warfare also involves manipulating politicians and influencers on both sides, but this never justifies attacks on independent academics. Recent reports (Eurointelligence) recount a lone eco-terrorist’s arrest in Germany, accused of repeated assaults on energy infrastructure, for which Russia had initially been blamed. NATO vociferously condemned Moscow over Nord Stream 2 sabotage, only for the truth to emerge later by chance. We must be cautious: misinformation knows no limits.
Charging dissenters with being pro-Putin is cowardly, a trap that even respected journalists like Paolo Mieli have fallen into—though one might hope for better. Perhaps they are ‘embedded,’ meaning they carefully craft narratives pleasing to power and money. Personally, my opinions stem from an encounter twenty years ago with political realism, one of the two major international relations theories. Since the USSR’s collapse, realism has warned of the dangers posed by NATO’s eastward expansion amid Russian nationalism and that country’s profound fear of Western aggression. Realism asserts that mutual security foundations underpin peaceful coexistence. The opposing Liberalism school dichotomizes the world into ‘good guys’ (the West) and ‘bad guys’ (everyone else), deeming the latter aggressive and illiberal. Yet this conquest narrative is largely without basis, and the West itself is far from an ideal democracy—dissent is suppressed, the right-wing gains strength, and crimes against humanity by Israel are tolerated, even supported. While illiberal states do pose challenges, is war the solution? The West underestimates the simmering resentment it engenders in these countries. I do not defend oppressive regimes or intolerant ideologies—democracy and tolerance are values that should unite us. But who are we to impose them by force, like crusaders? The West carries a shameful colonial legacy. For now, preserving democracy, tolerance, and social rights at home is crucial. Economic collaboration and peace grounded in mutual security—not aggression—are the ways to promote democracy and tolerance both abroad and here.
Professor, why do you characterize Germany’s stance as especially dangerous?
I rarely watch videos from serious experts, since once convictions form, further proof is unnecessary. However, I recently viewed one featuring John Mearsheimer—the foremost political realist today—and Sergey Karaganov, a prominent Russian political scientist, whose demeanor was friendly yet shrewd. Both concurred on the conflict’s root causes and seemed to endorse political realism. Karaganov’s frequent use of the term ‘morality’ struck me as reflective of the Russian spirit evoked by its great authors; my role is not to judge whether this is rational by our standards, but to understand and rebuild trust, which is essential for lasting peace. Trust hinges on security guarantees. It defies reason how the Franco-German leadership can be seen as anything but foolish discussing European troop deployments on Russia’s borders after proposing a truce. What truce could possibly exist while Ukraine is being rearmed and troops might be sent to Russia’s border? This exemplifies ‘Quem Iuppiter vult perdere, dementat prius’ (Whom the gods would destroy, they first make mad). Russia sees this posture as an existential threat—yet again, as Travaglio recently wrote. If the source of this threat is Germany, as Karaganov stated, it must be neutralized, even destroyed. Tactical nuclear strikes could remind Europeans of mutual deterrence logic, which has preserved peace since WWII. Fear of nuclear war restrained all combatants. Europeans—and Germans in particular—seem to have forgotten these weapons still exist and can be used. I would expect a strike on a German city, and doubt France or the UK would respond, understanding total destruction would follow; Americans would likely abstain. Germany should remain vigilant—no one truly favors it, even in the West. Karaganov claimed moderation in nuclear weapons use, nonetheless.
There are fresh talks of Moscow-Kyiv negotiations…
Initiated by the US, naturally. We hope that Trump’s envoys broker a truce based on current borders, alongside robust security assurances for Russia—excluding European military presence on its borders—and credible guarantees of Ukrainian independence enforced by third parties. These assurances must also cover neighboring states, especially the combatant Baltic countries, which, according to moderate Eurointelligence, wield disproportionate influence in European policymaking. Afterwards, a peace process and restoration of trade with Russia should follow. One more point…
Go ahead…
The Italian Social Democrats (PD) have taken an unacceptable stand on these matters (as with others, including a disgraceful anti-Semitism proposal). Recently, PD secretary Elly Schlein fully supported the initiative by eleven European nations to override unanimity and limit veto rights within the EU. Italy refused to sign. Can it be that the cause of pacifism—or rationality—is being left to the right? This is either mere opportunism or shrewd manipulation, much like its leader (and possibly some allies—who knows, maybe they profit from Putin’s support). The right understands better than the pseudo-left that Italians reject war against Russia (even Russians recognize Italian wisdom, as Karaganov excluded Italy from the list of mortal enemies).
But doesn’t Germany also feel threatened?
By arming Ukraine, Germany invites danger. Mearsheimer noted that with the US retreating from Europe, Germany might feel vulnerable and contemplate developing nuclear weapons. One cannot expect France or the UK to respond to a limited Russian strike, given the risk of total annihilation; nor would the US intervene. Russia would never accept a nuclear-armed Germany (we’ve forgiven them for 50 million Russian casualties during WWII, but only to an extent, as Karaganov said). The sole rational response to this madness is peace based on security and cooperation. Some believe Merz invoked the threat of Russian aggression to unite public opinion against the ‘pro-Putin’ AfD. Even if true, this strategy failed; from this perspective, voting for the AfD could be seen positively by those opposing European leadership’s reckless direction.
Original article: braveneweurope.com
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