Garvan Walshe: East German populists are on the rise, and Germany’s outdated economy is to blame

Garvan Walshe is a former adviser on national and international security policy for the Conservative Party

Germans in the former GDR states of Saxony and Thuringia go to the polls on Sunday. Anti-system parties, of which the far-right AfD is only the best-known, are expected to do exceptionally well and it may be impossible to form a regional government without them.

In addition to the AfD, these are Die Linke, the direct successor to the Communist Party of East Germany, and the new BSW, which its leader Sara Wagenknecht describes as a “left-wing conservative party” (historically minded readers will note that Germany has had something like this before). The BSW and AfD in particular hope to use last weekend’s stabbing attack in Solingen, in Germany’s far west, by a Syrian whose asylum application had been rejected and who was facing deportation, to amplify their anti-immigration message.

The anti-system parties are intertwined with Russia (Wagenknecht even chose to join the Communist Party in 1989) and want to end German support for Ukraine. But the malaise in these countries is broader and is beginning to undermine Germany’s reputation, even in countries that until recently looked up to it.

At a conference I attended in Warsaw earlier this summer, delegates had a bit of fun, despairing about their neighbor, which had suffered under Soviet rule: deteriorating infrastructure, including horribly late trains; the inability to get a decent internet connection; stifling bureaucracy, impossible inflexibility, persistent Russian interference and an eccentric penchant for money — all of which made Germany the butt of jokes.

At first glance, the problems can be attributed to the divided three-party coalition of the centre-left SPD, the neoconservative environmentalist Greens and the liberal-right FDP. Olaf Scholz, the chancellor, has all the stoicism of his predecessor Angela Merkel, but none of her political skills. Merkel was Machiavellian beneath her uncharismatic exterior; Scholz is simply stubborn.

Go a little deeper and some of the problems can rightly be blamed on Merkel herself. She did not wean Germany off Russian gas or attempt to rebuild the German armed forces after Russia first invaded Ukraine in 2014. The Minsk agreements she negotiated would have given Russia a constitutionally legitimate means of interfering in Ukrainian politics.

She pursued an aggressive green agenda, the Energy transition, without considering the consequences of decarbonising the automotive industry for the combustion engine supply chain that keeps so much of Germany’s industry running.

The admission of two million Middle Eastern refugees to Germany, despite the stabbing attack last weekend, has not led to the social unrest that many predicted at the time. But Germany’s maze of labor market regulations, professional licensing and conservative business culture has prevented the country from benefiting from this unexpected influx of culturally distinct yet well-educated immigrants in a country struggling with significant demographic decline.

Germany’s problems are more fundamental than this. Many of them stem from the way the country has handled the reunification and integration of the former German Democratic Republic.

While ex-communist countries from Poland to Bulgaria were forced into radical and painful adjustments (the Russian reformer Yigor Gaidar even called his own policies “shock therapy”), East Germany was rushed straight into the arms of its western neighbour. It was immediately given a strong democratic system, huge subsidies of €1.2 trillion (£1 trillion) between 1990 and 2004, and immediate membership of the European Community (later the EU) and NATO.

While this eased the transition considerably, it also hampered reform. The former East German states of Thuringia and Saxony have grown by only 33 percent since 2000, while the Warsaw region has more than doubled. Output has more than doubled since 2003 (the period for which comparable data are available).

Even the relatively poor and unsuccessful Lublin region has grown by 80 percent, despite East Germany having entered the European market 14 years before Poland. Taking into account differences in the cost of living, household income in the Warsaw region is now higher than in Berlin (and the same goes for the wealthy former West Berlin).

While East Germany has not suffered the worst effects of the collapse of the planned economy, such as the hyperinflation in Bulgaria caused by the mafia state that emerged in Slovakia under Vladimir Meciar, the eastern regions have experienced something close to stagnation: the growth rate of a mature economy, when they should have benefited from rapid catch-up growth.

The culprit is the excessive conservatism of the German economy. While it protected East Germans from the downside risks of a transition from communism, which, as the Russians know, can be catastrophic; and secured the gains of West Germany, it also entrenched relative losses in the communist East. Although economic life in the former GDR has been transformed, it has neither improved as rapidly as in other ex-communist societies nor reached the level of Western Europe.

This mix of stagnation and jealousy is toxic, and it is no wonder that populists have made great strides, stoking fears about immigration, general cultural anxiety, resentment of authoritarian Covid policies, and pointing to economic malaise.

The German government’s dogmatic refusal to accept debts approved by a constitutional amendment has disrupted much of its policy, leading to underinvestment in the railways and even a cut in aid to Ukraine. while the emerging technology sector struggles with outdated regulations around stock options, limited internet infrastructure and outdated regulations.

A court this year even ruled that unmanned, automated convenience stores had to be closed on Sundays.

All this while one of West Germany’s key areas of technological excellence, the internal combustion engine, is becoming obsolete. The big carmakers, already halfway through their transition to simpler electric motors, will survive, but the mid-sized companies that make up their supply chain and employ hundreds of thousands of Germans have their hands full adapting.

A wave of creative destruction is coming to Germany, this time to the former industrial West, where populists have already made some gains. The economy will need flexibility to adapt, but flexibility is precisely what the current political class cannot provide.