At a reduced level and at a lower standard of living. When you pay $8/gal of gas then that is money that you can't use for something else. One could say that the economy of the old Soviet Union funcitoned, but you wouldn't have wanted to live there.
Standard of living is an interesting term. Realistically Germans just drive more efficient cars and sometimes take public transport. People live just about the same.
The biggest drag on the economy is the inflexible job market which has nothing to do with energy prices.
Efficiency often pays for itself.
In terms of "standard of living" - sometimes having more free time to spend with family rather than taking care of huge houses and vehicles actually makes you happier.