The once-stable economic powerhouses of France and Germany are now facing crumbling governments, with bitter disputes over the national budget and debt issues entangled with a catastrophic overall economic situation.
This is evident in the ongoing two-year recession and the predicted economic growth for 2025: the European Commission expects a 0.8% increase in the gross domestic product for both Germany and France by the fall of 2025. Italy is expected to see a similar growth, if at all. In contrast, other European countries are expected to perform better: Portugal is expected to see a 1.9% increase, while Spain and Greece are expected to see a 2.3% growth. Hungary, on the other hand, is aiming for a 3% growth.
Many companies are leaving Germany due to high energy prices and bureaucracy, and are cutting back on jobs. The ifo business climate index, which surveys thousands of entrepreneurs, has fallen for the sixth consecutive time, with the business sentiment in the worst state since the start of the COVID-19 crisis in 2020. On top of this, there is a massive debt burden of over €2.6 trillion in Germany, with France’s debt even larger at over €3.2 trillion. The disputes over the budgets have thus broken the governments in Berlin and Paris, with France’s creditworthiness even downgraded.
As a result, the economic balance is shifting southward, with the help of a slimming of the state apparatus and a tourism rebound after the COVID-19 crisis. These southern nations are already benefiting from the aid provided by Germany and France in the EU.
Greece, Spain, Portugal, and Italy have an advantage in energy prices, thanks to their abundant sun and wind in coastal regions, which gives them a better standing in the energy transition and a less energy-intensive economy. However, it remains uncertain whether these countries will be able to rescue the overall weak EU economy. In contrast to China, Russia, or the United States, the EU has, over the past years, carried out an unprecedented destruction of wealth, particularly threatening to pull the former export world champion Germany into a political and economic abyss.