Germany is Europe's largest economy, led since May 2025 by Chancellor Friedrich Merz of the Christian Democratic Union (CDU).
The country's political establishment has for 80 years been built around a strong transatlantic relationship with America. The CDU's Bavarian ally is the Christian Social Union (CSU). The hard-right Alternative for Germany (AfD) achieved its best-ever result in the February 23rd 2025 election, at one point overtaking the CDU/CSU in polls. Die Linke, a hard-left party, also surged, gaining enough seats that fringe parties could block constitutional changes in parliament.
Before the new Bundestag convened, Merz pushed through changes to fiscal and defence policy that loosened spending restrictions to free up vast sums for defence—a response to doubts about America's commitment to NATO under Donald Trump.
On May 2nd 2025 Germany's domestic intelligence service labelled the AfD a "confirmed" case of right-wing extremism. Many MPs, including some of Merz's own, want a ban; Merz is known to be sceptical.
Merz's coalition with the SPD, formed in May 2025, holds a majority of just 12 seats. Lars Klingbeil, the SPD co-leader, serves as vice-chancellor.
Germany has steadily expanded controls on its land borders in response to public anxiety over irregular migration, which peaked in 2015 but remained high for years. Checks have been in place between Slubice in Poland and Frankfurt an der Oder since 2023, compressing traffic into a single lane and creating long tailbacks. On May 7th 2025, interior minister Alexander Dobrindt rescinded an order dating from Angela Merkel's time that obliged border police to let asylum-seekers into the country; they may now turn all but the "vulnerable" away. The government says its policy relies on an EU treaty clause allowing border turnbacks to protect internal security, superseding the Dublin regulation. Critics, including legal scholars and the opposition Greens, say the controls are illegal.
Poland, the Czech Republic, Switzerland and Luxembourg have all protested the controls. Merz wants to get annual asylum claims below 100,000.
In 1990 around 80% of Germans felt they could express their opinions freely; now it is less than half. It has long been an offence to make critical remarks about politicians that cannot be substantiated. The law was tightened in 2021. Robert Habeck, vice-chancellor until May 2025, filed no fewer than 800 complaints under it—for example for being called "a professional idiot". A right-wing journalist who published a satirical meme involving an interior minister received a seven-month suspended prison sentence.
German workers laboured for the shortest time of any wealthy economy in 2023, according to the OECD: an average of 1,343 hours a year, compared with 1,705 for Americans and 1,897 for Greeks. The average German now takes 15 days of sick leave every year. Clemens Fuest, head of the Ifo Institute in Munich, has proposed cancelling one public holiday, claiming it would boost GDP by about €8bn a year. Germany has nine nationwide public holidays, but its 16 states add many more: Bavaria leads with 13, Baden-Württemberg has 12, and Saxony and Thuringia each have 11. Business leaders back the idea; unions are staunchly opposed. Denmark abolished "Great Prayer Day" in 2023-24 to help pay for higher defence spending.
The €100bn spending spree launched by Olaf Scholz after Russia's invasion of Ukraine gave Germany the world's fourth-biggest defence budget, according to SIPRI. Friedrich Merz plans to ramp spending further, aiming to make the Bundeswehr the "strongest conventional army in Europe." He has signalled that Germany will sign up to a NATO target of 3.5% of GDP for defence plus 1.5% for related infrastructure — some €215bn a year at today's output.
In April 2026 the Bundeswehr published its first military strategy in the history of the federal republic, alongside a "capability profile". The strategy describes targets for "technological superiority" by 2039, including in deep-precision strikes. By 2029 Germany pledges to meet NATO's spending target of 3.5% of GDP, and its defence budget could top €160bn ($188bn), leaving Britain and France far behind. The Bundeswehr, conceived in 1955 as an alliance army, needs 260,000 troops to meet its NATO obligations by 2035, up from 185,000 today, as well as building a reserve of 200,000.
In May 2025 Germany inaugurated its 45th Panzer brigade in Vilnius, Lithuania — its first permanent deployment abroad since the second world war, set to number 5,000 troops by 2027. General Carsten Breuer, the inspector-general (as Germany's most senior soldier is officially known), took over in 2023. Boris Pistorius, the defence minister, is Germany's most popular politician.
