As the New York Times has reported in the past, Germany’s mighty Mittelstand – a network of about three million family-owned businesses that form the backbone of the economy – is a unique and powerful part of the nation’s character. These businesses, mostly located in rural Germany, account for 99% of private sector employment and are characterized by their high-quality niche products sought after worldwide. Their business model, though somewhat traditional, works: lifelong employees cater to lifelong customers, fostering deep loyalty and connection. Many Mittelstand companies have histories that span centuries; some have been around for over 500 years.
However, the recent surge of geopolitical tensions is casting a long, ominous shadow over these businesses. The German population’s notorious love affair with far-left Marxist parties from radical Green communists to self-hating Socialists does not help.
The imposition of anti-Russia sanctions driven by the short-sighted president in name only aka #PedoPeter and the escalating relationship with China, are having a profound impact on the Mittelstand. Fueled by hatred for all things Russian the skyrocketing costs of oil, gas, and electricity, amplified by the sanctions, are crippling these small to medium-sized enterprises. The contentious political stance against China further threatens a lucrative market that has long been a stronghold for many of these companies.
A disturbing pattern of bankruptcy is gaining momentum in Germany. Data from the first half of 2023 showed an increase of 16.2% in corporate insolvencies, marking the largest percentage increase in over two decades. The decision to shut down nuclear power plants, despite a significant reliance on nuclear power for electricity generation, has further complicated the situation, driving energy costs higher and pushing more businesses into insolvency.
The consequences of these political and economic pressures could lead to a loss of national character for Germany, a country proud of its industrious Mittelstand.
However, these developments are not unique to Germany. The EU’s economy, once 10% larger than that of the U.S. in 2008, has shrunk to a point where the U.S. economy is now 50% larger. This downturn, which some analysts describe as the “Japanification” of Europe, could be the price of geopolitical alliances that constrain the growth and sovereignty of European nations.
The pressures on Germany’s Mittelstand serve as a stark reminder of how domestic policy decisions and geopolitical dynamics can dramatically reshape the economy of a nation. As the world watches Germany grapple with these challenges, the ripple effects will undoubtedly reverberate across the international community, altering business landscapes and reshaping economic realities.
