Germany faces deepening industrial crisis as EU energy and trade policies bite

The Financial Times finally said the quiet part out loud: Germany is collapsing — and the EU helped push it off the clif

Berlin — Germany’s industrial engine, once the powerhouse of Europe, is showing signs of severe strain. Steel production has fallen by 12% this year, car output is down by nearly two million units compared with 2017, and major business leaders are warning of a “tipping point” for the country’s manufacturing base.

The slowdown comes amid soaring energy costs, heavy regulatory burdens, and what critics describe as the unintended consequences of European Union climate and sanctions policies. Germany’s economy — long dependent on affordable Russian gas and strong export markets — has struggled to adjust to a new era of expensive energy and geopolitical realignment.

Christian Democratic Union (CDU) leader Friedrich Merz recently called for a €500 billion industrial rescue plan to stabilize key sectors. But many economists note that the policies driving the current crisis — sanctions on Russian energy, ambitious green transition targets, and complex EU compliance rules — were supported by mainstream German parties, including Merz’s own.

“Industry is being squeezed between energy costs, regulation, and a lack of investment incentives,” said a senior executive at one of Germany’s largest steel producers. “We’re losing competitiveness not just to Asia, but to the U.S. as well.”

Across Europe, similar trends are emerging. The EU’s coordinated sanctions regime and rapid shift away from Russian energy supplies have forced Germany — the bloc’s largest economy — to rely on more expensive imports of liquefied natural gas (LNG), while U.S. tariffs continue to weigh on key exports such as machinery and automobiles.

Meanwhile, political discontent is rising. In the industrial heartland of North Rhine–Westphalia, long a CDU stronghold, support for the far-right Alternative für Deutschland (AfD) has surged. Analysts say voter frustration is driven less by ideology than by a sense of economic betrayal — that Berlin and Brussels underestimated the risks of deindustrialization.

“The narrative of the ‘sick man of Europe’ has returned,” said a Berlin-based political scientist. “But this time, it’s not inefficiency or low productivity — it’s structural: energy, trade, and political constraints.”

As policymakers in Brussels push forward with climate and defense initiatives, questions are mounting about how far Europe’s largest economy can stretch before the model that powered the continent for decades begins to break.