In 2024 two German warships sailed through the Taiwan Strait—the first such transit in 20 years.
Conscription was suspended under Angela Merkel in 2011. From 2026 all 18-year-olds will get a questionnaire assessing their willingness to serve; from 2027 18-year-old men will take a medical exam, building a database of who could be mobilised—part of what Boris Pistorius calls Kriegstüchtigkeit ("war readiness"). Extending the system to women would require a constitutional change. Polls find a majority of Germans in favour of restoring conscription; support is predictably lowest among the young. The Bundeswehr reported a recruitment uptick of 28% in 2025, but one in four new recruits drops out within six months of joining.
In 2023 Germany signed a $4.3bn contract to buy Israel's Arrow 3 interceptor batteries, which down incoming ballistic missiles while they are still outside the atmosphere; in May 2025 it announced it would also buy the more advanced Arrow 4. The IRIS-T air-defence system has proved itself in Ukraine but is still undergoing domestic testing. Dozens of German universities maintain self-imposed bans on accepting government money for military research. Helsing, a startup co-led by Gundbert Scherf, focuses on AI-enabled land, air and maritime defence systems.
Germany is one of Europe's laggards in government digitalisation. During the covid pandemic, German health authorities demanded that test centres print and fax their results, only to then type them back into a computer. A landmark digital-access law of 2017 focused too little on what happens beyond the screen. Karsten Wildberger serves as digital minister. Each ministry and state has its own processes, systems and pride; Germany requires contracts worth more than €25m to be approved by the Bundestag's budget committee, slowing procurement. In November 2025 Greece's Kyriakos Pierrakakis visited Wildberger to share lessons from Greece's digital transformation. Berlin's chief digital officer, Martina Klement, has put more than 400 services online, with the most common ones digitalised first.
Deutsche Bahn, the state-owned rail giant, has come to symbolise Germany's dilapidated public realm. Barely 60% of long-distance trains arrived on time in 2024. In September 2025 transport minister Patrick Schnieder appointed Evelyn Palla as chief executive and set a target of 70% punctuality by 2030. A refurbishment of 40 big rail routes is planned over 12 years. The company employs 211,000 workers in Germany.
Germany enacted a constitutional cap on deficits—the "debt brake" (Schuldenbremse)—in 2009. Its pension-plan assets amount to just 6% of GDP, despite the country's rapid ageing, far below the 100%-plus of GDP accumulated by Australia, Canada, Denmark, the Netherlands and Sweden.
On June 24th 2025 Lars Klingbeil, the finance minister, unveiled plans to borrow €850bn over the current parliament for a €500bn infrastructure programme—focused especially on Deutsche Bahn, the miserable state of which has come to symbolise Germany's dilapidated public realm—and a giant rearmament scheme. Public investment is set to grow by two-thirds between 2024 and 2026. Annual deficits could exceed 3% of GDP. A recent tweak to the constitution exempts most defence spending from the rigid "debt brake"; an off-budget vehicle for the infrastructure splurge was a demand of Klingbeil's Social Democrats. Germany's debt stock is just over 60% of GDP, lower than most NATO peers.
Germany says it will reach the new NATO defence-spending target of 3.5% of GDP by 2029, six years before the alliance deadline. There is a €144bn hole between estimated revenues and spending in 2027–29; Klingbeil is betting that growth will plug it. Robin Winkler, chief Germany economist at Deutsche Bank, warns that stimulus-induced growth could ease pressure on politically tricky structural reforms. Subsidies to the pension system are the largest single item in the federal budget, and the country is ageing fast. Jens Südekum, an economics professor and adviser to Klingbeil, says the €500bn, to be spent over 12 years, gives firms the assurances to build capacity.
