Beat Wittmann: «Germany Needs Another Wirtschaftswunder»
After years of self-inflicted economic stagnation and a predictable and predicted loss of competitiveness, Germany urgently needs structural reforms and overdue investments to stop its economic erosion and tap into its massive potential, Beat Wittmann writes in his essay for finews.first.
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Germany needs another «Wirtschaftswunder» – nothing less. The first was built by the famous and influential Ludwig Erhard, Germany’s former economics minister (1949-1963) and chancellor (1963-1966), who delivered on his «prosperity for all» slogan. Erhard successfully championed social-market economy policies combining free-market capitalism with a strong social safety net, and so, laid the foundations for Germany’s long-term success as an industrial and export powerhouse.
I am convinced that Chancellor Friedrich Merz and his conservative-social democratic government coalition have the competence and resources necessary to deliver, but success will depend on courageous leadership, political will, and parliamentary majorities to execute a transformational program.
«Germany must strive to advance the supply of non-fossil energy sources, including nuclear power.»
Germany has to acknowledge that Russia’s invasion of Ukraine and attack on the European security architecture ended the post-World War II geopolitical, security, and economic order irrevocably. A new order has to be built by Europe for Europe.
Donald Trump’s program of US nationalism and unilateralism, his appeasing policies towards Russia, and his rogue claims to absorb Canada and Greenland have further damaged transatlantic ties.
Trump is driven by three personal objectives - to be recognized as the world’s most powerful deal-maker, to get awarded a Nobel Peace Prize, and to amass wealth. Trump despises the EU and European democracies, as they mirror his liberal political opposition in the US, the Democratic Party. Europe, however, doesn’t need and should reject US lecturing on democratic values and free speech, even more so active meddling in German and European politics supporting far-right parties.
Germany has to abandon its model applied since the end of the Cold War and Germany’s reunification, namely, exporting products to China, importing energy from Russia, and outsourcing its security to the US. The priority now is to decouple from Russia and de-risk from both China and the US. As Europe’s leading economy, Germany must strive to advance the supply of non-fossil energy sources, including nuclear power, while lowering its prices, increasing defense spending, reintroducing mandatory military service, and expanding weapons delivery, including Taurus missiles, to Ukraine.
History tells us that inherently imperialistic Russia can only be contained by superior military strength and that dictators like Vladimir Putin are removed by three reasons only – military defeat, palace coup or popular revolt.
«I expect continued disruptive and highly contentious geoeconomics developments.»
Chancellor Merz is off to a good start; however, he will not have the luxury of a first-hundred-days honeymoon. I expect continued disruptive and highly contentious geoeconomics developments throughout the G7 and NATO meetings in June. Germany and Europe have no time to waste investing in all areas of critical infrastructure and overcoming costly and damaging fragmentation in key areas such as the defense-industrial complex, the capital markets, and the banking union.
In this respect, the recent EU-UK summit has been a productive and positive step forward, yet not overly ambitious. In high priority European matters, particularly in rearmament and collective security, I expect more initiatives by the «coalition of the willing» with opt-ins of non-EU members such as the UK, Switzerland, and Norway, and opt-outs of unwilling EU members as the likes of Hungary.
«The German population was so fed up with years of policy paralysis.»
The Chancellor and his government will have to deliver tangible results in both international politics and domestic affairs – and fast. Unfortunately, the government’s stability and ability to muster parliamentary majorities are in question.
Meanwhile, the AfD party is snapping at its heels. The past two decades, Germany, led by Chancellors Angela Merkel and Olaf Scholz, experienced an overdose of stability and muddling-through politics, resulting in geopolitical vulnerability and economic stagnation. Decisive leadership to implement structural reforms and transformational policies is now required. The German population was so fed up with years of policy paralysis that the radical AfD grew into the second-largest German party in recent elections. They were running an aggressive and successful campaign rooted in identity-driven populism with a focus on fighting migration and pluralism.
Germany’s government is condemned to success, as it is the only way to contain the advancing AfD opposition. Think of Emmanuel Macron in regards to the Rassemblement National (RN), Keir Starmer and the Reform UK, or Donald Tusk and the PiS. The major source of discontent is the failed migration policy across the board. Properly managed and controlled migration is not only economically positive but also demographically needed. Uncontrolled and unmanaged migration, combined with a lack of law enforcement, however, is economically unproductive and creates social tensions, racism, and crime.
«The major investment theme for 2025 and beyond is global capital rebalancing.»
Trump’s radical MAGA and tariff wars lead to global fragmentation, resulting in lower growth and productivity and a loss in consumer, business, and investor confidence. Investors in US assets will demand a higher risk premium to compensate for Trump’s unpredictable policymaking, the deteriorating fiscal trajectory, the decline of the dollar as the leading global reserve currency, and the weakening of the institutions and the rule of law.
Thus, the major investment theme for 2025 and beyond is global capital rebalancing, disinvestment from overvalued and underperforming US financial assets, in particular. Trump’s presidency has only just started, and with it, the repatriation of funds favoring Europe.
So far, the US has attracted enormous inflows of capital to finance its ever-growing budget deficit, and its superior economic and corporate earnings growth, led by the leading US technology and financial sectors, no longer.
«Two key drivers are impacting the markets»
Geographically speaking, I believe in Germany and Europe as a whole, and from a sector perspective, I favor the defense-industrial complex, energy, and finance. I not only expect Europe to clearly outperform US markets in 2025 and beyond, but also to become the number one destination for safe haven assets, with German Bunds preferred to US Treasuries and the euro to the dollar.
Two key drivers are impacting the markets. First, Europe is firmly democratic and committed to multilateral cooperation, strong and independent institutions, and the rule of law. Secondly, progress on institutional reforms, significant fiscal expansion, and the mobilization of private capital for large long-term investments in all areas of critical infrastructure, with a focus on defense and energy, can be expected.
«Looking ahead, the geoeconomic loser will be Russia.»
It is of existential importance to Europe to rearm and support Ukraine to succeed in its fight against the common enemy, Russia. Given today’s situation, I expect this war of attrition to end in a frozen conflict split by a demarcation line along today’s front lines, like in Korea.
Looking a few years ahead, the geoeconomic loser will be Russia, reduced to a supersized North Korea and China’s junior partner. Ukraine, on the other hand, will come out on top, joining Europe. Ukraine’s huge need for reconstruction presents a massive and attractive supply-side opportunity benefiting Germany and Poland in particular.
Successfully reconstructed and integrated, Ukraine presents Europe with the opportunity to take an enormous geopolitical step forward in regards to its much-needed strategic autonomy.
Beat Wittmann is the co-founder, partner, and chairman of Porta Advisors. The Zurich-based company was established in 2015 as an independent corporate advisory firm with an international scope, providing advisory services to financial institutions, family offices, and corporates. He also serves as Deputy Chairman of Solutio, a private markets investment firm based in Munich, Germany. He spent most of his earlier banking career at UBS Asset Management Zurich, before serving as CIO and CEO of Investment Products at Clariden Leu (a Credit Suisse Group company), followed by his role as CEO of Investment Products and member of the Executive Board at Bank Julius Baer. He graduated from the University of Basel (Switzerland) and holds an MSc in Economics.
