Inflation, bankruptcies and fears of decline: Is this the return of the sick man of Europe?

Nicole Geithner’s family ought to be doing well. Really well. And the Geithners know it. Their apartment, in a historical building located near Dresden, is freshly renovated, her job as a paramedic and his as a project manager for an IT company are decently paid and secure. With a gross household income of 90,000 euros, they are firmly anchored in the middle class. They should be living pleasant lives.

But it doesn’t feel that way for the family of four. They long ago gave up their dream of owning a home, with their plan of buying a second car meeting the same fate. The trip they planned to take to Amsterdam has also been cancelled. Moreover, the Geithners have begun paying closer attention to sales and special offers at the supermarket. “I’m afraid that soon we won’t be able to afford the nice life we live,” says Nicole Geithner, 35. “We’re nervous.”

They’re not alone. Political leaders in Berlin are also growing uncomfortable. When the German middle class starts worrying about decline, things start getting dicey everywhere in the country. Particularly for the government.

One doesn’t have to look far for the roots of the problem: high inflation, skyrocketing energy prices and a slowing economy. Not to mention the challenges associated with tackling climate change.

And the situation wouldn’t even improve particularly quickly if the war in Ukraine were to come to a sudden, unexpected end. On the contrary. Several different crises are coming together at the moment to form a perfect storm.

That the German economy will slide into recession this winter is no longer really a question. And there is growing evidence that it could become particularly severe – with a tenfold increase in the exchange electricity price, numerous corporate bankruptcies and a permanently damaged economy. The losses in prosperity, says economist Michael Fratzscher, will be permanent. Germany, according to the forecasts, is in decline. …

This is uncharted territory for Germany. After nearly two golden decades of rising incomes, steady economic growth and little unemployment, a tough decade is looming. At least for those who aren’t happy about paying up to 1,000 euros more a month for gas and electricity, three euros for butter and purchase prices of 1 million euros for a two-bedroom apartment. In other words, everyone but the top 10 percent of the country. …

It’s a dangerous situation, and not just from an economic point of view. Thousands have taken to the streets in protest in the cities of Leipzig, Magdeburg and Pforzheim in recent weeks, and it’s possible this is only the beginning. Politicians in all camps are warning of the possibility of a “hot autumn,” some of a winter of rage, referring to possible protests and unrest. Germany’s domestic intelligence agency, the Federal Office for the Protection of the Constitution, which is tasked with monitoring extremism, has set up a working group to investigate if a movement is materializing.

The fears are justified. People who feel left behind tend to gravitate toward the political fringes. Injustice, even if only a perceived unfairness, fosters populism and extremism.