On July 17th 2025 Friedrich Merz made his first official trip to Britain, signing a wide-ranging "friendship" treaty with Keir Starmer—Germany's first major bilateral agreement since the Elysée Treaty with France in 1963. Officials believe the pact cements a "strategic triangle" between Britain, France and Germany. The treaty covers defence (including joint development of a long-range strike missile and a mutual-assistance clause), the economy and migration. Germany's onerous weapons-export restrictions, long a bugbear of British arms-makers, are to be loosened. Germany also promised to clamp down on the trade in small boats used by gangs to smuggle migrants across the Channel. In return, Britain agreed to restore educational exchanges, making it easier for German schoolchildren to visit without visas.
Germany's Erinnerungskultur ("memory culture") is a system of memorials and rituals built up over decades to reckon with the Holocaust. Berlin's Monument to the Murdered Jews of Europe sits near the Reichstag and chancellery. Across the country, Stolpersteine—small brass plates bearing the names and fates of Holocaust victims—are set in the pavements outside their former homes.
In 2008 Angela Merkel used the term Staatsräson ("reason of state") in an address to Israel's Knesset to describe Germany's commitment to Israel's security. Friedrich Merz declared before the 2025 election that his government would stand "firmly on Israel's side" and promised to circumvent the International Criminal Court arrest warrant for Binyamin Netanyahu.
Germany has a Palestinian community of around 200,000. The Foundation for Remembrance, Responsibility and Future (evz) found Germans about evenly split as to whether it was time to "draw a line" under the Nazi era. Polls show a steep long-term decline in the share of Germans holding antisemitic views; most recorded antisemitism in Germany is of the far-right sort. Just 14% of Germans regard Israel's actions in Gaza as proportionate.
Baden-Württemberg, a state of 11m in Germany's south-west, has long exemplified Germany's business model: a lattice of small, middling and big firms employing lots of people to make high-quality stuff, especially cars, and sell it to foreigners. American tariffs, surging Chinese imports and an automotive sector in crisis are putting this at risk. Over 200,000 jobs in and around Stuttgart, the state capital, depend on the car sector. Mercedes and Porsche are laying off workers. Bosch, one of the largest automotive suppliers, will cut 22,000 jobs by 2030, many in Baden-Württemberg. Smaller Mittelstand firms dotted around the state that depend on the internal combustion engine face obsolescence. Stuttgart's corporate-tax receipts have fallen by almost half in two years. Nearly half of voters tell pollsters the region could face the fate of Detroit. With 13% of Germany's population, the state accounts for nearly 40% of patent applications. ebm Papst, a cooling-technology firm with over 5,000 workers in the state, has pivoted from the car business to cooling systems for data centres.
On March 8th 2026 Cem Özdemir led the Greens to a surprise victory by 27,000 votes, becoming the first German with a migrant background to lead one of Germany's 16 states; he will probably head a Green-CDU coalition. Some 30% of Germany's population are immigrants or have an immigrant parent. The Alternative for Germany hopes to ride anxiety to its best-ever election result in a west German state; it is leafleting workplaces, campaigning in works-council elections and promoting Zentrum, a pseudo-union headed by a former guitarist for a skinhead rock band. Yet the AfD has no base in urban areas like Stuttgart, where the transition will hit hardest. In rural spots like Hohenlohe, where unemployment is just 3.7%, fear of a loss of security rather than real deprivation fuels its support.
Around 940,000 Syrians live in Germany. Roughly 640,000 have some form of legal protection, with another 65,000 seeking asylum (adjudications were suspended after Bashar al-Assad's fall in December 2024). Such protections can be revoked only on an individual basis—and only if officials see sustained improvement in conditions in Syria, where 90% of people live in poverty. Almost a quarter of a million Syrians have naturalised in recent years, and hundreds of thousands more will do so.
Slightly more than half of Germany's Syrians do not work, but the employment rate is growing quickly. Of working-age Syrians who arrived in 2015, preliminary figures for 2025 suggest 65% were employed and another 5% self-employed—not far off Germany's overall rate of 77%. Herbert Brücker, head of the migration research unit at Germany's Institute for Employment Research, says a notional expulsion of Syrians would damage sectors such as health care and logistics. Friedrich Merz, during a press conference with Ahmed al-Sharaa, Syria's president, suggested that 80% of the Syrians in Germany should return home within three years—a figure not remotely plausible given the legal and practical obstacles.
