Germany must accelerate structural reforms and accept a wave of business failures as part of a necessary economic reset, according to the head of a leading research institute. Reint Gropp, president of the Halle Institute for Economic Research, said rising bankruptcies reflect a process of economic renewal rather than systemic weakness. Insolvency-related closures have climbed to their highest level in more than a decade, underscoring mounting pressure on companies facing high energy costs, labor shortages, and intensifying global competition. Gropp argued that allowing uncompetitive firms to exit the market is essential for freeing resources and encouraging innovation, even if it brings short-term economic pain. He described the process as a form of competitive renewal in which new ideas displace outdated business models, laying the groundwork for longer-term growth.
Germany’s potential growth rate has fallen sharply from historical levels, and Gropp said reversing that trend will require a more dynamic business environment. He pointed to the need for more start-ups, stronger investment in research, and greater certainty for investors willing to back new technologies. Bureaucratic complexity remains a central obstacle, slowing project approvals and discouraging entrepreneurial activity. According to Gropp, excessive regulation makes it difficult to launch new ventures or scale innovative projects, undermining Germany’s ability to adapt to structural change. Without meaningful reform, he warned that capital and talent could increasingly flow to more flexible economies, further eroding Germany’s growth potential.
The government is expected to lower its economic growth forecast for 2026, reflecting heightened uncertainty around global trade and external demand. Gropp said unpredictable shifts in U.S. economic policy have added to volatility, complicating planning for export-oriented industries. While Berlin has outlined measures including higher defense spending and investment initiatives aimed at boosting demand, their effectiveness depends heavily on execution. Past experience suggests that implementation delays, lengthy approval processes, and administrative bottlenecks often dilute the impact of such programs in the near term.
Gropp said promised structural reforms have lagged, highlighting the need to simplify procedures, address pension sustainability, and advance the energy transition more decisively. He added that private investors are unlikely to commit significant capital without a credible signal that reforms will be delivered. The absence of such commitment, he said, has contributed to lingering uncertainty and weakened confidence. As bankruptcies rise and growth slows, Gropp argued that Germany faces a critical choice between protecting legacy structures or embracing the disruption required to restore long-term economic vitality.
