Gray investment standstill has found its way into Germany.

 ‘No action taken’ – mentioned 51 times.

This is the sobering summary of the 2018 OECD country report on proposed reforms in Germany. Under the four governments of the chancellorship period of Angela Merkel (CDU) since 2005, no profound structural reforms have been targeted in the biggest economy of Europe – neither regarding economy nor regarding the social security system. Having barely survived the sudden immigratory influx in 2015, the last few years have brought yet another pressing challenge to the pile of unfinished tasks of the German ‘Grand Coalition’ (which back at the time of the name-dubbing still consisted of the two leadingly largest catch-all-parties in the country): Climate Change.

Still – facing all these important future tasks of the recent years, the German government has increasingly shown political inability and ideological inflexibility. Economic experts have criticised that the current coalition agreement from spring 2018 had “apparently [been] negotiated in an ideological vacuum.”[1] British historian Timothy Garton Ash has recently well summarised what ‘is rotten in the state of Germany’:

“It’s not that German leaders don’t intellectually recognize the problems gathering all around them. […] What is missing is a sense of urgency and the ability to translate these abstract goals into policies that German voters will actually support. For now, Germany is effectively willing the ends but not the means.”[2]

The present economic policy of the German government seems to fulfil neither the calls of experts nor the expectations of the electorate. From the investment point of view, German core industries, such as the electronic and metal industries, on the one hand are treading water and falling behind in international competitiveness while sunrise industries and start-ups on the other hand are lacking a sufficiently funded and developed digital infrastructure. A recent report about national telecommunication connectivity put Germany even behind Albania. An ongoing sell-out of domestic medium-scale companies in future sectors such as solar power and robotics to investors from abroad, especially China, has further threatened German innovative performance.

A crucial point of the growing internal structural problems of Germany is its federalism, which is continuously upheld by almost all German states especially the wealthiest ones like the Free State of Bavaria. In times of globalisation and increasing international influences on the regional state levels, the historically complicated distribution of competences is preventing the central government from sufficiently funding crucial sectors such as education or the judiciary system. At the same time, these post-war structures are inflaming self-centred political stances of the federative states which are further prohibiting the Berlin coalition to develop transformative structural policies for Germany as a whole, as can be seen from the example of the proposed exit from coal energy. A long requested German federalism reform has been on hold for years.

At last, Germans in the most deprived areas of the country are the ones who feel left behind and thus increasingly turn to a populist ‘anti-elitist’ vote. Although their social disparities are not primarily based upon a neoliberal-Atlanticist turn of the German government, the gap between rich and poor in Germany has noticeably widened in the course of the last two decades. While the structural reforms of the early 2000s have guaranteed a rather mild escape out of the Great Recession, the lack of an accompanying comprehensive social welfare state transition have left a large number of Germans outside of the prevailing societal image and thus the recent political discussion. While the net wealth per capita of Germans rose on average by 22 percent between 2012 and 2017, over half of the total wealth (56%) is owned now by the richest ten percent of the population.

Most of the recent social welfare policy goals of the German coalition government had been negotiated in much better economic times. With party compromise as an ongoing working base, huge amounts of money have been spent on campaign gifts such as a mothers’ pension (for a certain generational group) or extensive funding of private housebuilding and family-planning incentives. While these family and property policies seemed noble at first glance, their overly specific targeting ignored the outnumbering amount of people who can’t even afford having neither a house nor children – or both – in the first place because of rising rental costs and stagnating salaries.

With sluggish growth and the German economy heading towards possible recession, the tax revenue for the ‘Grand Coalition’ is nowadays however decreasing. It would thus be time for the government to reassess its clientele spending policy and put out concrete large-scale policy incentives for future investment and growth. A financial relieve for low-wage earners, a revived industrial strategy and an investment pact between the state and business is at this point long overdue.

Fittingly, last week’s so-called ‘leftist’ turn of the Social Democrats’ leadership could open up this possibility much sooner than expected. The party convention paved the way for programmatic calls to abolish the – extremely unpopular – ‘Hartz IV’ unemployment security system, to introduce a wealth tax as well as a higher minimum wage and to tie up a comprehensive multibillion investment package for key future areas, such as infrastructure and education.

While international organisations are increasingly starting to question economic orthodoxies for which they have been long-time advocates, it remains to be seen whether the ‘Grand Coalition’ government of Germany will have the ability to adapt to the recent changes in global economic policy. Otherwise the previous ideological inflexibility and political inability will definitively either split the coalition or the two people’s parties. The current internal disunity of the post-Merkel Christian Democrats and the continuous political absence of the German chancellor on the Berlin floor are however rather pointing at the second direction.

[1] Kaiser, Tobias: Ökonomen greifen Wirtschaftspolitik der GroKo an. In: Welt, 12.03.2018. https://www.welt.de/wirtschaft/article174437159/Ideologisches-Vakuum-Oekonomen-greifen-Wirtschaftspolitik-der-GroKo-an.html (accessed: 14.12.2019).

[2] Garton Ash, Timothy: Germany: nice and stable too long. In: Telegraph India, 04.12.2019. https://www.telegraphindia.com/opinion/germany-nice-and-stable-too-long/cid/1724005 (accessed: 09.12.2019).