Germany must invest to neutralise the far-right threat

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The writer is an FT contributing editor and writes the Chartbook newsletter

These are anxious times in Germany. Two issues dominate the headlines: economic malaise, and the alarming surge in support for the far-right Alternative for Germany, which at about 22 per cent now outpolls each of the three governing parties. These might seem like unconnected economic and political issues. But they are linked by the politics of population and public investment. 

Many factors have combined to cloud Germany’s economic outlook. The energy price shock has hit hard. The slowdown in China is bad for German exports. But the most fundamental reason is the exhaustion of the growth model set in motion 20 years ago by the welfare and labour market policies of the then SPD-Green-led government. By reducing support for the long-term unemployed and liberalising low-wage work, the measures known as the Hartz IV reforms drove Germans to work. Rather than investment or productivity increases, it was this “industrious revolution” that propelled above-average economic growth.

With employment rates at record levels, this model has reached its natural limit. Demographic headwinds are kicking in with a vengeance. If Germany wants to moderate the decline in its labour force, it needs to boost immigration. And that brings us to the AfD.

Since its foundation in 2013, the AfD has espoused a variety of causes. Originally its bugbear was Mario Draghi’s stewardship of the European Central Bank. Then it opposed Green climate policy. It was Covid-sceptical and opposes Germany’s support for Ukraine. But by far the most important concern driving its voters are apocalyptic fears associated with migration.

The AfD engages in ruthless scaremongering, peddling racial stereotypes and Islamophobia. But the transformation in German society is real. Over the last half century, Germany has moved from a largely mono-ethnic society to one in which, according to 2022 data, 28.7 per cent of the population were either born with a foreign passport or had one parent who was. In 2020, among children under the age of five, 40.3 per cent were either migrants or born of at least one foreign parent. In cities like Bremen, the share is closer to two-thirds.

The response of the Bundestag has been to liberalise citizenship rules. The change in cultural norms towards Ausländer and their presence in public life has been spectacular. Solid majorities of Germans remain open-minded and welcoming to diversity. But cultural politics only go so far. All too often what is missing is money.

As British experience showed in the 2010s, combining austerity and large-scale migration is a recipe for xenophobia. To make a liberal migration policy work and avoid dangerous conflicts over housing and social services, public investment is essential. This is where Germany has fallen short. Since the early 2000s, public investment has been net negative and housing construction has fallen far short. Since 2009, the debt brake that limits public borrowing has perpetuated underspending.

More apartments and creche places will not eliminate racism. A solid 14 per cent of German voters have attitudes that put them on the far right. There are 2 per cent of bona fide neo-Nazis. That is regrettable but a deplorable minority of that size can be quarantined. What is truly worrying is the slide of a further 10-15 per cent of the electorate, voters worried about migration but not otherwise supporting far-right positions, into the AfD’s clutches.

Shutting Germany’s borders is not an option. Not only does the German economy need the labour, but millions of people around the world have a right to asylum and a reasonable desire to better themselves through migration. To its credit, Berlin has argued in the EU for a co-ordinated and rational refugee policy. Contrary to the alarmists, Germany is not “full”, or at risk of apocalyptic disorder. But there are real bottlenecks in housing, education and social care that mean that a continuation of the status quo is a recipe for mounting tension.

To stop the rot what is required is not pandering to racism, but an agreement among all mainstream parties to offer an alternative to the AfD with a concerted programme of public investment in housing and public services. If this requires circumvention of the debt brake by means of an off-balance sheet special fund, like those created to meet the Ukraine crisis and the challenge of climate change, so be it. For Germany’s prosperity and internal peace, making a success of immigration is far more important than lavishing tens of billions on squadrons of over-engineered American fighter aircraft, or microchip manufacturing plants and other darlings of industrial policy.

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