2023-08-25 06:15:46
Has Germany become Europe’s new “sick man”? Fear of economic decline dominates the return to Europe’s largest economy and puts the government of Olaf Scholz under pressure.
The former locomotive of the EU is expected to be the only major industrial country to experience a recession in 2023, according to the IMF.
But the remedies are not unanimous within the German Chancellor’s coalition.
– What’s wrong ? –
The German economy is going through a soft patch. It stagnated between April and June, following two consecutive quarters of decline in GDP, according to final figures released on Friday.
When exports and industry cough, the whole of Germany catches a cold. However, these two pillars of “made in Germany” are particularly sensitive to rising prices, interest rates and the difficulties of the Chinese economy.
“Some 50% of our GDP comes from exports. Exports have made our wealth (…) but when the world economy weakens, Germany collects more than the others”, explains the Minister of Economy Robert Habeck to the weekly newspaper Die Zeit.
China, where the recovery is sluggish, is Germany’s largest trading partner.
Added to this is the energy shock suffered by German companies who supplied themselves with cheap Russian gas, replaced since the invasion of Ukraine by more expensive suppliers.
– What is the government discussing? –
Unprecedented coupling formed by a social democratic majority associated with the Greens, who hold the portfolio of the Economy, and the Liberals, in charge of Finances, the German coalition displays its divisions.
Robert Habeck pleads to freeze electricity prices for the most energy-intensive industries until 2030, by subsidizing their expenses.
The measure, evaluated by the Minister at 20 billion euros, would aim to preserve the competitiveness of sectors such as chemicals or metallurgy, while developing solar and wind power.
“It is out of the question to intervene directly in the market by distributing subsidies,” replied Liberal Finance Minister Christian Lindner.
Olaf Scholz, unlike many elected members of his party, is also once morest a device that would create “windfall effects”.
Christian Lindner is betting on tax cuts for businesses.
But a package of tax relief worth more than six billion euros that the government was to adopt last week was blocked in the Council of Ministers by the movement of mood of an environmentalist minister.
“The coalition is once more close to the breaking point! What a bad start following the summer break”, fulminates the tabloid Bild.
– What do economists advise?
“Germany’s problem is not cyclical, but structural,” deciphers expert Marcel Fratzscher, head of the DIW Berlin economic institute.
Germany needs a “long-term transformation program, with an investment offensive, a broad debureaucratization and a strengthening of social systems”, he explains in an analysis published this summer.
The diagnosis is widely shared: uncertainty regarding the cost of energy in the medium term, cumbersome regulations, lack of skilled labor, too slow digitization are holding back companies in Europe’s leading economy.
All also agree: “Tax cuts or traditional economic stimulus programs are not wise measures in this situation”, according to economist Sébastien Dullien, of social-democrat leanings.
– Is the situation so serious?
Faced with alarmist speeches, experts temper: “Germany is like a forties who has long succeeded, but who must now reorient himself professionally”, argues Clemens Fuest, of the Ifo economic institute.
Difficult but not impossible, according to Berenberg economist Holger Schmieding. Unlike the period 1995-2002, when Germany was also branded as the sick man of Europe, “many government and opposition actors now agree, at least in general terms, on the need for major changes”.
Also unlike the 2000s, the country is in a situation of almost full employment.
Olaf Scholz rejects Cassandra’s speeches. “We should not darken the picture and create a crisis artificially”, he has just said, recalling that the American semiconductor giant Intel had chosen Germany for a gigantic investment.
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