Lars Baumguertel is urging Germany’s politicians to take action and allocate funds for the country’s future. The 58-year-old executive manages one of the last remaining manufacturers in Gelsenkirchen, a city in the Ruhr Valley once known for its coal industry.
However, his company, along with many others in Germany’s Mittelstand—the backbone of small- and medium-sized manufacturing businesses that drive the economy—has been struggling due to soaring energy costs after the war in Ukraine disrupted access to inexpensive Russian gas.
In 2024, Europe’s largest economy shrank for a second consecutive year, marking its worst performance in two decades. Gelsenkirchen, in particular, has been among the hardest-hit cities, with the highest unemployment rate in Germany, contributing to a significant rise in the popularity of the far-right Alternative for Germany (AfD) party.
As the general election approaches on Sunday, the country is in the midst of an intense debate about how to rejuvenate Germany’s economic future.
Baumguertel hopes the next government will prioritize much-needed infrastructure investments to modernize Germany’s energy system and drive the transition to a greener, more sustainable economy. Germany has committed to becoming carbon-neutral by 2045.
“The whole Ruhr region, and Gelsenkirchen especially, shows how vital constant change is to maintaining economic growth,” he told Reuters during a tour of his factory. Founded in 1889, his family-run business continues to employ around 2,000 people who manufacture steel coatings through galvanization.
However, Germany’s constitutional debt brake has hindered successive governments from making essential investments, such as improving public infrastructure and expanding skills training, necessary to modernize the country’s struggling economic model, according to economists.
Implemented in response to the 2009 financial crisis under Chancellor Angela Merkel, the debt brake limits the federal government’s deficit to just 0.35% of GDP. By contrast, the United States’ budget deficit in the past year was more than 6% of its output.
Reuters spoke with eight Gelsenkirchen residents, along with senior politicians and economists, who all agreed that a new government must reconsider fundamental aspects of Germany’s austerity-driven, export-dependent model—including the debt brake—in order to revitalize the economy.
Friedrich Merz, the conservative candidate who is favored to become the next chancellor leading a coalition government, is privately open to reforms, according to party insiders.
While Merz publicly maintains that the debt brake should remain unchanged and has resisted proposals from his CDU party to include debt brake reform in their election manifesto, senior leaders have shared that he recognizes the need for change.
This is due to Germany’s substantial investment needs, particularly in areas like the economy and defense, in light of the uncertainty surrounding U.S. involvement in European security under President Donald Trump.
“Of course, we will implement a reform after the election,” said one senior conservative party leader, speaking on the condition of anonymity due to the sensitive nature of the issue.
The effects of Gelsenkirchen’s decline are visible throughout the city. Once a key player in Germany’s post-war “economic miracle,” the city’s fortunes have been in decline since the 1960s with the collapse of the coal and heavy industry sectors. Gelsenkirchen’s population has dropped from 390,000 to just 260,000, with the local economy in steep decline.
The city now ranks among the lowest in Germany for income per capita and has some of the highest rates of child poverty, according to official statistics. Many residents feel disconnected from the economy and are calling for change.
Klaus Herzmanatus, a fourth-generation coal miner, was forced to retire early in 2000 at the age of 40 due to pit closures. He is disheartened by the industrial decline in Gelsenkirchen, which has since spread to other parts of Germany.
“We are an industrial nation. We can’t create chaos in industry,” Herzmanatus told Reuters, expressing his frustration with what he sees as Berlin’s failure to support the country’s economic backbone. “There must be an affordable energy supply for companies.”
As a result, many residents have turned to extremist political parties. The Ruhr Valley, which was once a stronghold for the Social Democratic Party (SPD), has seen a significant rise in support for the far-right AfD, which is now the second-most popular party in the country, according to opinion polls. In Gelsenkirchen, the AfD received 22% of the votes in June’s European elections, marking its strongest result in Germany.
The AfD is using the issue of energy costs to attract voters, blaming Germany’s decision to phase out nuclear power plants since the 2000s—a move supported by all major political parties.
