Recent events surrounding Volkswagen reveal deep-rooted issues in the German economy, particularly influenced by the Nord Stream disaster and the country’s diminishing access to affordable Russian gas. While mainstream narratives focus on Volkswagen’s decision to cut 50,000 jobs, they often overlook these critical factors that are reshaping Germany’s economic landscape.
The absence of discussions regarding the Nord Stream incident is striking. Despite sporadic reports linking the tragedy to Ukrainian actors, many economists avoid the topic altogether, focusing instead on Europe’s competitiveness without mentioning the crucial aspect of Russian energy.
Now, as Germany navigates its zeitenwende—a turning point—it faces additional challenges. Volkswagen’s announcement coincided with recent tensions, including unfounded allegations against Russia regarding a drone incident at Leipzig airport and the rise of the Alternative for Germany in local elections.
As we prepare for what might be a harsh winter, it is essential to dissect the economic implications before delving into the ensuing political consequences.
Shifting Blame: China, Not Russia
In Berlin, it has become customary to attribute unfavorable developments to Russia. However, Volkswagen’s recent job cuts have been attributed to competition from China. While Chinese industrial subsidies and a global trading landscape where China emerged as a manufacturing hub are valid concerns, they do not fully explain Volkswagen’s predicament.
Volkswagen’s local sales remain stable, but its performance in China has notably dropped due to the rise of domestic brands. As analyst Kyle Chan noted, “For years, VW’s China profits were bolstering its costly European operations; that shield is no longer in place.”
For years, VW’s China profits were helping to prop up the rest of its expensive cost structure in Europe. Not anymore.
Now VW is looking ahead and fearing competition from Chinese EVs is coming.
But it’s a mistake to see VW’s job cuts as the direct result of Chinese EVs today. pic.twitter.com/pzmsNaZYZQ
— Kyle Chan (@kyleichan) September 4, 2026
While mismanagement at Volkswagen is undeniable, rising energy costs related to the Ukraine crisis have severely impacted its cost structure. This shift is clearly illustrated in the following snapshots of industrial electricity prices:
Although energy prices have decreased since their 2022 peaks, two significant issues persist: competitive electricity costs relative to other industrial players and pricing instability. For instance, Germany might need to pause industrial operations this winter to prevent widespread blackouts.
This is not the end of Volkswagen’s European production, but rather its relocation from the more expensive core to the cheaper east. Countries like the Czech Republic, Slovakia, Poland, and eastern Germany are gaining jobs while traditional West German centers lose them. As such, Volkswagen is essentially implementing internal European labor cost strategies, with production increasingly shifting eastward.
Mercedes-Benz is also considering similar actions, asking employees to accept pay cuts or face potential factory closures in favor of investments in Eastern Europe.
Imminent Winter Challenges
With LNG prices soaring due to geopolitical tensions, Germany struggles to fill its gas storage ahead of winter, raising concerns that a cold season could cripple industrial operations.
Germany, possessing the largest gas storage capacity in Europe, is significantly contributing to the overall energy deficit:
According to Euronews:
High prices currently make it unprofitable for companies to buy and store large amounts of gas. Normally, suppliers purchase cheaper gas in summer, store it, and sell it at increased prices during winter.
The ongoing conflict in Iran has escalated global market prices, complicating storage prospects. Recently, the Dutch TTF front-month contract for European gas was priced around €69 per megawatt-hour, an increase from €29 at the year’s beginning.
With little indication that market conditions will improve, especially with continued geopolitical tensions, the possibility of Germany resorting to more costly LNG to meet winter demands looms large. This could inflate industrial electricity costs beyond sustainable levels, leading to greater economic strain and potential job losses.
The German economy is in a precarious position. An En Niño-driven winter may offer some relief, but it remains an uncertain gamble:
Should the winter prove mild, Germany might avoid the worst scenarios, but relying on unpredictable weather adds further strain to industrial confidence. Meanwhile, American LNG providers are profiting significantly, and the potential gains from maintaining an operational Nord Stream pipeline remain an afterthought.
The AfD’s Swift Ascendancy
In this turbulent economic landscape, the Alternative for Germany (AfD) is gaining traction, leveraging the distress in the German economy to bolster its position.
Chancellor Friedrich Merz of the Christian Democratic Union (CDU), who promised economic reforms when he assumed office in 2025, has instead implemented austerity measures without reversing the trajectory of job losses in the industrial sector. Contentious spending continues to support Project Ukraine even as the CDU’s popularity plummets.
In the recent election, the AfD emerged victorious with 43.8% of the vote, underscoring a fundamental shift in voter sentiment:
- Alternative for Germany (AfD) — 43.8%, 39 seats
- Christian Democratic Union (CDU) — 17.2%, 15 seats
- Social Democratic Party (SPD) — 9.3%, 8 seats
- Green Party — 8.9%, 8 seats
- Left Party — 8.6%, 8 seats
- Sahra Wagenknecht Alliance (BSW) — 5.3%, 5 seats
Despite AfD’s dominance, government formation remains uncertain due to existing barriers against coalition-building with what many consider the “far right.”
Calls for new elections are growing, a prospect welcomed by the AfD, anticipating potentially even greater support.
Conclusion
The rise of the AfD amidst Germany’s economic turmoil signals the urgent need for a reassessment of energy policies, economic strategies, and political alliances in the country. As the political center faces scrutiny for its handling of crises, the AfD’s platform appeals to voters increasingly disenchanted with mainstream parties. The unfolding situation raises critical questions about Germany’s future trajectory, its relationships within Europe, and its approach to the ongoing energy crisis.
It’s affordability, stupid.
89% of voters for the AfD in Saxony-Anhalt say they are worried that prices rise so much that they can’t pay their bills.
In fact, food prices are up 34.7% since 2021. Wages have lagged at only 14.8% growth.
We need Anti-fascist Economics. pic.twitter.com/5dNXERsFl6
— Isabella M Weber (@IsabellaMWeber) September 6, 2026
