Name: Why Germany is Rich But Germans are Poor
Uploaded: 2025-03-09T11:53:25.000Z
Duration: 9 min 16 s
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What makes Germany's recent political convulsion so remarkable is not just that it's happened in a country that's renowned for its political stability, but also that it's happened in a country that's so, well, so rich.

Since at least the early 2000s, the German economy has been the envy of Europe, with a strong industrial base, consistent export-driven growth, and barely any sovereign debt.

Many commentators argued that the populist, anti-establishment politics that swept through

Europe in the late 2010s was, in large part, a reaction to economic stagnation, and that

Germany's economic strength made it essentially invulnerable to this sort of political upheaval.

Today, however, the two main parties collectively poll on less than 50%.

Olaf Scholz has an approval rating of negative 39, and the AFD, usually described as far right, have just won their first state election in Thuringia, and might well be on to win again in Brandenburg on Sunday.

There are lots of reasons for this, of course.

Scholz's current coalition is paralysed by infighting, Germany's generous immigration and asylum policies were never everyone's cup of tea, and the German economy has indeed been through a tough few months.

But one of the reasons that Germany's economic strength might not have inculcated its electorate against extremism is inequality.

Here, we're not really talking about the East-West divide, although that's clearly politically salient at the moment, but rather the fact that if you look at wealth instead of income, Germany is one of the most unequal countries in the developed world.

So in this video, we're going to take a look at Germany's economic inequality, how it's got so bad, and how it interacts with Germany's wider economic crisis.

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Now, broadly speaking, there are two ways of measuring inequality.

You can look at income, or you can look at wealth.

Most of the time, we focus on income, because it's easier to measure.

Most people have a single salary, and governments generally do a pretty good job of tracking our salaries for tax reasons.

And on this measure, Germany looks like it's actually doing pretty well.

According to the latest Eurostat data, after taxes and benefits, Germany's income distribution has a Gini coefficient of 29.4, well below the EU and Eurozone averages, as well as peer economies like France, Italy, and Spain.

However, if you look at wealth, in other words, how much people have in assets like stocks and property, Germany doesn't fare so well.

The data does vary a bit, because measuring wealth is more difficult.

And it's been especially difficult to do in Germany, since it scrapped its wealth tax in the mid-90s, when the Federal Constitutional Court ruled that it was inconsistent with

Germany's constitutional protection for property.

Nonetheless, by most accounts, Germany has some of the worst wealth inequality in the developed world.

According to a study by the German think tank DIW Berlin, using data from the mid-2010s, something like 40% of Germans have essentially zero net wealth, and Germany's wealth distribution has a Gini coefficient of 0.76, more than basically every other European country.

Similarly, UBS Global's wealth report for 2023 found that the top 5% of Germans own over half of the country's total wealth, the highest fraction in Europe after Sweden and Czechia.

While a study by the European Central Bank from 2016 found that the bottom quartile of

Germans have less wealth than not just their French and Italian counterparts, but also the bottom quartile of Estonians and Greeks.

Well, it's in part because Germany doesn't tax wealth, which both incentivises and enables wealth accumulation.

Wealth-rated taxes account for less than 1% of GDP in Germany, compared to between 3 and 4% in the US, UK and France.

This is both because of the constitutional ruling we mentioned earlier, but also because the German political class worries that wealth taxes on stuff like property, shares and inheritances could hurt the famed Mittelstand, middle-sized, often family-run, but very successful companies, widely considered to be the backbone of the German economy.

But Germany's wealth inequality is also the consequence of the fact that Germans are probably too risk-averse with their savings.

Germans save a fair bit of their incomes, but they generally either keep it as cash or leave it in low-interest savings accounts, instead of riskier but higher-yield investments like stocks or property.

While this is in part because it's not easy to do, Germany doesn't have the equivalent of say a stocks and shares ICA that we have in the UK, surveys suggest that it's also because Germans just consider the stock market to be either too risky or too complicated.

Today just 10% of Germans own stocks and less than 50% own their own home, the lowest rate in Europe.

This also explains why wealth inequality has been so persistent in Germany.

Poorer households suffer from lower yields on their savings, which actually devalue in real terms when inflation is high, while wealthy households enjoy higher yields and modest taxes.

This largely explains why Germany has some of the worst social mobility in Europe.

On average in Germany, it takes 6 generations for a family in the bottom 10% to reach median income, with Hungary being the only European country in the OECD to fare worse on this metric.

Thanks to its tax system and hyper-cautious saving habit, Germany has some of the worst wealth inequality in the developed world, often overlooked due to our focus on income inequality.

But even when it comes to income, Germany isn't perfect.

German market incomes are as unequal as the Americans, and while things might look a bit better once you factor in direct taxes and benefits, if you include indirect taxes on stuff like tobacco, alcohol and energy, Germany's tax system doesn't look quite so progressive.

Poorer households are also disproportionately affected by Germany's chronic public underinvestment.

For context, in large part due to the infamous debt break, German public investment has long been way below the European average, and today its public infrastructure, stuff like roads, public transport and internet, is all in dire need of repair.

Because poorer households usually rely on this public infrastructure more, this underinvestment essentially exacerbates inequality.

Anyway, the point we're trying to make is that Germany is less economically equal than many people realise, especially when it comes to wealth.

This obviously has a destabilising effect on politics, but also plausibly takes a toll on the economy too.

There are lots of ways of diagnosing Germany's current economic malaise, but one way of looking at it is that Germany is too reliant on exports.

This is in part because people just want German goods, but it's also because Germany's unequal wealth distribution reduces domestic demand.

Wealthy Germans save more and spend less, both because that's just what rich people do, but also because of Germany's income-focused tax system, while poorer Germans can't spend as much as they'd like because they just don't have any wealth at all, which means that they have to save whatever they can out of caution.

Redistributing some of this wealth would therefore increase domestic demand, which could reduce

Germany's reliance on exports and provide at least a partial way out of its economic crisis.

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