“We shut down power plants here—some of the safest nuclear plants in the world—and now we’re importing electricity from French nuclear plants,” said Christian Loose, a local AfD official.
After Germany shut down its last three nuclear plants in April 2023, it became a net importer of energy from France, which generates 70% of its energy through nuclear power. However, these imports account for just 3% of Germany’s total energy consumption.
The CDU, expected to lead the next coalition government, has expressed openness to reopening nuclear plants. Merz, the CDU leader, has called the closures “a fatal decision.”
Although some pro-business voices suggest postponing Germany’s net-zero carbon goals, the political consensus still favors an energy transition that maintains climate targets while fostering new green jobs and economic growth.
The question is: where will the funding come from?
Addressing Germany’s structural challenges—ranging from energy needs and climate goals to overdue improvements in housing, transportation, and education—would require an estimated 600 billion euros over the next decade, according to the IW economic institute.
With a debt-to-GDP ratio of about 63% last year, Germany has more fiscal space than many other countries. By comparison, the United States’ national debt stands at 123% of GDP.
For the right-wing parties, maintaining the debt brake has long been sacrosanct. However, some reform of the debt brake seems increasingly likely.
One potential change could involve lifting the spending cap on Germany’s 16 federal states, which are responsible for regional budgets covering areas such as social housing and the green transition. The debt brake is especially strict on these regions, allowing no annual deficit at all.
Mathias Middelberg, one of Merz’s top budget aides, told Reuters that a modification to the debt brake for the federal states “could certainly be corrected.”
A small adjustment in the deficit could free up 6 billion euros annually, according to the Ifo Institute—an important but not game-changing amount for the economy.
A more substantial step would involve a grand coalition led by Merz, where the Social Democrats and Greens would demand the exclusion of certain long-term investments from the debt brake in exchange for cooperation.
Merz has ruled out working with the AfD. “This is the time when Germany needs to invest, and everyone else is doing it except Germany,” Nikolaus Wolf, director of the Institute of Economic History at Humboldt University, told Reuters. “It’s really kind of suicidal.”
The scope of any reforms will depend on the election’s outcome. However, a source close to Merz indicated that his public denial of plans to reform the debt brake could simply mean that such changes won’t be addressed immediately.
Some residents in Gelsenkirchen believe that the city’s failure to adapt reflects a broader reluctance among Germany’s leadership to change, as the country’s economy transitions from industrial to knowledge-based sectors.
While neighboring Bochum recognized this shift early on and established the first university in the Ruhr region in 1965, Gelsenkirchen’s leaders chose not to follow suit.
Bochum now has an unemployment rate of 10%, more than 3 percentage points lower than Gelsenkirchen’s.
“We believed that coal and steel were enough,” said Karl-Martin Obermeier, professor at the Westphalian University of Applied Sciences, which Gelsenkirchen established only in 1992. “We focused solely on large-scale industry, coal, and steel. Many mistakes were made.”
Gelsenkirchen’s mayor, Karin Welge of the SPD, believes that additional fiscal flexibility would have supported the city’s structural transformation, especially in redeveloping neighborhoods and improving education.
“We rely on state support here,” she said. “Reforming the debt brake could also provide room to repay old debts, enabling more investment.”
Economic experts do not expect immediate dramatic changes following the election. Two major economic institutes predict a third consecutive year of economic contraction for Germany in 2025, marking the longest period of weakness since World War II.
Franziska Palmas, senior European economist at Capital Economics, believes the next government is unlikely to prioritize significant long-term structural changes, especially given the global economic uncertainties.
Policymakers may have a greater impact on Germany’s future by improving the business climate for emerging sectors, boosting digitalization, and fostering growth for start-ups, Palmas suggested.
“However, while these topics appear in most parties’ manifestos, we doubt they will be prioritized by the next government,” she said.
In Gelsenkirchen, Herzmanatus remains hopeful. Once a supporter of the SPD, he has since aligned with the CDU.
At the mining museum where he volunteers, Herzmanatus offers the traditional miners’ greeting at the end of a day’s work: “Glueck auf”—”good luck for the ascent.” The same could be said for Germany’s economy.