EditorialEconomic location Germany

Relegation battle

Germany is failing in every possible way: inadequate market measures, excessive central planning and bureaucracy, escalating social costs, deteriorating infrastructure, rising energy prices, and a diminishing appeal for highly skilled individuals. Yet, Berlin remains committed to the misguided path.

Relegation battle

Abroad, columnists are increasingly worried about Germany as Europe's economic engine. Already in August, the British economic magazine "Economist" characterized the Federal Republic as the "sick man". The IMF and the OECD now label Germany as the worst-performing economy in Europe. The latest economic data underscore the problems: Germany's economy shrank in 2023, and many economists have already written off the year 2024.

Paris and London also mock the dysfunctional and growth-detrimental decisions regarding the "Energiewende" (energy transition). Doubts are cast on the "Zeitenwende" (turn of times) proclaimed by Chancellor Olaf Scholz after Russia's attack on Ukraine, as Washington notes that lofty words have been followed by few actions. Widespread digitalization failures across the country confirm the assessment that Germany is currently not progressing. It is unable to achieve the ecological transformation and an economic turnaround , let alone showcase "Germany's speed".

Good mood only a façade

The seemingly positive labor market situation is just a façade because the growth in public servants has compensated for the declining number of employees in the manufacturing sector. Additionally, 20% of industrial enterprises plan to reduce personnel. The concern among factory managers is that in a better economic situation, they may struggle to find employees due to a shortage of skilled workers.

The growth in the state workforce is accompanied by an increase in bureaucracy. The costs for this have grown by €9.3 billion per year, according to the National Regulatory Control Council (Normenkontrollrat), reaching an unprecedented level. It appears that the "Zeitenwende," "Germany's speed," and the "ecological transformation" are being carried out mainly in administrative offices. Even worse, young companies are predominantly founded beyond Germany's borders. Due to high energy and bureaucracy costs, companies also increasingly relocate their production abroad – often to the United States due to enticing incentives.

All of this occurs against the backdrop of negative demographic trends. Soon, there will be only 1.4 contributors for each retiree, rendering the social system financially unsustainable and draining capital from future investments. While many migrants aspire to Germany as a place of longing, integration into the German economy as taxpayers is delayed, while more highly qualified individuals are leaving the country. Between 2014 and 2020, a net total of 400,000 people departed – a drain that worsens the situation.

"Whiff of a general strike"

To add to the adversity, Germany now presents an image in the winter of 2023/2024 that foreign countries are unfamiliar with: a train driver strike, farmer blockades, and increasing protests from various professional groups. Foreign commentators observe the emergence of a "yellow vest" movement, and the US channel CNBC even senses the "whiff of a general strike" over German streets.

Distribution struggles intensify in the country because Germany has lost its business model. Cheap energy prices and clever engineers have made the Federal Republic an export powerhouse until now. That era is over. The establishment of an ecological-technological market economy could be a new successful model. However, this requires favorable location conditions, attractive tax policies, and a welcoming culture for highly qualified individuals and entrepreneurs. Above all, less bureaucracy and more openness to technology are necessary. After digitization, Germany must not fail in transitioning to the era of artificial intelligence. Instead, Berlin seems to prefer delving into citizens' heating basements, approaching the transformation with micromanagement and subsidies. Is this the new business model: ecological planned economy?