Germany’s economic model is sputtering. So are its banks

Germany’s economicimfgeueu model is known for close relations between bosses and unions; the Mittelstand, the country’s world-leading manufacturing firms; and the political system’s federalism, which spreads prosperity widely. Another ingredient is less renowned but no less fundamental: the country’s banks, many regionally focused, provide long-term funding to Mittelstand companies nice and cheaply.Unfortunately, this model is no longer delivering: German growth is forecast by the to be the lowest of any 7 member this year. And the country’s banks are struggling, too. The European Banking Authority estimates that in the first three months of 2023 their weighted-average return on equity, a measure of profitability, was 6.5%, compared with 10.4% across the . In 2020 banks in eight countries in the offered worse returns than German lenders. In the first three months of this year only those in Luxembourg did.