In a rapidly shifting global landscape, Germany finds itself at a critical crossroads, grappling with internal political tensions, economic headwinds, and the fallout from seismic changes in the international energy market. The destruction of the Nord Stream pipelines, once the backbone of German industrial might, has triggered a cascade of economic and political repercussions that are now reverberating throughout Europe.
Back in early July 2025, a near-fiasco in the Bundestag exposed cracks in Chancellor Friedrich Merz’s governing coalition. The center-right Christian Democrats (CDU/CSU) failed to back the Social Democrats’ (SPD) candidate, Frauke Brosius-Gehrsdorf, for the Constitutional Court, despite an earlier agreement. The vote was abruptly called off, leaving trust between the coalition partners badly frayed, according to Internationale Politik Quarterly. This episode set off a wave of team-building exercises, including a night train journey to Kyiv by CDU/CSU’s Jens Spahn and SPD’s Michael Miersch, and a two-day retreat in Würzburg with Alexander Hoffmann of the CSU. Chancellor Merz himself worked to smooth relations at the highest level, attending Vice Chancellor and Finance Minister Lars Klingbeil’s budget speech and privately urging MPs to show kindness toward their coalition partners, particularly Klingbeil, whom he described as “very sensitive.”
Despite these efforts, the coalition—once dubbed the Große Koalition or “GroKo”—is struggling to become more than just the sum of its parts. After a period of bold fiscal expansion to support defense and infrastructure, the government now appears to have lost momentum in charting a path forward. Nowhere is this more evident than in the debate over compulsory military service. The CDU/CSU is pushing for its reintroduction, following its suspension in 2011. However, the SPD is reluctant to act immediately, and constitutional hurdles make universal conscription unlikely without broader support. Instead, a new law passed in late August 2025 will adopt the “Swedish model,” sending questionnaires to all men turning 18 (and to women, though they aren’t required to respond) about their interest in serving in the Bundeswehr. Starting in 2026, this outreach will be followed by the reintroduction of compulsory medical exams for 18-year-old men from July 2027. The aim is to boost the Bundeswehr’s ranks from 182,000 to 260,000 soldiers by 2035, fulfilling Germany’s NATO commitments.
Yet, as Internationale Politik Quarterly notes, the Bundeswehr’s leadership is less concerned with raw numbers than with the quality and readiness of its reserves. Many wonder why the government isn’t prioritizing the rapid buildup of a voluntary reserve force, which could foster greater societal resilience and buy-in for Germany’s security mission. Instead, the debate remains mired in old formulas, with little sign of the innovative thinking needed for the challenges ahead.
Meanwhile, Germany’s economic prospects have dimmed considerably since the Nord Stream sabotage. As Business Day reports, factory output has stalled, and unemployment is at its highest level in a decade. The loss of cheap Russian pipeline gas—once the lifeblood of German industry—has left manufacturers struggling to compete. The government has responded by suspending budget rules to allow increased military spending, but Chancellor Merz has warned that the welfare state can “no longer be sustained” under these conditions.
The energy crisis has been exacerbated by a dramatic shift in global gas flows. A new $14 billion, 2,600 km Power of Siberia 2 pipeline agreement between Russia, China, and Mongolia will soon carry 50 billion cubic meters of gas annually through Mongolia to northern China. This effectively ends Europe’s role as Russia’s main customer, as China’s annual Russian gas intake will surpass 100 billion cubic meters—more than what Germany received via Nord Stream before its destruction. The Power of Siberia 1 pipeline is also ramping up, increasing volumes from 38 to 44 billion cubic meters, while the Far Eastern route will rise from 10 to 12 billion cubic meters. Mongolia, as host, will benefit from transit fees, while Russia secures income and China locks in stable, affordable energy supplies.
The consequences for Europe are stark. European electricity prices doubled after the Nord Stream blasts, peaking above €700 per megawatt-hour in August 2022. Studies cited by Business Day suggest that continued Russian energy flows would have delivered significant savings for EU consumers and stabilized the industrial supply chain. Instead, Europe now pays three times more for liquefied natural gas (LNG) than it did for pipeline gas, while China can re-export any excess pipeline gas as LNG at a profit.
This energy squeeze has political ramifications as well. German voters, frustrated by rising costs and economic stagnation, are increasingly gravitating toward the far-right AfD party, which calls for normalizing relations with Russia. The AfD’s anti-immigrant rhetoric and economic populism have gained traction as traditional parties struggle to offer convincing solutions. The loss of Russian gas has also strained public finances; the French government has already collapsed over budget deficits, and Germany’s fiscal position is under increasing pressure.
On the economic front, Germany faces stiffening competition from Asia. China, already the world’s largest car exporter, shipped a record 6.4 million cars in 2024, compared to Germany’s 3.4 million. This surge, as Business Day notes, is fueled by China’s advantages in labor, capital, energy, and infrastructure, all of which are being reinforced by the new pipeline deals. China’s manufacturing juggernaut now outpaces the entire G7 in several sectors, and the energy windfall from Russia will only deepen this advantage.
Against this backdrop, Germany’s economic recovery looks precarious. Leading research institutes forecast a meager 0.2 percent GDP growth for 2025 and 1.3 percent for 2026—figures propped up mainly by infrastructure spending. The recovery, experts warn, is on “shaky ground,” with little evidence of a long-term strategy to restore competitiveness. The government has yet to prioritize a deeper EU single market or reinvigorate Franco-German cooperation, despite the urgent need for collective action. The much-touted Future Combat Air System (FCAS), a joint Franco-German defense project, is close to collapse, and other bold initiatives remain elusive.
Still, Chancellor Merz has taken some steps to break the logjam. On September 25, 2025, he proposed using Russia’s frozen assets to provide Ukraine with an interest-free loan of €140 billion, a move that could signal a willingness to embrace more creative policy solutions. Whether this marks the beginning of a new era of German leadership remains to be seen.
As Germany faces the dual pressures of internal political discord and external economic realignment, the country’s next moves will be closely watched—not just in Berlin, but across Europe and beyond. The choices made now could determine whether Germany regains its footing or continues to fall behind in an increasingly competitive world.