Michael Scherz, Austria’s economic delegate of the Austrian Chamber of Commerce in Germany, hopes that trade with the Alpine Republic’s most important economic partner will pick up in the second half of the year. The current development of the German economy is becoming increasingly challenging for Austria. Scherz sees several “warning signs” that Austria could feel.
“We are already noticing this,” Scherz said in an interview with APA, summarizing the development in Germany. “If you look at the long-term development, the production sector for energy-intensive products as well as foreign investment have been declining since 2017. These are alarm signals that do not speak well for the location in the long term and are also becoming an increasing challenge for us.”
Many entrepreneurs are no longer investing in their own country or are moving production abroad, according to the representative of the Austrian Federal Economic Chamber (WKÖ). “The trend of trying to compensate for every problem with money is not bringing the German economy the necessary liberation steps, and Germany’s neighbors and main trading partners are also coming under increasing pressure as a result of such policies.”
Germany is by far Austria’s most important economic partner in every respect. This still applies and will continue to apply. “But if economic performance here no longer develops as dynamically as it used to, we will feel the effects.”
The reasons are partly home-made. Twenty years ago, former Chancellor Gerhard Schröder implemented “major reforms” with “Hartz IV,” which ultimately cost him his job. “But I don’t see anyone here today who would be prepared to tackle such fundamental structural reforms.” As a result, the mountain of problems is getting bigger and bigger: partly chaotic energy policy, excessive bureaucracy from Berlin and Brussels, a shortage of workers, deficits in digitization, high investment needs in infrastructure, and the like. 600 billion euros are said to be needed for infrastructure over the next ten years. “At some point, Germany will have to bring itself to make real reforms.”
The problems are also home-made, because the current German government – which consists of the SPD, the Greens and the FDP – wants to spend money primarily on the ideologically driven transition to sustainable energy and social issues. The FDP is too weak to resist this. Another constant point of contention is the weakening of the debt brake.
Another factor is the EU. Brussels is issuing one reporting requirement after another, which is putting a strain on companies.
Ultimately, international conflicts are also to blame. Added to that are supply chain problems, energy problems and other factors. “All of this has combined to mean that things are not running smoothly here.”
In addition, the sanctions against Russia have caused great damage, the economic treasurer believes. The USA is the major economic beneficiary of this. “Perhaps we should have thought about this more carefully,” Scherz complains.
Large medium-sized companies are shifting their investments, for example to China, which in turn increases dependency, also to Poland “and, absurdly, to Switzerland”. The Chinese are not going to accept the higher European tariffs on Chinese electric cars and are taking action against combustion engines, which will hit the Germans in particular. “A vicious circle. We have to make the effort to make the location more attractive.”
People should invest because the conditions are good, “but not because the federal government is throwing billions at them so that they invest here. It’s no honor to have to pay an investor billions to stay here.” That is not sustainable. The question is whether the money would not be better spent by granting tax breaks and reducing bureaucracy. Many absurd regulations cost money and achieve nothing.
The Supply Chain Due Diligence Act is a further burden on the economy. It will not lead to a better human rights situation in Africa, but will exclude European companies from the business. “The idea behind many laws is very good,” Scherz admits. There are good intentions behind the many reporting obligations. “Everyone is in favor of human rights and environmental protection being observed. But it cannot work if everything only comes at the expense of the economy.” The new EU Commission will have to change something in this regard.
Scherz believes that Austria has a good offer for the German economy. Since Berlin is investing a lot of money in rail and road construction and is also pushing ahead with housing construction, Austrian companies could benefit. Scherz expects “that things will pick up again next year or the year after at the latest. In the long term, these are very good prospects.”
Austria’s service exports have “gone really well”. These include banking and financial services, agency services, insurance services – “we are surprisingly strong in these areas”, transport, but also tourism.
Last year, Austria’s exports of goods held up quite well; imports from Germany fell by 6 percent. “Last year was relatively OK, with 59 billion euros in exports to Germany compared to 58 billion euros in imports. But we are still carrying the deficit.”
Germany’s big issue remains transformation. One wonders why the issue is not being approached in a more pragmatic way “and less driven by ideology and prohibition”, as is currently the case. “Our greatest wish would be for Germany to find a more pragmatic approach, namely debureaucratization and tax cuts. Then the location would be in a good position again,” hopes the WKÖ man from the small neighboring country to the south.
The lack of digitization in the public sector in Germany is also a major problem. Austria, which is much further ahead in digitization than Germany, offers solutions here. “We are trying to compensate for German weaknesses with Austrian strengths.”
Although there are many negative aspects in Germany, the country has so much economic power that it will be able to recover, hopes Scherz. “But there has to be more market play and less government. If we stay on this path, the whole of Europe will ultimately collapse.” The next German government will have to do something urgently for the location.
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