![Wolfgang Münchau on His New Book “Kaput. The End Of The German Miracle” [INTERVIEW]](https://4liberty.eu/phidroav/2026/02/Munchau-Wolfgang_High_Res_bw_no_credit-scaled-wpv_470pxx-1024x724.jpg "Wolfgang Münchau on His New Book “Kaput. The End Of The German Miracle” [INTERVIEW]")
Leszek Jażdżewski talks to Wolfgang Münchau about his latest book, “Kaput: The End Of The German Miracle,” translated into Polish by the Prześwity publishing house.
If there is one villain in your book, it is neo-mercantilism. Why is that and what does it really mean?
I thought you were going to say Angela Merkel or Gerhard Schröder.
We will get to them in time.
The problem is never reduced to a single person or even a single group. For me, this “evil” is above all the very idea of neo-mercantilism. Of course, it should not be equated with classical French mercantilism, which consisted of generating lasting trade surpluses vis-à-vis foreign countries – selling more than one buys. And in the days of Jean Baptiste Colbert, who created the concept of mercantilism, when currencies were linked to gold, this simply meant amassing gold. Today, under fiat money, this mechanism works quite differently.
So what did it mean in the postwar German context?
Neo-mercantilism is about systematically pursuing export surpluses, which became the foundation of the German economic model. But it’s not simply because Germany is an industrial country. In the 1950s, ’60s, and ’70s, many industrialized nations existed without generating lasting trade surpluses. When their economies became more competitive and exports grew, their currency would strengthen, automatically restoring balance. That mechanism stopped working with the introduction of the euro. After joining the eurozone, Germany’s increased competitiveness no longer led to currency appreciation. As a result, Germany began accumulating enormous trade surpluses at the expense of other eurozone countries, creating relationships that resembled quasi-colonial arrangements.
A lot of experts praised German economy.
That was short-sighted because it ultimately impaired Germany’s ability to transform itself into something else when this model ran its course, around 2018.
Brexit, supply chain shocks, and the early 2000s advantage from EU enlargement – the integration of Poland, the Czech Republic, and Slovakia into the German supply chain – ceased to be new or exceptional. No more benefits arose from increasingly cheap and emerging supply markets.
Then the pandemic exposed supply chain vulnerabilities, government spending shifted toward defense, reducing the “peace dividend,” and China, previously a complementary partner, became a competitor.
This model – relying on export surpluses, an industrial focus, cheap Russian gas, a growing workforce, and favorable demographics – began to reverse. Many factors that had supported Germany turned against it, ending the era that lasted until 2018.
But it was not a sudden collapse.
No. Looking at German industrial production, there was no dramatic fall, largely due to the political, legal, and labor “rigidities” of the German system. Closing a factory in Germany can cost the equivalent of three years of its production.
The decline is therefore slow and gradual, a “boiling frog” problem. There are no sudden shocks or mass unemployment, but conditions steadily worsen: wages stagnate, employees work harder to maintain output, or are pushed into part-time or temporary work.
Like highways that are not repaired on time: small issues accumulate until they become major problems.
Ultimately, investment is key. However, after the 2007–2008 financial crisis, the government pursued austerity, limiting public spending. Now they are trying to catch up, investing in roads, bridges, and railways. Necessary, yes, but insufficient. Investments in AI, quantum computing, and other advanced technologies remain insufficient.
In Kaput you note that in 2024, there was hardly any or actually no 5G in Germany yet it is not a very advanced technology, is it?
No, but it is better now. There are also fewer fax machines around.
Would anyone even recognize one today?
Changes are happening. Germany even has a Digital Minister now [Dr. Karsten Wildberger, first-ever in May 2025].
If you do not know what to do, just have a minister – or better, a committee.
That is exactly what they did. There are committees, plans, and the government will gradually implement digital technologies in ministries. But the process is slow because their systems are so complex. If something makes no sense analogically, it makes no sense digitally. German bureaucracy is extremely complicated, and they “goldplate” EU legislation: if the EU passes a regulation, Germany adds extra rules, making it stricter. Everyone talks about de-bureaucratization, but it almost always fails.
