In the opening weeks of 2026, a strange nostalgia has gripped the corridors of Brussels. There was a time when the rest of the continent resented the iron fiscal grip of Wolfgang Schäuble. He was the German finance minister who presided over overflowing public coffers and the fabled “Black Zero” surpluses while southern Europe limped through austerity. Today those same critics eye the continent’s erstwhile engine with deepening dread. The realisation is dawning that Germany’s stagnation is no longer a domestic affair. It threatens the very foundation on which the European project rests.
Germany still accounts for by far the largest net contribution to the EU budget. That contribution amounted to €13.1 billion in 2024 alone, more than France and Italy combined. A quarter of every euro spent in the club of 27, directly or indirectly, traces back to German taxpayers. Should the industrial model falter, Europe’s ambitions on climate transition, technological sovereignty and collective defence will simply run out of funding. The stakes, in short, are continental.
The political spectacle of the moment centres on the AfD. German authorities have classified the party as right-wing extremist. It is now polling at 37 per cent in Mecklenburg-Western Pomerania and trading blows nationally with the CDU. Yet while this label generates considerable attention, it is not the greatest concern. The more immediate threat lies in the party’s suggested economic policies of fiscal adventurism and crude protectionism. These would accelerate the very deindustrialisation they claim to oppose and could bankrupt the country even faster. The more probable outcome is not radical takeover but another paralysing deadlock among the mainstream parties. That deadlock is blocking the reforms the country so urgently needs.
At the root lies a glaring physics problem. The world’s fourth-largest economy has no coherent energy strategy. Cheap Russian pipeline gas, the silent subsidy that once powered the export machine, is gone for good. It has been replaced by expensive liquefied natural gas shipped across oceans from the United States and Norway. The ideological decision to shut the last nuclear plants in 2023, a move Chancellor Friedrich Merz has since called “a huge strategic mistake”, forced a paradoxical ramp-up in coal just to keep the lights on. Renewables have expanded admirably, supplying more than half of generation in recent years. Yet wind and solar still lack the energy density and reliable baseload that heavy industry demands. Baseload is the steady, 24/7 power needed to sustain a modern manufacturing economy. The result is Europe’s highest industrial electricity prices and accelerating capital flight.
Compounding the energy vacuum is an exhausted economic model. The German miracle was built on internal combustion engines, dense supply chains and deep integration with the Chinese market. That world has vanished. Chinese manufacturers now churn out highly advanced electric vehicles at scale. This development renders much of the legacy supply chain obsolete. Even more damaging has been the hollowing-out of the Mittelstand. These are the highly specialised small and medium-sized enterprises known as “hidden champions”. The economist Hermann Simon coined the term to describe usually family-owned firms that dominate narrow global niches, often ranking as global number one or two in their segment. They typically fly below the public radar with turnovers below €5 billion. These firms were systematically targeted. KUKA, the robotics pioneer, was acquired by China’s Midea in 2016 for €4.7 billion. Putzmeister, the world leader in concrete pumps, went to Sany in 2012. KraussMaffei followed to ChemChina in 2016. In each case, know-how and production largely migrated east under unequal joint ventures and state-backed takeovers.
The situation is serious, yet the structural advantages of the German economy remain formidable. World-class engineering talent, deep capital reserves and a robust legal framework have not disappeared. The task is not to mourn the lost age of metal-bashing but to pivot aggressively to the industries that will matter in the unforgiving decade ahead: sovereign defence technology, responsible artificial intelligence, biotechnology and quantum systems. Companies such as Helsing, Europe’s leading AI-driven defence platform, Quantum-Systems, a rising force in autonomous drones, and BioNTech, the mRNA pioneer that reshaped global medicine, demonstrate that Germany can still dominate the technological frontier when capital and talent align.
Powering this new model demands ruthlessly pragmatic energy policy. This writer has closely examined the case for reviving large conventional nuclear reactors from scratch. The verdict is unambiguous. It is not feasible within any timeframe that could rescue German industry today. Recent European flagship projects make the point concrete. France’s Flamanville 3 began construction in 2007 with an original budget of €3.3 billion and a planned start around 2012. It finally reached full power in December 2025 at a total cost including financing of €23.7 billion, more than seven times the original estimate and well over 13 years late. Finland’s Olkiluoto 3 started construction in 2005 with an expected cost of around €3.2 billion. It entered commercial operation in May 2023 after 18 years, with the total project cost ballooning to more than €11 billion.
The immediate bridge therefore lies beneath German soil. Official estimates from the Federal Institute for Geosciences and Natural Resources put technically recoverable unconventional shale gas at between 320 and 2,030 billion cubic metres. Industry assessments reach even higher. At current consumption levels of roughly 80 to 90 billion cubic metres per year, this represents decades of secure domestic supply. Extraction costs are calculated between €26 and €43 per MWh, well below today’s imported LNG prices. It is analytically incoherent, not to mention an environmental hypocrisy, to ban domestic fracking while importing fracked molecules from Texas on diesel-powered tankers. Lifting the 2017 moratorium on unconventional fracking would unlock that bridge fuel within years, not decades.
In parallel, the grid must be deepened with reliable French nuclear baseload. Serious capital must also be redirected toward next-generation small modular reactors. These SMRs are factory-built, safer by design and deployable on the very sites of the closed plants. They offer the realistic path to low-carbon, dispatchable power in the 2030s and beyond. The EU Industrial Alliance and the Merz government’s explicit openness create a narrow but real window for Germany to lead rather than follow.
The reforms required are straightforward, if politically demanding. First, slash the administrative thicket that turns every strategic project from gas plants to data centres into a decade-long odyssey. Halve permitting times via digital procedures and overriding public-interest rules. Second, deregulate pension funds to channel domestic capital into local deep-tech venture funds instead of parking it in ultra-safe government bonds. Third, tighten screening of foreign direct investment in critical technologies while launching aggressive “Made for Germany” incentives to retain and attract the next generation of champions. Fourth, push for genuine EU burden-sharing so the indispensable paymaster is no longer the sole shock-absorber.
Not all is lost. Germany retains the engineers, the capital stock and the institutional memory of post-war reinvention. The unforgiving decade simply demands that nostalgia yield to arithmetic. The wealth of Europe and the peace project at its heart now depends on the revival of its industrial core. The tools are there. The only question is whether the political class can summon the courage to wield them.
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