There is an executive table in Wolfsburg on which lies a document prepared by the Volkswagen Group’s CEO, Oliver Blume.
That document contains a figure that everyone present knows by heart but avoids saying out loud: one hundred thousand. One hundred thousand jobs at risk – equivalent to one in six employees across the entire automotive giant – accompanied by the unprecedented prospect of shutting down production lines for good at four plants on German soil.

The company that literally put Germany – and, by extension, Europe – on the road is now deciding how many citizens to leave stranded.
The financial figures for 2025 leave no room for interpretation: Volkswagen’s operating profit has plummeted by 53 per cent to €8.9 billion, the lowest level since the dark days of Dieselgate, with an operating margin squeezed to 2.8 per cent.

Meanwhile, in China – which for twenty years had been the group’s cash cow – local brands have ousted the Western giants, relegating Volkswagen to third place on the sales podium. In presenting these dramatic figures, Blume made a statement that is key to understanding the industrial stagnation on the Old Continent: ‘High costs are the symptom, not the cause.’

The German avalanche and its knock-on effect on the supply chain

If the crisis were confined to Wolfsburg, we would be witnessing the decline of a single global player. The reality, however, is that we are facing a systemic avalanche.
Bosch, the giant that has been supplying vital components to every German car for 140 years, has announced 22,000 job cuts in Germany. This is followed by major downsizing at ZF ( up to 14,000 redundancies), Continental and Schaeffler, whilst Porsche is putting the brakes on its electric ambitions.

Since 2023, over 55,000 jobs have vanished in the German automotive sector alone, and estimates from key industrial regions, such as Baden-Württemberg, predict that the figure will rise to at least 66,000 by 2030.

This industrial upheaval is immediately translating into a social and economic crisis for local authorities. Historically very wealthy cities such as Wolfsburg, Stuttgart and Ingolstadt, which have prospered for decades thanks to the taxes paid by car manufacturers, are now seeing their municipal budgets plunge deep into the red.
The consequence is clear: cuts to essential public services, ranging from road maintenance to the management of social and energy infrastructure.

But the shockwave does not stop at Germany’s borders. At the heart of every car rolling off German production lines beats a heart of Italian components. The world-class manufacturing industry of Northern Italy – in Piedmont, Lombardy and Veneto – thrives on orders from Wolfsburg and Stuttgart: when an assembly line in Germany shuts down, the supply chain in Italy feels the immediate impact.

The two aspects of decline: the illusion of energy and the rejection of the product

Why have we reached this point?
The crisis is unfolding along two distinct trajectories.
The first is exogenous and energy-related. For two decades, the competitiveness of German manufacturing has been underpinned by a basic geopolitical arrangement: low-cost Russian gas to power factories and cheap electricity to beat international competition.
With the outbreak of the war in Ukraine, that model vanished overnight, forcing European industry to pay twice as much for energy as its US competitors.

However, attributing the blame solely to the energy shock is to confuse the symptom with the cause.
The second, far more serious issue concerns the product itself.
Volkswagen and Europe’s key decision-makers have known since 2015 that the transition to electric vehicles was inevitable. Yet they deliberately chose to slow the process down. The profit margins guaranteed by diesel and internal combustion engines were too comfortable and lucrative to be sacrificed on the altar of innovation.

The electric car was long dismissed in the corridors of industrial power as a ‘toy’, in a perfect replay of what happened twenty years ago at Siemens, when the top brass dismissed the first mobile phones as passing fads, even as they clutched the world’s last (and soon-to-be-obsolete) analogue telephone exchange.

Europe’s problem is not how it does things, but what it does. If it is a world leader in combustion engines and gas boilers, but the global market is irreversibly shifting towards electric motors and heat pumps, then the obsession with cutting costs is entirely futile. We simply end up as the world’s most efficient producers of something that nobody wants to buy any more.

