German elections are already this Sunday. More than immigration, most German voters are deeply concerned with the economy – and rightly so.
A German economy is in recession and has been decreasing for two consecutive years.
Voters are worried. They suffered a stagnation of real income and remain pessimistic. The perspective for the next time is that purchasing power continues to decrease.
But what can explain this economic malaise of Germany?
To war
In the first place, The budget policy in Germany is more restrictive than in other countries, which means higher taxes and lower public expenses.
Due to the “debt brake” enshrined in its constitution, Germany is severely limited in the execution of budget deficits, except when the government declares an emergency, as happened due to COVID-19.
The last coalition government collapsed due to a dispute over the possibility of declaring another emergency due to War in Ukrainein order to increase the indebtedness capacity.
This did not happen and, consequently, Germany’s budgetary deficit remained relatively moderate.
As German economists explain Ralph LuettTicke e Gernot MüllerIn an article published in, the argument is that a larger deficit could have boosted economic growth.
THE NEW TIMES
Secondly, For decades, Germany has depended on external demand to support internal economic growth. In the first two of the 21st century, benefited fundamentally from the integration of China in the world economy.
In turn, to develop its productive capacity, China depended strongly on the machinery produced in Germany and bought a significant number of German cars. However, this situation is no longer verified.
However, China has advanced for the technological border and no longer depends so much on German cars or machines.
However, explain Luetticke and Müller, these two factors are not enough to explain the stagnation of the German economy. Because if demand-internal or external-is too weak to support growth, it should be reflected in the drop in prices. Only prices have been rising strongly. Inflation in Germany has been high in the last two years.
Unemployment is another relevant indicator also suggests that the lack of demand should not be the main reason for Germany’s stagnation. The unemployment rate is low in Germany, lower than most European countries and hardly higher than in 2019.
Instead, the adverse conditions of supply are fundamental, as reflected in the expectations of income falling families and increased inflation.
In general terms, the offer is simply the combination of labor and capital (for example, the dimension of the workforce and the available machinery or installations), along with productivity or technology, which tells us how much production amount that we get from labor and capital. Germany is facing a triple crisis in this domain – expensive energy, weak supply of labor and low productivity growth.
First, there are energy prices, which were pushed up everywhere by the Russian invasion of Ukraine. However, the effect was particularly strong in Germany due to its direct dependence on Russian gas.
The outgoing government, in which the greens have been a key actor, is widely recognized for trying to accelerate Germany’s ecological transition. This has increased the costs of the transition beyond those caused by the European emission license system, according to which polluters pay for their emissions.
Although it is difficult to determine the exact contributions of war and ecological transition to increased energy prices, both clearly function as a barrier to growth, especially on the side of the supply (ie production potential).
Productivity
The third question is the growth of productivity (or lack of it). Consider increased GDP per hour worked in the US, which rose more than 10%, surpassing the evolution recorded in Germany and the UK.
Among the common causes of poor productivity growth are the Infrastructure aging, low investment in the private sector, the lack of start-up companies and the reduced number of new companies that become multinational leaders.
A turnaround requires profound improvements in supply conditions. In terms of energy, Germany should avoid measures such as introducing more regulation on heating or isolation of new and existing houses and instead relying on the EU -level emission licensing regime to reduce emissions .
In the job market, it is necessary to increase qualified participation or migration, supported by policies that encourage people to reform later and attract more women to the job market.
Productivity growth It remains the most difficult question. A good start would be to increase universities financing and reduce regulation, especially with regard to AI technology.
Deepen the EU unique market, for example, eliminating restrictions on transfronical energy trade to enable companies to have cheaper electricity access, increase competition and boost productivity growth. In this way, companies could expand and create well-paid jobs.
Finally, the increase in defense expenses can give an additional boost, not only to improve Germany’s external security, but also because it is proven to increase productivity.
Although immigration may be one of the main points of discussion for the German electorate in the next elections, the economy – as always – will be an important factor in measuring the country’s state of mind.
The early elections in Germany are held this Sunday (23).
