The Increasing Financialization of Germany

The CEO of Germany’s Commerzbank says Germany needs structural changes and modernization. The prescription from Manfred Knof, which boils down to digitalizing the German workforce to reduce the costs for capital and increase profits, is symbolic of where Germany is headed as industry declines and finance (with a heavy American presence) takes full control of steering the direction of the country.

The recent story of Knof and Commerzbank – one of Germany’s largest lenders – is illustrative of the trend. From Euromoney:

Commerzbank’s new chief executive Manfred Knof is nobody’s idea of Mr Nice Guy, which probably explains his appointment.

A profile of Knof last year quoted a former colleague from insurer Allianz saying that Knof’s favourite tool when negotiating with unions was the crowbar.

This reputation as a human lever may have earned Knof his new position as chief executive of Commerz, after big shareholder Cerberus, the US private equity firm, helped to force out his predecessor Martin Zielke for cutting costs too slowly….

The German state is the largest shareholder in Commerzbank, which plays a key role in financing the nation’s small and medium-sized businesses. But an American private equity firm is effectively calling the shots, pushing for digitalization, aka, job cuts, and increased profits.

German industry is in decline due to the loss of cheap, stable Russian energy. Meanwhile, Germany is the biggest real estate investment market on the continent with the property sector makes up roughly a fifth of economic output. Financial and Insurance services constitute another four percent. Manufacturing accounts for about 27 percent of its economy, and that is shrinking.

With a pervasive neoliberal ideology and industry in decline, the FIRE sector is strengthening its chokehold over the German economy pushing right-wing neoliberal ideology. As Michael Hudson writes, “An industrial economy’s decline usually provides a grab bag of opportunities for financial predators and vulture funds.”

So it is in Germany. This is showing up in corporate profits in Germany, which reached a record high of 234.15 billion euros in the first quarter of 2023.

It’s on display in German budget plans for 2024, which impose deep austerity everywhere except the military.

It’s evident in the growth of Germany’s private equity and venture capital industry, which tripled in size from 2012-2021, and that trend is picking up steam. According to Reuters, International and U.S. law firms continue to invest in Germany, with international mergers and acquisitions, finance and private equity hires driving legal market growth in the country:

Reed Smith is the latest to add to its Munich office, roping in two partners from U.S. rival McDermott Will and Emery, including its German private equity group leader, Nikolaus von Jacobs, the firm said last week.

Other U.S. law firms have also grown in Munich, most notably Morgan, Lewis & Bockius, which opened its second German office there in March with a 19-attorney group from rival Shearman & Sterling, including its country head and M&A leader Florian Harder.

Kirkland & Ellis, McDermott, Dechert, DLA Piper, Allen & Overy, Ashurst and Dentons all added transactional partners in the Bavarian capital this year. Goodwin Procter, which launched a Munich office last year, called the city “a private equity hub.”

The financialization of Germany is also showing up in how the German people are getting squeezed and are increasingly angry. From Reuters:

Some 80% said they considered the economic situation in Germany as unjust, up 32 percentage points from 2021, and 60% of Germans said they saw society as divided – principally between rich and poor – up 20 percentage points compared with May 2022, according to the More in Common research organization.

On Monday, a study by economic institute Ifo showed Germany’s middle class had shrunk between 2007 and 2019 to 63% of the population from 65%, falling behind 13 European countries in its share.

Low and middle income households have been generally hit harder by inflation, Florian Dorn, a researcher at Ifo told Reuters. Workers in Germany, Europe’s biggest economy, lost around 4.1% of their purchase power in 2022, research by the WSI institute published in July showed.

Although higher energy import prices initially drove inflation in Europe and Germany, companies were also putting up prices beyond their cost inflation, WSI analysis showed. Companies’ profit inflation rose by 7% in 2022 compared to an only 3.3% rise in labour costs.

Unfortunately, it’s all about to get worse as the government works to shift more costs from public to private. The German government presented its 2024 budget to the parliament last month, with Finance Minister Christian Lindner’s draft budget coming in roughly €30 billion less than in 2023. While the military spending grows, cuts are proposed nearly everywhere else.


The starving of the German national healthcare system is beginning to mirror similar efforts in the UK to wreck the NHS. The 2024 budget will continue to build upon these efforts, such as last year’s plan that closed departments and hospitals and led to increased wait times for those without private insurance. The argument was such measures were necessary to deal with funding shortfalls due to the pandemic, the energy crisis, and inflation in medicine prices.