From the ‘Venetian Lockdown’ to the Chinese advance

The driving force behind capitalism is based on the ‘creative destruction’ described by Joseph Schumpeter: the new sweeping away the old. Decline begins when those at the top entrench the status quo to protect the rents of the past. This is the historical thesis behind Venice’s ‘Serrata’, which, between 1297 and 1315, banned the commenda — the financial contract that had created its wealth — in order to defend the existing oligarchy, thereby transforming itself from a superpower into a museum.

Seven centuries later, Germany and Europe have repeated the same pattern by defending the internal combustion engine to the bitter end.
Meanwhile, global competitors have captured 11 per cent of the European electric vehicle market. When a system weakens, foreign capital snaps up its parts: today, almost a fifth of Mercedes-Benz is in Chinese hands, a fate already suffered by Volvo and Kuka. Italy, too, is experiencing this trend with Pirelli, over a third of which is controlled by the Chinese firm Sinochem, to the extent that the government will be forced to invoke the ‘Golden Power’ clause in 2026 to safeguard its independence.

The hidden cost of inaction: energy, heat and productivity

This cultural reluctance to embrace change is also mirrored in the domestic and ecological energy transition.
There is a deep-seated link between a major car manufacturer’s reluctance to convert its production facilities and the psychological resistance of the average European consumer to technologies such as heat pumps.

As Europe experiences increasingly intense heatwaves, climate control and energy management are no longer a luxury, but a macroeconomic factor that directly affects labour productivity and household budgets.
Yet we are witnessing a paradox: people are clinging to the safety of the familiar, preferring to pay exorbitant electricity and gas bills rather than face the initial technological investment required for energy efficiency. People would rather bear the hidden and ongoing cost of energy inefficiency than embrace a paradigm shift.

The impact on current accounts: the spread, demographics and the crossroads of 2026

The crisis in the Italian-German industrial partnership is not a theoretical debate, but a real threat that has a direct impact on our bank accounts.
German government bonds – the ten-year Bunds – are the absolute benchmark against which the spread on Italian BTPs is measured. If the German economy loses momentum, becomes structurally indebted and sees its stability erode, the entire Eurozone ecosystem comes under pressure. A weak Germany translates into a more fragile currency and a European Central Bank forced to take a wait-and-see approach to interest rates, directly affecting the cost of mortgages and loans for households and businesses in Italy.
It is no coincidence that Europe’s top monetary authorities have warned that, should the manufacturing slump persist, the risk of a technical recession by the end of 2026 will not only affect Berlin but will inevitably hit Rome as well.

Compounding this scenario is a second structural time bomb: demographics.
The European workforce is shrinking at an unprecedented rate, with an ever-decreasing number of taxpayers having to support a constantly growing number of pensioners. Whilst Germany is struggling, Italy finds itself in an even worse position, emerging as one of the oldest countries on the continent.
According to European Commission projections, by 2050 there will be fewer than 1.5 people of working age for every citizen over 65 in Italy. The intergenerational pact on which the welfare state is based risks collapse if the economic engine of wealth creation ceases to innovate.

Beyond the illusion of the coat of arms

The lesson that the current crisis in the automotive industry teaches us is that we cannot afford to dwell on futile feelings of nationalistic vindictiveness over the failures in Wolfsburg. 
For decades, the ‘Made in Germany’ label has been synonymous with unshakeable solidity, a fact that Europe has taken for granted.
The real macroeconomic risk for Europe is the temptation to succumb to confirmation bias , continuing to bet on yesterday’s winner simply because it is what we are most familiar with. Barricading ourselves within a single, outdated production model is the modern-day equivalent of the Venetian Serrata.

To prevent Europe’s old industrial districts from turning into archaeological parks for the consumption of global tourists, the European Union must stop protecting the past and start funding the transition with flexibility, diversification and systemic courage. Because when an industrial model dies, it is not just companies that fail: an entire way of conceiving and shaping the future is extinguished.