Perhaps it is because bureaucrats are responsible for the process?
The solution is to remove the rules. If you want the AI sector to work, you do not tweak AI regulations; you eliminate them and start over.
European regulation started on the wrong foot. Member states could implement it however they liked, which is why Mario Draghi said current rules burden the single market; they are trade barriers. The General Data Protection Regulation differs in Spain and Germany. It is not a single market anymore.
Germany also has a growth problem.
Potential structural growth is about 0.5%. IMF long-term forecasts are only slightly higher at 0.7%, on par with Italy. Their slightly higher estimates assume fiscal expansion, not structural reforms. Simply spending more generates growth in the short term, but it doesn’t solve long-term productivity issues.
If you spend on soldiers, growth is temporary. Spend on AI, and the multiplier is different. Germany mainly spends on road and rail repairs and maintenance, not productivity-enhancing investment. A smoother railway journey is not a productivity factor.
I recently attended a conference in India where the Minister for High Tech views AI as a tool to boost productivity across the economy. Olaf Scholz, by contrast, when told about AI, remarked, “Oh, this is another way the computer will lie to me.” He treated it as witty, but this mindset ignores the serious potential. In his circles, nobody discusses productivity growth. When told of an economic crisis, he called the auto and steel industries, as if that were all the economy comprised.
Germany is not investing in productivity as it should, relying instead on macroeconomic fixes.
Why is this a problem?
Macroeconomists have a lot to answer for, when they think that if you just spend and invest a bit more, things will be fine. Because we spent a lot this decade, during the pandemic, after Russia’s invasion. Every country’s debt is exploding. And yet we have low growth rates. If Keynesian reasoning held, economies would perform much better.
You describe neo-mercantilism as fundamentally flawed, at least for Germany. Neo-Keynesianism does not seem to work either. Do you see any economic theory today that should be applied?
We’re beyond the era of grand theorists. Today, the best guidance – controversial among economists – is from this year’s Nobel laureates, who focused on innovation and disruption.
The most innovative and powerful economies are China and the United States. China’s rise was driven by dramatic innovation. People often claim communist countries can’t generate growth or that five-year plans are ineffective. Well, it depends on how you plan.
The Soviets failed, with plans focused on “more steel.” The Chinese never picked winners like “this company gets the money.” They said, “We have rare earths; we can make magnets. Cars make sense for an integrated supply chain. Military needs these materials. We must invest in mobile and digital tech.”
This created sectoral specializations. Initially, the government spent heavily, but didn’t subsidize specific industries. They had to compete. There were many losers, but also winners, creating ultra-competitive organizations. A huge success.
Can this be replicated? It could be argued that China, being an authoritarian country, is quite unique.
There are different ways to do this. And there may well be a European way to do this.Success elsewhere does not guarantee success if copied. There were times people said, “Let’s all be like Germany” or “like Japan.” Nobody says that today.
How about the U.S.? I do not think that many Germans would emigrate to the U.S. for the quality of living, even despite the fact the U.S. is developing so fast.
There are some who do, mainly in high-tech and academia. But if you like your roots, your stability, friends, and calm – perhaps modest income, but you have a house, reasonably good schools for your kids, don’t worry about too many things and you can be sort of happy.
Creating the European capital market seems to be your only prescription that you give in the book.
Yes. Banks serve industry—they have collateral, and get loans. Startups do not. Startups need equity and expertise. Venture capital and private equity provide both. That’s what a capital market should do.
Europeans often think “capital markets” means merging exchanges, as Friedrich Merz suggested. That is not my point. America has the NYSE, NASDAQ, and Chicago Options—competing exchanges. The goal is to redirect savings to productive ventures, which may require “killing” banks.
Very Schumpeterian…
You have to “kill” the banks. Obviously, when I say that, they are not in favor. I rarely meet anyone in Brussels who is genuinely interested in solving problems. In the end, I always discover that, even when people agree with me, it is always about themselves. In all the debates during the eurozone crisis, in the banking union, it was always: “Oh yes, bank supervision is really good. We can have it here at the ECB.” Then they create another department. She becomes the head, and he becomes the managing director. The first thought is always: how does this benefit my institution? How does it affect the inter-institutional power balance in Brussels?
