David Folkerts-Landau, Deutsche Bank’s chief economist, last month described the arrival of more than a million refugees from the Middle East in 2015 as “the best thing that could happen to Germany.” He said the event would allow the country to remain forward-looking.

That remark belongs to a German world that is no more. Following the New Year’s Eve sexual attacks on women in Cologne, largely committed by migrants and asylum-seekers, Germany has become a troubled, markedly less-confident place. It is diminished in its role...