San Francisco Frontiers - At VW home base, Germany's Scholz vows to revive economy

In front of cheering supporters, Scholz defended his government's record on the economy -- which has been battered by an energy crisis, high inflation and a manufacturing slump -- while pledging to boost investments.

The embattled chancellor, facing a general election next month, spoke in Wolfsburg, home to the historic headquarters of Volkswagen, whose rapidly fading fortunes have come to symbolise the broader crisis pummelling Europe's traditional powerhouse.

How to revive Germany's beleaguered economy, which shrank in 2024 for the second straight year, has become a key battleground in campaigning for the February 23 vote.

Scholz, from the centre-left SPD, conceded the economy faced "challenges", in particular because it was "globally interconnected".

But he said this contributed to Germany's economic strength, adding: "We have to defend it by investing here in Germany."

"We need new growth that gives us the opportunity to have jobs throughout the country," he said.

Scholz outlined ways he planned to bolster the economy, such as greater investments in green industries, more renewable energy generation and a reduction of red tape.

He also called for an overhaul of Germany's so-called debt brake that limits government borrowing, which critics say has prevented much-needed spending in a vast range of sectors in recent years.

- Uphill battle -

Scholz, frequently criticised for his apparent lack of charisma, faces an uphill battle to win re-election.

The three-party coalition he headed was riven by infighting and imploded spectacularly in November amid a row over the budget, paving the way for next month's snap election.

His Social Democrats (SPD) are languishing far behind in opinion polls on around 16 percent.

That compares to around 30 percent for the conservative opposition led by Friedrich Merz -- who is widely expected to become the next chancellor -- while the far-right Alternative for Germany (AfD) is second on about 20 percent after a recent surge in popularity.

Scholz took aim at Merz's CDU party, saying it wanted to introduce "tax cuts for the wealthy" rather than focus on investing more.

Despite the chancellor's upbeat message, the mood in Wolfsburg, a city of 128,000 people in Lower Saxony state, was bleak.

After three months of bitter negotiations, management and unions struck a deal last month that will see 35,000 VW jobs cut by 2030 as Europe's biggest carmaker seeks to drastically reduce costs.

The carmaker has been hit hard by high costs at home, weak demand in the key Chinese market and a stuttering shift to electric vehicles.

But VW ultimately pulled back from a threatened move to shutter factories in Germany for the first time in its 87-year history.

Q.Nelson--SFF