When people talk about capital markets, I am talking about savings—about capital. At the moment, Europe has a problem of capital misallocation on an industrial scale, because most money goes to industrial companies. The purpose of a capital markets union should be to redirect it toward innovative companies.
Returning to Germany, one of the problems is that the German political system is extremely responsive to business demands. Because this relationship works well, there are no incentives to change the economy. What is changing is the political system, trying to accommodate everything else.
The government, industry, and trade unions are all involved together. If you listen to business representatives, they are not asking for lower taxes, freedom, or deregulation—they are asking for subsidies, for help. Nobody asks for capital markets.
You are not going to hear any industry representative say, “We need to redirect German savings to more productive investments. We need a productivity growth agenda.” You will not hear it anywhere. There is not a single political party that supports it—not even the liberals. So rather than breaking out of this, we just make it work. We work a little harder, take lower pay, so we can work for our car company. It is a self-sacrificial mindset. Cars will still be made in 10 years, but the question is not whether they will, it is whether they should.
Germany’s large industries—cars, chemicals, steel—were all mid-tech. Digital tech was not a major business then; it was mostly military. Then the internet arrived—games, entertainment, Hollywood—and the German industrial establishment just laughed. Now Xiaomi is one of the major car producers. They beat Porsche at the Nürburgring with their first car. A mobile phone company builds a car and beats Porsche.
Slightly humiliating, isn’t it?
And it comes from areas German industry had not even considered. Huawei is also in car manufacturing. I am not sure whether they will succeed—but why would not they? The technology in their cars is the same as the technology in the company. They have the software, understand the chips, and know how the operating system works because they had to build their own. They do not know much about axles, so they buy them in.
The Germans buy the software.
So if Germany cannot change its business model can it succeed in Europe?
Look, you can consider the size effect and say Germany is central: we go where Germany goes. But that is not in anyone’s interest. If Germany does not diversify, others must diversify, and nothing stops them.
France has already diversified under Macron. It’s more dynamic. Not great, but if Germany’s potential growth is 0.5%, France’s is probably 1.1–1.2%. That’s better. If Germany is lucky, it may reach 0.7–0.8%. Still far below France. Spain’s numbers look good, but the underlying trend is weak. Italy is hopeless. So: diversification, deregulation.
What should Poland do?
Try to become less dependent on Germany. Develop your own industries. Create centers of excellence. Innovate. You have a big market and your own currency. Nothing prevents you from having an efficient capital market. You will not create Google—that needs scale—but Poland can foster a tech environment better suited to startups.
It is better to allocate small-scale capital efficiently than to misallocate large sums. Europe could be much better if it directed its savings toward new industries. Germany could do this—but it will not. We are not agile enough. That is the second-best strategy, and Poland is in that position.
Small countries can grow without innovation and still perform reasonably well if they are agile and adaptive.
By adopting first?
It is the second-mover advantage. You may not invent AI, but you can adopt it and boost productivity. Nothing stops you. Welfare gains do not come from exporting; they come from importing—allowing us to access things we otherwise could not.
AI has enormous potential—as long as the EU does not block it. That is the main point. If it does, people may question whether staying in the EU is worthwhile. For now, I would say yes, because most AI issues are national, even if some EU regulations are harmful. And it was Germany who pushed these regulations.
We will have to stop here. I hope your warning will save Germany from being trapped by the success of its own past.
I have to say, the book was very successful in the UK. Extremely successful in Poland—more than anywhere else. Huge hit in Spain. In Germany, a complete flop.
They do not take criticism well.
I think the publisher also released it too late, after the elections. People did not want to hear it. But all these issues will come back—they are actually returning now.
Wolfgang Münchau – economic analyst, journalist, and columnist focusing on the European economy and the European Union. From 2003 to 2020 associated with the Financial Times. Co-founder and director of the news and analysis service Eurointelligence and columnist for New Statesman.
The article was originally published at https://liberte.pl/wywiad-z-wolfgangiem-munchauem-o-ksiazce-kaput-koniec-niemieckiego-cudu-gospodarczego/
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