Germans are losing their taste for beer. In the first half of 2025 six-month beer sales fell below 4bn litres for the first time since counting began in 1993. The median German drank 112 litres in 2005; the figure is now less than 90. Germany remains the sixth-biggest beer market in the world, but has slipped to eighth in per-person consumption, behind the Czechs and others. The non-alcoholic sector is booming and now accounts for almost one-tenth of beer brewed in Germany. Germany's purity law, the Reinheitsgebot, limits what can be marketed as beer. Nearly 100 German breweries have closed in the past five years.
Germany has over 600,000 Vereine (clubs or associations), spanning interests from football and painting to sugar-packet collecting. The requirements are simple: seven people, a board and statutes. Some Bundesliga teams are organised as Vereine. In 2015 UNESCO added German shooting culture to its "intangible heritage" list. Merz's home town of Arnsberg in the Sauerland region is a stronghold of Schützenvereine (shooting clubs), rooted in medieval militias. The number of clubs has grown faster than membership, suggesting diversifying interests, and Fördervereine ("support clubs") have mushroomed to help fund cultural and educational institutions as municipal budgets are squeezed. Germany's 86,000 sports clubs are said to be particularly important for integrating newcomers. The Alternative for Germany has tried to infiltrate Verein structures rather than create its own; in response the Association of Historical German Shooting Brotherhoods has banned AfD members from its clubs.
Germany's bureaucracy is top-down, formalistic and lawyerly, its roots pre-dating democracy. In the 19th century, Prussia modelled its hierarchical bureaucracy on its army. A compromise between the monarch's desire to govern unimpeded and parliament's wish for a rules-based state produced a complex machine only lawyers could navigate—swept aside by Hitler but restored after the war.
Nearly half of leading positions in federal agencies and ministries are today occupied by lawyers, compared with roughly a quarter in France and less than a sixth in Britain. In 2012-15 only 9% of civil servants had significant private-sector experience, against 28% in Britain. German companies have taken on 325,000 people over the past three years simply to ensure regulations are met—four times as many as were hired overall by IT and engineering firms in the same period, according to the Institute for Employment Research.
A study by the Ifo Institute found that had Germany experienced a big-bang bureaucratic reform in 2015, GDP per person would have been 4% higher by 2022. On December 4th 2025 the government agreed with regional leaders to a major modernisation of how the state works, including tight deadlines for planning applications after which they would automatically pass.
Overall defence spending has risen from €47bn in 2021 to a projected €108bn in 2026, or 2.8% of GDP. In early 2026 the government downgraded its growth forecast for the year from 1.3% to 1%. In 2025 the economy eked out growth of 0.2%, after years of stagnation or worse. Two-thirds of the projected 2026 growth is credited to fiscal policy. Manufacturing orders have begun to boom, probably owing largely to outlays on weapons and ammunition; but overall manufacturing output remains stagnant, having fallen by 15% since its peak in 2018. Germany is shedding around 14,000 manufacturing workers a month. The deficit was 2.4% of GDP in 2025. Carsten Brzeski, a Germany-watcher at ING, a bank, regards Germany as a "ketchup-bottle" economy: shake it for ages and nothing happens, until suddenly it all comes out.
Germany's economy has been stagnant for three years as of early 2026. Insolvencies in December 2025 rose 15% year-on-year, with more than 17,600 company insolvencies that year—the highest in 20 years. Notable failures include Zalando closing a 2,700-worker logistics centre, Goertz (shoes), Gerry Weber and Esprit (fashion), Groschenmarkt (discount retail), Karrie Bau (construction) and Zoo Zajac (the world's largest pet store). Unlike previous downturns that hit specific sectors, the malaise is across the board. Germany's export-oriented manufacturing model is especially vulnerable to global conflict, tariffs and high energy prices. The closure of Eberswalder Wurstwerke, once the GDR's biggest sausage maker with 3,000 workers, in the town of Britz became a symbol of the broader stagnation. Growth has been flatlining and industry flailing; companies are sounding the alarm and capital is fleeing. The country's political right had long held the transatlantic alliance as an article of faith, and the commercial relationship with America was central to German prosperity. Germany accounts for about 40% of the EU's exports to China.