This year’s budget continues to starve the public system. From WSWS:

Some of the cuts in social spending are drastic. This is most obvious in the health budget, which will drop from €24.5 billion this year to €16.2 billion next year. In 2022, it had amounted to €64.4 billion. This 75 percent cut is partly due to the fact that the government has almost completely cut funding for monitoring and combating COVID-19, even though the pandemic continues to spread and generate ever new variants. There is also hardly any money for research and cures for Long Covid, even though hundreds of thousands suffer from it.

In Germany, people with private health insurance account for 11% of the population. They tend to be wealthier and are prioritized by health care providers due to financial incentives for physicians who can charge higher fees for the same services. This effectively encourages  more to purchase private insurance. Meanwhile, workers are expected to have to contribute a larger percentage of their wages to their mandatory health insurance payments next year.

International investors are seeing opportunities in the cracks in the system. International investment groups are buying up doctors’ practices in Germany. From Deutsche Welle:

A study published in May by the financial research collective Finanzwende found that private equity firms bought 174 German doctors’ practices in 2022, up from 140 in 2021 and just two in 2010. And, according to research by the public broadcaster NDR, such firms now own hundreds of practices across Germany, to the extent that single chains have a monopoly in certain regions and towns.


Germany’s 2024 budget plan, which still needs to be formally passed, also scales back housing benefits by 16 percent. The housing benefit is support for households that don’t have enough income to pay for adequate accommodation. It’s not a great time to be slashing the budget for housing assistance. Deutsche Welle describes the unaffordability crisis in the country:

Germany is traditionally a nation of tenants. While across Europe around 70% of the population own the house or apartment they live in, only 46% of people living in Germany do so. In major cities, that ratio is even lower.

If you want to rent a nice apartment in a good location in Berlin, you need a lot of money. A “wonderfully spacious 4-room apartment” in Berlin’s upmarket Charlottenburg district: 182 square meters, furnished, the rent is €8,190 ($8,947) per month. Plus heating, electricity and other incidental costs, that amounts to over €50 per square meter.

A so-called rental price cap was included in the German Civil Code in June 2015. According to this, when signing a new rental agreement, the rent may not be more than 10% above the local comparative rent. But in Berlin and other large cities, landlords have found a lucrative way around this: The cap does not apply to furnished apartments and contracts for short rental periods. So now, more than half of all apartments in Berlin are offered as “furnished.”

A rent level of €6.50 to €7.50 per square meter is considered socially acceptable in Germany. But for that price, you can’t even find an apartment on the outskirts of Berlin these days….

In Germany, the average net income — the amount that remains after taxes and social security payments have been deducted — currently stands at €2,165, according to the Federal Statistical Office. Around one-third of this income is spent on rent. But even that is often not enough. In Munich, a square meter now costs €19 in rent, in Stuttgart €18, in Dusseldorf and Cologne €12 to €13 and in Berlin €11.

As a greater share of salaries and pensions go to rent, poverty is soaring. Austerity measures similar to those coming from Berlin are likely be imposed across the EU soon. The European Central Bank is calling on governments to end subsidies intended to help people deal with high energy prices due to the West’s proxy war against Russia in Ukraine. The ECB argues that eliminating the subsidies will help prices stabilize. Sure, they might stabilize at an unaffordable level, but stable they will be.

Germany, which intends to cut its deficit to 2.0 percent next year from 2.5 percent, is still debating whether to keep energy subsidies for industry, but is facing strong pressure from the ECB to end them. An end to the German subsidies would almost certainly devastate the country’s industry, but the ECB and European Commission argue that keeping them would set a bad example for the rest of the bloc, which due to rules, must start imposing austerity. From Reuters: 

EU law says budget deficits, if in excess of 3.0% of GDP, must shrink by 0.5% each year until they comply with the limit.

The European Commission has also promised to start disciplinary steps against those with budget gaps above 3.0% next year, which could in theory lead to fines.


While austerity is pushed from Brussels, European capitols are also expected to start spending more on their militaries with Germany leading the way. In its current budget, Berlin will spend 85.5 billion euros for military purposes next year, the highest sum since the end of the Second World War. From WSWS:

The draft budget of the Defence Ministry only shows expenditure of €51.8 billion, 1.7 billion more than in the current year. But on top of that, there are €19.2 billion from the Bundeswehr’s “Special Fund,” as well as other expenditures hidden in other budgets. To Ukraine alone, Lindner has promised €5 billion in military aid every year until 2027. Together, the military expenditure thus amounts to €85.5 billion euros—the sum that Germany declares to NATO.

