This article is taken from the November 2024 issue of The Critic. To get the full magazine why not subscribe? Right now we’re offering five issues for just £10.

Few catchphrases have enjoyed as long a shelf-life as the “German economic miracle”. Even though Wirtschaftswunder sounds better in German, the connotations of the miraculous were disliked by Ludwig Erhard, the hard-headed economics minister who masterminded the post-war West German recovery. 

Though he used it on the cover of his 1954 book Germany’s Comeback in the World Market, Erhard preferred his own term: “social market economy”. In his 1958 book Prosperity through Competition, Erhard insisted: “I do not believe that the idea of ‘a German miracle’ should be allowed to establish itself.” The German example merely proved “to the world at large the blessings of both personal and economic freedom”.

Nevertheless, “German economic miracle” is still widely used to denote the period of rapid and sustained growth that the Federal Republic achieved from its inception in 1949 until the oil crisis of 1973. During that era, the West German economy not only far outstripped the pre-war Nazi Reich and the Communist East, but overtook France and the UK to become Europe’s leading economy.

By then the miracle had become a myth. It was a myth created and propagated largely by the British, who joined the European Economic Community in the belief that it would enable them to emulate German success. The winning combination included export-led industry and science-led technology, a highly-skilled and cooperative labour force, a decentralised, fiscally prudent state with an independent central bank to control inflation, plus a welfare system that relied on social insurance, not taxation. 

Back in the 1980s, I was amongst those writing admiringly about the ordoliberal school of economics on which the German model was based, though I realised that their ideas — unlike, perhaps, those of Hayek and Friedman — were too specific to Germany to work under British conditions. Only once I spent time there as the Daily Telegraph’s Bonn correspondent did I see that the ordoliberal system was no longer working and the German economy had run out of steam. Instead, across the North Sea it was the “Thatcher revolution” that was reinventing free-market capitalism.

In 1988, I caused consternation in my host country by writing an article declaring “the German economic miracle was over”. A year later, however, the fall of the Berlin Wall delivered the shock therapy a newly reunified Germany required. And so the myth of the miracle endured for another generation.

Now Wolfgang Münchau has demolished it with Kaput — a flinty, fearless and forensic analysis, subtitled The End of the German Miracle. The point of his book is to explain why the Germans acquired their enviable reputation for economic prowess, how they managed to keep it long after their system was becoming obsolescent and how reality finally caught up with them. German politicians, industrialists and intellectuals are still in denial. But Münchau nails it: the vaunted German model really is kaput — bust. 

Given that it is still axiomatic amongst the bien-pensants that the British have never got over the war, it is striking that we have been amongst the last to notice how our neighbours and rivals have long since lost their Vorsprung durch Technik. 

Indeed, the German economy is predicted to shrink in 2024, as it did in 2023; next year looks little better. Two consecutive years of recession is not unprecedented, but Münchau points out that the trend began in 2018, long before the pandemic, Ukraine and other extenuating factors. This, he argues, is not a cyclical downturn but structural, long-term decline.

Even vice chancellor Robert Habeck admits the situation is dire: “There has never yet been such a prolonged period of weakness in the German economy.” As a Green economics minister — the office Ludwig Erhard once held — Habeck must be aware that his party, along with its coalition partners, the Social Democrats and the liberal Free Democrats, face electoral oblivion next year. Having succeeded, after a 40-year march through the institutions, in their long-term goal of closing down the German nuclear industry, the Greens may feel vindicated. 

But by driving the final nail into the coffin of the social market economy, the Ampel (“traffic light”) coalition has empowered the extremes of left and right. For years Germany was an exception to the authoritarian wave that has swept across the European Union, encouraged and sometimes bankrolled by Putin. Not any more.

The emergence of political movements reminiscent of the Weimar era has prompted plenty of Angst and Schadenfreude, but Münchau provides the missing economic dimension. The official euphemism for neo-Nazis used to be die Unbelehrbaren, “the unteachables” — and so they are. However, Kaput lays out in excruciating detail just how rigid, conceited and doctrinaire has been the behaviour of the German business, bureaucratic and political elites. No less culpable has been the failure of their British counterparts to notice how the German model has dated. 

A once-enviable industrial economy complacent about the digital and AI revolutions found itself suddenly high and dry. For too long it had relied on transient factors such as low exchange rates, a rapidly expanding Chinese market and cheap Russian gas.

No less relevant to the British case is Münchau’s investigation into how the Germans failed to import not only new ideas but new people. Until very recently the consensus was that Germany was not “an immigration country” (Einwanderungsland). This had never been true (many Germans have Slavic, French or other “foreign” surnames), but what is especially striking was the collective amnesia about the huge influx of up to 14 million refugees between 1945 and 1947. 

The point is that these were ethnic Germans, who were not only absorbed but provided a huge stimulus to the post-war economy. The same thing happened after the significant demographic shift from East to West Germany precipitated by reunification. 

But Münchau shows how lamentable has been the performance of the German Beamtentum (bureaucracy) in recruiting high-skilled workers from abroad. As a result, the dynamic 21st century economy that ought to be replacing ageing industries such as cars, chemicals and engineering has been stillborn.

Visitors to events such as last summer’s Euros have begun to notice that the trains don’t run on time, the infrastructure is crumbling and even WiFi or mobile phone coverage is poor. Germany is still a rich country, but it is a country in economic, political, cultural and demographic decline. 

Over the century and a half since they became a nation state, the Germans repeatedly astonished the world, for good and ill. If, like Baron Münchhausen, they are to lift themselves up by their bootstraps, the Germans will need to astonish us yet again.