Germany is Falling Behind

Germany is Falling Behind

During lunchtime at the immense German dog house “Ka-de-Wa” in West Berlin, everything appears to be business as usual. The ground floor houses luxury stores from leading fashion houses, all immaculately decorated and gleaming. A suited bouncer manages a queue of Chinese shoppers eager to enter a Louis Vuitton spree. A steady flow of visitors either sipping champagne and eating oysters on the sixth floor or seeking end-of-season discounts, come and go through the elegant doors of the department store, second in prestige only to London’s Harrods. The store typically sees around 50,000 shoppers on an average day.

However, on closer inspection, there are clear signs of the considerable difficulties the “ca-de-va” is currently facing. Access to most products in the design and home department on the fifth floor is blocked by fancy films. Customers are politely informed that satin bedding items are part of the store’s inventory and not currently for sale. The men’s and women’s fashion floors are noticeably sparse as some vendors have withdrawn their merchandise. The sixth-floor chocolate shops now only accept credit card payments due to bankruptcy, a fact that employees are discouraged from discussing.

Despite attempts to maintain appearances, it is well-known that the “Kaufhaus des Westens”, a department store that symbolizes Western European decadence, is in a state of financial crisis. Cigna, the Austrian real estate company that has owned the store for the last decade, has filed for bankruptcy.

The store’s vendors haven’t received payment in months, leading some to reclaim their goods and terminate contracts. The future of the department store, a popular destination for Israeli tourists and a symbol of extravagance with its seven floors and 60,000 square meters of retail space, remains uncertain.

Cigna’s bankruptcy is a result of a combination of factors: rapid expansion, expensive financing, and mismanagement, among others. This situation is a reflection of Germany’s current dismal economic climate.

Painful prices

Despite reassurances from Chancellor Olaf Schulz a year ago that Germany would avoid recession, recent data reveals a contraction of 0.5% in the German economy in 2023. Germany is presently the only G7 country experiencing a recession. The real estate market has suffered a near 10% collapse in the last year. High inflation and interest rates have strained household incomes and stifled business activity.

Germany is currently grappling with the consequences of a non-digital bureaucracy that has hindered technological advancement and business, immigration, and free trade. The country is also dealing with the fallout from its reliance on inexpensive Russian gas, which has led to a slow and painful deindustrialization process. Decades of governmental non-investment and a policy of budget balance have also taken a toll.

The current government attempted to circumvent these restrictions in an effort to stimulate growth, but this was ruled unconstitutional. The decision forced the government to abandon most of its growth-promoting reforms. The German public’s mood has shifted from the stability and prosperity experienced during Chancellor Angela Merkel’s tenure to a feeling of stagnation and playing catch-up with other nations.

The task of addressing these issues now falls to a coalition of social democrats, greens, and liberals, led by Schulz, which breaks unpopularity records in opinion polls monthly.

Extremists on both sides

The country’s economic and political climate is reflected in the statements of top German officials. Finance Minister Christian Lindner and Economy Minister Robert Habak both agree that the country’s economic situation is dire. Meanwhile, the extreme right and radical left are gaining strength in the polls.

The far-right “Alternative to Germany” party, and the “Sarah Wagenknecht Alliance”, a far-left party that split from the “Di Linka” party, are projected to win 25% of the vote according to the latest polls. This year’s regional elections and European Parliament elections may see public unrest over the economic situation lead to a radical political shift.

Chancellor of Germany Olaf Schulz / Photo: Haim Tzach-L.A.M

Jewish roots

The “ka-de-wa” has undergone several transformations since its establishment in 1907 by Jewish merchant Adolf Jandorff. It flourished under the management of another Jewish family led by Hermann Tietz, before being forcibly sold to “Aryan” businessmen under Nazi rule. Since then, the department store has changed hands five times, serving as a beacon of Western consumerism for both West and East Berlin residents. It was bought by Cigna in 2012 and has struggled to survive ever since, particularly in the aftermath of the Corona years.

Is nationalization the solution?

The left-wing “Di Linka” party has proposed nationalizing the department store to ensure equal distribution of products. Similar proposals have been made to nationalize companies that own large portfolios of apartments in Berlin to alleviate the housing crisis. The fact that these proposals are even being considered is evidence of Germany’s deep economic troubles.

Meanwhile, the future employment of the store’s 900 employees is uncertain. The store’s business manager believes that with normal rent, the store could have a promising future. However, due to a 37% increase in monthly rent in recent years, the store’s financial performance has been negatively affected.

Despite the current crisis, there is hope that the “ka-de-wa” will continue to be an icon in the future. However, given the current state of the German economy, that confidence is wavering.