The Industrial Decarbonization Bargain Meets the German Fiscal Politics: Coalitional Realignments and State Agency in the Transformation of the German Growth Model (2019 - 2024)

Germany's export-led growth model, characterized by fiscal austerity, wage moderation, a resilient manufacturing base and cheap Russian energy, once seen as stable and successful mode of regulating capitalism, is in a state of crisis. The pandemic, the War in Ukraine and the related inflationary and energy crisis, significantly altered the demand and supply factors underpinning it, making its continuation as such increasingly difficult. Germany shifted towards large-scale countercyclical spending and significant investments in decarbonization and industrial transformation, marking a clear break from previous conservative macroeconomic policies. Since 2019, geo-economic, competitive and climate-transition pressures, also drove a revival of industrial policy, state aid and other interventions – including energy price controls and (partial) nationalizations – departing from Germany’s historically market-competitive stance, with industrial decarbonization now being framed as a (contested) growth strategy, although one still focused on de-risking private industry. Building on different debates from political economy and economic sociology, and leveraging an in-depth case-study with diverse qualitative data and elite+expert interviews, this paper proposes an analytical lens based on the agency of German state actors to interpret the country’s interrelated politics of fiscal and industrial policy from 2019 to 2024. It argues that these changes reflect deeper ongoing transformations of German capitalism and highlight significant coalitional shifts among social forces traditionally supporting it, including core unions and manufacturers, both now advocating for ambitious investment and industrial plans. The state, particularly its fiscal capacity, emerges (again?) as the central arena for resolving conflicts and managing interests’ realignments, as both mediator and driver of these. Simultaneously, fractures within the governing coalition, i.e. around the debt brake and the continuation of climate-related spending, and class, sectoral and social conflicts about distributional-adjustments, symbolize the eminently political and contested nature of these shifts, demanding state actors to creatively forge economically and politically viable compromises.