At the Ludwig Erhard Economic Summit in 2025, Germany’s newly appointed Federal Minister of Economic Affairs and Climate Protection, Katharina Reiche, delivered a comprehensive and forward-looking speech emphasizing the economic challenges faced by Germany, changes in the global trade landscape, and calling for a thorough modernization and reshaping of the country’s economic foundation model – the “social market economy.”
Reiche made it clear that Germany, particularly in its trade relations with China and the United States, must realign its policy direction, shifting from a regulatory mindset to one that fosters innovation domestically.
She candidly analyzed the current state of the German economy at the beginning of her speech, noting rising unemployment rates, increasing business bankruptcies (expected to reach 32,000 in 2025), and over €326 billion in net capital outflow since 2020, reflecting weakened investment confidence among domestic enterprises.
Germany’s core industries – automotive manufacturing, mechanical engineering, chemical industry, energy-intensive industries, metal processing, electronics, aerospace, and maritime industries – are undergoing a profound transformation. Reiche stated, “We must either invest from a position of strength or exert our efforts to catch up.”
Despite the challenges, she also highlighted positive signals, such as the record number of over 2,700 new startups in Germany in 2024, representing an 11% year-on-year growth and the second-highest level in history. She emphasized, “This entrepreneurial spirit gives me hope, showing that Germany remains a country of innovation.”
Reiche extensively discussed external factors affecting Germany’s economic stability, including geopolitical conflicts, key raw materials used as political tools, supply chain disruptions, and escalating energy and labor costs. She particularly pointed out that the Russia-Ukraine war has further exacerbated the vulnerability of Germany’s energy system.
In this context, Reiche called for the reconstruction of a “rules-based global trade system” and emphasized the urgent need for Germany to conclude free trade agreement negotiations with major economies globally, including China, India, Australia, Mercosur countries, and the United States.
She emphasized, “The United States is irreplaceable.” Currently, bilateral trade between Germany and the US has reached €250 billion, making the US Germany’s most important single trading partner. However, she also stressed that Germany must maintain a pragmatic and sober attitude towards its relations with China, continuing deep economic and trade cooperation while enhancing strategic autonomy and supply chain diversification.
Reiche’s central argument was that the “social market economy” model established in post-war Germany must be updated and reshaped in response to the era of 21st-century transformations. This idea, proposed by Ludwig Erhard and Alfred Müller-Armack, aims to achieve a balance between market freedom and social equity.
Quoting Müller-Armack, she said, “The social market economy must achieve a reasonable balance between justice, freedom, and growth.” In the rapid development of artificial intelligence, robotics, quantum computing, network security, and green technology, this concept is particularly important.
Reiche stated, “I am not Müller-Armack or Erhard, but I believe the Federal Ministry of Economic Affairs bears the responsibility to rediscover these principles and modernize them.” She urged the German economy to shift from a “regulatory-oriented” approach to an “empowerment-oriented” one to stimulate innovation.
Reiche criticized the current overly regulated economic culture in Germany, stating, “If the government tries to absorb all risks, entrepreneurial spirit will be stifled.” She advocated for establishing a “culture of rational risk,” encouraging innovation without punitive measures for failure.
To achieve this, the German government will establish a new federal department dedicated to simplifying bureaucracy, led by Markus Wildberger.
She emphasized, “We need to unleash economic vitality, not constrain it. True competitive advantages come from fair competition and excellent incentive mechanisms.”
Reiche proposed four strategic priorities:
Germany must ensure a reliable and affordable energy system, planning to build 20 gigawatts of dispatchable gas power plants to complement intermittent renewable energy sources. She also called for reducing electricity taxes and natural gas storage fees, advocating for “technological neutrality,” stating that “no energy solution should be excluded.”
Germany needs to strengthen its export-oriented economic structure by promptly signing free trade agreements with major markets worldwide, including China and the US, while enhancing the security and diversification of supply chains.
She pointed out that overly slow administrative procedures are a significant reason for the decline in Germany’s competitiveness, establishing a new department to promote “national modernization” as a crucial step.
She stressed that Germany should play a leadership role in Europe, deepening cooperation with France, Poland (the Weimar Triangle), and maintaining close relations with the UK. Reiche said, “A strong Germany must be rooted in a strong Europe.”
In her concluding remarks, Reiche reaffirmed the four principles that the German “social market economy” should adhere to: decentralization of power, individual responsibility, competition mechanisms, and monetary stability. She believed that these values still hold significance in the present time but require reinterpretation with an open mindset.
“We have a responsibility,” Reiche concluded. “But I also invite you – entrepreneurs, industry leaders, citizens – to participate in this renewal. The answers must come from within, and the solutions must be ‘Made in Germany.'”
Reiche’s speech marks a strategic transformation of Germany’s economic policy from a “state intervention-oriented” approach to a “market and innovation-oriented” approach. Against the backdrop of evolving US-China relations, her emphasis on trade realism, regulatory loosening, risk incentive mechanisms, and balancing social responsibility not only provide valuable insights for Germany but also offer a roadmap for how democratic nations globally can rebuild competitiveness amid uncertainty.