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The German economic weakness is homemade
With the 3.5 percent slump in industrial production in December, it can no longer be denied that the German economy is dangerously close to recession . In its new annual economic report , the federal government draws attention to the weaknesses and risks of the global economy. This makes it too easy for itself, because many of the problems are homemade and are not just in the automotive industry. There is no public investment offensive in education, infrastructure and climate protection and also good framework conditions for private investments: an inefficient and inflexible bureaucracy and regulation, high uncertainty and the associated deep distrust in state institutions prevent many companies from making investments.
Although the forecast for economic growth improves from 0.6 percent in 2019 to 1.1 percent this year, the beautiful appearance is deceptive. Most of this improvement is due to the three additional working days, not more investment or productivity. More importantly, this forecast ignores almost all of the risks that could hit Germany hard: the global trade conflicts that could put Germany on a confrontation path with the United States, the unresolved Brexit, a recession in the United States, and a fragile financial system in Europe. In addition, there are the geopolitical conflicts in the Middle East and the corona virus, which could hit German exports particularly hard if spread further.
Given the risks and the great need for future investments, it is not surprising that the majority of economists see it as the wrong decision by the government to stick to the black zero and neglect public investment.
An equally large and neglected problem is another: The unreliability and inefficiency of the state has led to a massive loss of trust in state institutions over the past two decades. Companies see burgeoning bureaucracy, ever-changing rules, long approval procedures and their high costs as one of the biggest hurdles for private investment and innovation. The confidence index of the communications agency Edelman shows that the majority of the citizens of the western industrialized countries, including in Germany, consider their state institutions to be unskilled and unethical in their actions.
The dissatisfaction with politics is also expressed in the protests of Fridays for Future. PHOTO: IMAGO IMAGES / MÜLLER-STAUFFENBERG
And not without reason. Many western governments, including the federal government, have pursued a policy of safeguarding the acquis over the past two decades, serving powerful interests and cementing the status quo. Some complain that the German climate targets for 2020 are not met, but tighten the regulations for wind turbines and other renewable energies so much that their production collapses and the climate targets move even further away.
At the same time, the Federal Government is serving the coal lobby for the coal phase-out with almost 50 billion euros. The large job losses in renewable energies, however, are ignored. Some complain about exploding rental prices in the cities, but reject new construction projects such as those on Tempelhofer Feld in Berlin. Others call for future-oriented technologies for Germany, but then they fight fiercely against the settlement of Tesla outside of Berlin.
It is therefore not surprising that the elite, i.e. people with good income and education, tend to trust the state, whereas the rest of the population has a deep distrust in their state institutions. And the Edelman confidence index shows that this gap between the elite and ordinary people is almost as big in Germany as in almost no other country.
The good news is that hardly any country has as much financial scope and structures as Germany. It is just as important as strengthening public investment to fundamentally reform state institutions. These include greater efficiency and speed in decision-making, modernization of public administration (e.g. through e-governance) and regulatory security, which both companies and citizens can rely on. A successful economic transformation in Germany requires strong, efficient and at the same time adaptable state institutions, as well as the political will to create such institutions. This is what Germany lacks.
