German Living Standards Plummet

Russia’s invasion of Ukraine has caused the biggest collapse in German living standards since World War ii. Even though German consumer price inflation dipped to 2.2 percent last month, inflation-adjusted wages are back to levels last seen eight years ago.

A working paper for the Forum for a New Economy further reports that real wages slumped further in 2022 than in any year since 1950. This slump is primarily due to an energy price spike caused by the war in Ukraine.

Many frustrated Germans are turning to populist parties like the Alternative für Deutschland (AfD) for solutions, since these parties favor accommodation with Russia.

Wake-up call: Isabella Weber, associate professor of economics at the University of Massachusetts, warned:

In an age of conflict, climate and geopolitical crisis, the rise of the AfD is a wake-up call. The collapse in living standards experienced by Germans is unprecedented since World War Two. While it is true that the factors that fueled the rise of the AfD go beyond economics, it is also impossible to ignore how this unprecedented slump in German living went hand-in-hand with the rising popularity of the far right.

Lessons from history: History shows us that economic malaise can swiftly radicalize a population. In 1928, Adolf Hitler’s Nazi Party received only 2.6 percent of the vote in Germany’s general election. But the Wall Street crash of 1929 happened the following year, and Nazi popularity skyrocketed to where Hitler was elected chancellor in 1933 with 43.9 percent of the vote.

The pro-Russia Alternative für Deutschland has undergone a slower, but similar, rise over the past decade, from 5 percent public support in 2014 to 18 percent public support today.

Political change: Watch for this dissatisfaction to cause another political transformation in Europe—away from liberal democracy to something much more authoritarian. To understand why, read our Trends article “Why the Trumpet Watches the Rise of a German Strongman.”