Germany is Europe's biggest exporter to China and its biggest investor there by far. China became Germany's biggest trading partner in 2016. The trade deficit with China reached €66bn ($76bn) in 2024 and surged to €90bn ($105bn) by early 2026—a head-spinning 2% of GDP—driven by a collapse in German exports and a rush of Chinese imports of cars, chemicals and machinery, hitherto German specialities. German cars command only 17% of the Chinese market, down from a peak of 27% in 2020. China accounts for close to 6% of German exports, the highest level in the EU, according to Deutsche Bank. Almost half of German manufacturers rely on products from China, according to the Bundesbank.
China's net car exports have risen from zero in 2020 to 5m units, while Germany's have halved over the same period to 1.2m. Chinese brands account for 20% of the European hybrid market and 11% of electric-vehicle sales. Half of the industrial companies facing Chinese competition surveyed by the German Economic Institute (IW) in Cologne said they planned to cut output and jobs.
Some multinationals, including BASF, have doubled down on their investments in China. A growing number of German firms are "localising": using Chinese supply chains, developing products with local workers and reinvesting profits in China. Volkswagen, among others, is accelerating its plans to use China as an export hub to the rest of the world, while slashing jobs in Germany. Merz has vowed to bar Chinese firms from Germany's 6G mobile network and is pushing a broader "derisking" strategy to reduce dependencies on China, particularly over rare earths and chips. In 2025 a German wind project ditched Mingyang, a Chinese turbine-maker, in favour of Siemens Gamesa after the defence ministry raised security concerns.
The VDMA, an association of German machinery firms, published a report in June 2025 arguing that China is "not playing fair" and urging the EU to level the field. Germany was one of just five EU countries to vote against the imposition of tariffs on Chinese electric vehicles, fearing both retaliation and the impact on German companies exporting from China. Many German carmakers are doubling down on their Chinese investments. The EU's tariffs on Chinese EVs, which range from 27% to 45%, have not stopped imports from rising.
Germany's sprawling Sozialstaat gobbles up close to a third of GDP. The Munich-based Ifo Institute enlisted AI to count the total number of benefits; it reached over 500 before giving up. The system creates perverse incentives: at some income levels, marginal tax rates can exceed 100% as benefits are withdrawn more quickly than wages rise. Ifo reckons combining some benefits and improving incentives could increase working hours by the equivalent of 150,000 full-time jobs.
Burgergeld, an income-support programme, is claimed by 5.5m people, though it represents only 3.5% of welfare spending. The Merz coalition agreed in autumn 2025 to tighten sanctions for recipients who miss appointments or refuse job offers, though Merz's claim that the reforms could yield €5bn in annual savings far outstrips the government's own figures.
In 1889 Otto von Bismarck, the "iron chancellor", invented the pay-as-you-go pension system, in which current workers pay for current pensions. The idea was to "bribe [workers] to regard the state as a social institution". Including pensions, social-security costs now amount to over 42% of total salaries, shrinking pay packets and discouraging hiring. Germany's pension system is not yet on its knees, thanks to a 2007 decision to slowly raise the retirement age to 67. In the early 1960s there were six German workers for every pensioner; by 2025 the ratio was two to one. Statutory pension contributions, split between employer and employee, have risen to 18.6% of salaries. The federal government plans to spend a quarter of its total budget of €525bn on state pensions in 2026; including other transfers, a third of the federal budget is projected to be passed on to the pension system. By 2035 there will be barely two working-age Germans for each pensioner, down from three in 2022. Merz has promised a "major" pension reform before the next election in 2029, but the coalition has approved an annual €5bn pension for some older mothers at the CSU's behest.
The coalition agreement struck in April 2025 between the CDU/CSU and SPD promised to keep pensions at 48% of the average monthly salary until 2031 (they would otherwise fall to 47%). A draft pension-reform law, written by Bärbel Bas, the SPD labour minister, treats this temporary bolstering as a benchmark for future levels, incurring added cumulative costs of €120bn between 2032 and 2040 according to the Junge Union (JU), the youth organisation of the CDU/CSU. Johannes Winkel, head of the JU, and 17 other young MPs vowed to vote against the draft law, with some 20 older MPs threatening to join the rebellion—more than enough to block it given Merz's majority of just 12 seats.