Firewall Against Alternative for Germany Breaking?

The German elite had remained opposed to the AfD. Germany’s business groups were unified in their opposition to the AfD whose immigration stance goes against big businesses’ desire for cheap labor. All of Germany’s main political parties say they are opposed to the AfD and are discussing an outright ban of the party, but that “firewall” might be breaking down. Last month, the Christian Democrats and the pro-business Free Democrats needed votes to defeat a regional government in a crucial budget bill. They turned to the AfD.

Together they were able to push a tax cut through Thuringia’s parliament against the wishes of the left-wing coalition.

Germany’s main opposition leader, Friedrich Merz who leads the Christian Democrats, had ruled out cooperation of any kind with the AfD. Merz, a former corporate lawyer who has  sat on numerous company boards including BlackRock Germany, had been heavily criticized for previous comments after AfD election wins in Eastern Germany local elections. He said at the time that they were democratic elections that “we have to accept, and then of course ways have to be sought in local parliaments to organize the town, the countryside or the county together.”

All in all, it’s safe to say that the situation isn’t looking all that great, what with the ongoing support for and normalization of Nazis in Ukraine, an increasingly financialized economy and austerity leading to higher levels of poverty, an elite losing control, and increasing militarism.

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  1. Michaelmas

    It gets better —

    Adding nine countries to EU to cost existing members more than €250bn

    ‘“All member states will have to pay more to and receive less from the EU budget; many member states who are currently net receivers will become net contributors,” the paper by the secretariat of the EU council, leaked to the Financial Times, states.

    ‘Ukraine, by far the largest of the nine countries that have been accepted as potential candidates, would be entitled to €186bn over seven years, according to the paper. That would come on top of current lower estimates for the cost of reconstructing Ukraine, which were put at about €400bn this year by the World Bank ….

    ‘…the budget would increase by 21% to €1.47tn if all nine countries were to join. That would involve significant increase in contributions for Germany, France and the Netherlands, with transition periods necessary to scale up the funding.’

    Here’s the cited FT article —

  2. Colonel Smithers

    Thank you, Conor.

    It won’t surprise this community that Deutsche, my former employer, has agreements, formal and informal, with its US investors for strategy. This was much to the disgust of some compliance staff, but we were forced out as part of the annual cost cutting.

    One wonders if the brief fling with Commerz was influenced by them. In London, we joked that the only merit to that merger of basket cases was that relocation to Commerz’s London office on Gresham Street would put us closer to pubs like the Watling and Raglan and shops on Cheapside.

    I wonder, too, if the sidelining of a less Atlanticist heir to the throne had anything to do with Uncle Sam. The executive’s wish for a scaling back of DB’s involvement in and with the US goes back since he joined the back two decades ago,

  3. MapleLeaf

    “In Germany, people with private health insurance account for 11% of the population. They tend to be wealthier and are prioritized by health care providers due to financial incentives for physicians who can charge higher fees for the same services.”

    From my understanding of the design of the system, it was multi-payer, single price. The price negotiated by whatever body was responsible (can’t remember the name) was the price paid by private/public and walk-ins. Has this also changed? If so, that is quite a big change since I last took a look at the structure of healthcare over there.

    Meanwhile in Canada, they (the feds+provinces) continue to starve the system. For the first time I’ve heard more discussions among expats about moving back to whatever respective country they come from than about staying, since it is impossible to get consistent health interventions here. At best you can wait 6-12 hours to see a doctor in urgent care, or wait 3+ days for a booking with an actual GP who will only prescribe a bunch of tests and never discuss them with you if they don’t involve the possibility of your death. Those meetings rarely last more than 12 minutes… If you have multiple complaints, you are forced back into the queue to discuss each one separately.

    1. Gretchen

      Great piece, Conor. So many parallels between the gutting of US industry and social fabric starting in the 1980’s.

    2. Annoyed german engineer

      In germany, at least the city I live in, you can be happy, if you don’t need to wait more than 3 or 4 weeks, when booking (default case, when not emergency) a medical specialist… even if the doctor already knows you.
      I guess with private ensurance it will be much easier to get a booking earlier.

