"The World Is Losing Trust": Foreign Investment In Germany Plunges To Lowest Level Since 2009

Volkswagen has become one of the clearest examples of the problems facing German

What the Documents Show

But these are symptoms, not causes. The real story lies in who profits from Germany's regulatory paralysis and which institutional actors benefit from keeping reform off the table. Henrik Ahlers, EY's Germany head, noted that while other European jurisdictions simplified tax systems and digitized government services, Germany's political economy produced instead "paralyzing bureaucracy" and an image collapse as a reliable business location. That's institutional failure—but whose failure, and to whose benefit? The data suggests a pattern of regulatory capture at the federal and state levels.

Follow the Money

Germany's existing industrial champions—Volkswagen chief among them—have little incentive to demand the reforms that would accelerate new market entry. Volkswagen itself lost 245,500 industrial jobs domestically between 2019 and 2023, yet the company continues operating within existing labor and energy frameworks that smaller, nimbler competitors cannot afford. The regulatory status quo subsidizes incumbency. Bankruptcy filings reached 4,573 in Q1 2025, exceeding levels from the 2009 crisis and marking the highest count since 2005. This is not economic weakness in isolation; it's evidence of a structural inability to reallocate capital efficiently. German banking regulators, working under EU supervisory frameworks, have not flagged the capital formation crisis as a systemic risk requiring intervention.

What Else We Know

Instead, they've maintained accommodative monetary policy that props up zombie firms while new entrants face prohibitive compliance costs. The beneficiaries are clear: large incumbent firms with compliance infrastructure already in place, and the consulting and legal firms that profit from navigating Germany's baroque regulatory environment. EY itself—the firm documenting this collapse—exists partly because German business requires expensive advisors to navigate the system they themselves inherited. The foreign investor retreat is rational. Why commit capital to a jurisdiction where regulatory approval timelines exceed those in Singapore, Finland, and Poland, where corporate tax rates remain punitive compared to competitor jurisdictions, and where labor law inflexibility makes workforce adjustment nearly impossible? The answer is investors won't, and they're voting with their capital.

Primary Sources