Katherina Reiche, the economy minister, says "This problem was made in Germany and must be fixed in Germany. We lost the last 15 years." Lars Klingbeil, the vice-chancellor and finance minister, has told his SPD colleagues to recapture the spirit of "Agenda 2010", a controversial set of welfare and labour reforms passed by an SPD-led government over two decades ago.
The SPD's electoral fortunes have deteriorated sharply. On March 22nd 2026 it was soundly defeated by the CDU in an election in Rhineland-Palatinate, long an SPD stronghold, and in Baden-Württemberg the SPD barely crossed the 5% threshold to enter parliament. Many in the SPD openly admit they no longer know what the centre-left party stands for. After his much-heralded "autumn of reforms" flopped in 2025, Chancellor Merz wants to push changes to tax, health insurance and pensions before the Bundestag adjourns for summer 2026—but getting his way depends on whether the SPD can swallow tricky compromises. On March 25th 2026 Mr Klingbeil gave a speech urging reforms to labour, tax and pension rules to increase working hours, and calling for restraint on spending. The question is whether he can bring his own party with him.
Germany's share of the North Sea is just 41,000 square kilometres, about 5% the size of Britain's. Germany plans to squeeze 70GW-worth of wind turbines into this area by 2045, but studies show that many turbines would slow down the wind and reduce the electricity harvest by 37%—an illustration of Europe's limited energy potential and the hazards of purely national solutions. Energy-intensive basic industries remain large in Germany; in its basic chemicals sector, energy costs made up 42% of value added in 2023, up from 28% in 2021.
The Bundesnachrichtendienst (BND), Germany's foreign-intelligence service and the equivalent of the CIA, has long been sidelined at home and sniffed at abroad. Helmut Schmidt, a former chancellor, once quipped that he might as well read a newspaper rather than listen to the BND. Constrained from conducting clandestine operations, the agency is dismissed by its critics—many of them insiders—as "vegetarian" in a world of snarling carnivores. The original BND Act, written in 1990, was in essence a data-protection rule book. The Gestapo and Stasi cast long shadows, and Germany's constitutional court has regularly forced legal rewrites in the name of privacy, notably a 2020 ruling that limited the BND's ability to monitor targets abroad. The BND must cease monitoring a target once he enters Germany; foreigners abroad enjoy the same privacy protections as someone in Germany. Personal data must be redacted if the BND is to pass information to other German agencies.
In 2026 a fundamental reform of the BND Act is due, described by officials as a Zeitenwende for German intelligence. The BND's budget was lifted by a quarter to €1.5bn ($1.7bn) in 2026, much of the increase devoted to AI and satellite reconnaissance. Since 2025 the BND and other intelligence bodies have been exempt from Germany's debt brake. Martin Jäger, the BND's boss, blamed Russia for acts of sabotage, hacking and disinformation and said his agency needed tools to respond. The planned reform would grant the BND the right to conduct offensive operations, including "hack-back" cyber-attacks, to infiltrate private tech companies, and to store data for longer. A proposed "special intelligence situation" power would give officials and MPs the right to expand BND powers to combat specific threats. Johann Wadephul, the foreign minister, warned that Germany would be "defenceless" without American intelligence; Donald Trump's decision to temporarily withhold intelligence support from Ukraine clarified the risk of relying on notional allies.
Berlin's government cut its budget by €3bn, or 7.5%, in 2025. The culture budget was slashed by around €130m, almost 12%. Berlin has three opera houses, 175 museums, around 150 theatres and two major concert houses. The city carries debt of €67bn, according to Destatis. Joe Chialo, Berlin's culture minister, resigned on May 2nd 2025 over the handling of the cuts. Many other German cities are also cutting culture budgets, though Hamburg (which is increasing its culture budget by 11%) and Frankfurt are not. Klaus-Michael Kühne, described as the second-richest German, is financing a new opera house in Hamburg to the tune of €330m.
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