      This is so screwed up here, and becomes worse more and more over time.
      And not only is the payment for the ensurance more than in the past, you also get less for it.
      Somwehere there is a hole in the system.

      When new technology which uses less resources is introduced, there often is something like an increase of its usage, which yields in more resource needs over time all in all, than before increasing the efficiency. I know this under the name rebound effect.
      Maybe there is something similar in socail systems… especially in health insurance systems, this has been the case again and again (in *.de).

      One might say “that’s capitalism my dear” or “myth of austerity caught in the act”. But maybe there is a more specific name to it? From the viewpoint of systems theory I guess there must be a way to explain (and name) (and formalize) it.
      Any ideas by the economists on this here?

    3. Michael

      There have been separate fee scales for private and health insurance patients for doctors and dentists in Germany for decades. And various services that are included in the private fee schedules are not paid for by the health insurance funds at all. In addition, there is always the possibility of concluding free, private agreements on the amount of the fee or the content of medical services. The latter only has to be done before treatment begins. Because of the oversupply of physicians and dentists, this was rare in the past, but with the shrinking supply of physicians coupled with rising demand due to aging, it is becoming more common because fees, whether paid privately or by health insurers, lag far behind inflation.
      The fee schedules create false incentives. Depending on payment, there is underuse and overuse side by side. There are official reports on this.
      Another problem is that all insurances do not differentiate regionally in the fees, although rents and personnel costs are regionally very different. Therefore, in the expensive regions, certain poorly paid health insurance services are no longer provided at all, but are replaced by private services.
      Michael, dentist (own practice since 1996), germany

  4. Tom67

    Mr. Gallagher is mostly on the spot. Private equity is about to get a big bonanza first squeezing and then selling out the Mittelstand. Still, things will not be as easy as in the US. You can´t simply fire large amounts of workers without paying compensation. Then there is the German “Mitbestimmung” – codetermination. That is the goverment boards from a certain size have worker represantation. The Unions are mostly corrupt with a woke fig leaf but they can´t completely disregard the rank and file. Finally all these companies are useless without their highly specialised and very well educated employees. So yes, PE will proft immensely but it won´t be as easy as in the US.
    About RE: here, I believe big institutional investors are in for a rough time. They will discover that they can´t make any money in Germany. On the contrary: they will be lucky if they don´t lose money. The reasons are manifold:
    1. You can´t just raise rents as you like on EXISTING contracts. The allowed rent rise is calculated every year in every city by representatives of the renters and the landlords. Basis is the average of rents paid last year. Sounds crazy but that is the German system. The landlords are allowed to profit to a certain extent but not more. This is not true for new buildings or new tenants. There owners can charge what they like. But it is impossible to evict tenants unless you yourself want to live in the appartment or if the tenant doesn´t pay for 3 month in a row. And no political party will mess with this system. Some tweaks yes, but no more than that.
    2. The above works out nicely for landlords if there´s little inflation. But if there´s an economic depression with inflation then the rents will be constantly lagging the general price rise. On top there will be less fluctuation and less new building which are the two main factors that drive rent inflation.
    3. Because such a huge part of the population lives in rented accomodation even the best connected RE giants will not be able to change the above system. On the contrary. There are already calls for a rent freeze as renters are less and less able to both pay the rent and energy prices which have doubled and tripled.
    4. History. In 1936 Hitler decreed a general freezing of hoursing rents which remained in effect in East Germany until 1991. In West Berlin preäwar housing was also tightly rent controlled until 1991. In West Germany there was rationing of living space well into the sixties and landlords who sat on prewar housing were meaningfully collecting rent only from the Seventies. In German national consciousness rents must be fair and affordable. If they aren´t then the government has to intervene. As of now low income renters get part of the rent paid by the government. But if the goverment is out of money it will most likely resort to some form of general rent control. Maybe not as radical as the Nazis or the Communists but still…

  5. Mikel

    The events around the rise and fall of Wirecard was a big clue that Germany was headed more in this direction (extreme financialization) than ever before.
    When the investigations started into the fraud with Wirecard, it was hailed as a German tech champion. German officials rallied to defend the company, but it was an epic bezzle.

  6. JohnA

    How much of this increased spending on the military is actually intended to quash any revolutionary movements among the population?

  7. Matthew G. Saroff

    The dirty secret here is that the mainstream German politicians will embrace AfD over Die Linke, because they would rather have Fascists in power than Leftists.

    Why does this sound familiar to me? (1932)

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