It is no surprise to find that the German economy is in trouble. However, few expected that the “co-government” in Berlin would revise its growth forecasts so drastically on the fly in 2024.
According to the annual report on the economy, presented by the “Green” Minister of Economy and Vice-Chancellor Robert Hambeck, the growth index for this year will not exceed 0.2%, while the initial forecast spoke of +1.3% .
The presentation of the exhibition was actually done in two “installments”. On Wednesday afternoon, Robert Habeck analyzed the main points at a press conference in Berlin, while on Thursday morning he addressed the Parliament, responding to the criticism of the opposition. The confrontations with the opposition are more or less expected, but a major problem is also the confrontations within the governing coalition, as the vice chancellor admits. “Many decisions are made in the ‘diapason'” he points out. “Establishing trust requires that decisions are taken in a reliable manner, which has not always been the case in the last two years. I accept criticism on this point…”
Positive news on inflation
And yet, there is also good news. Inflation is down to 2.8% from 5.9% in 2023 and is “now under control”, according to Finance Minister Christian Lindner. The labor market also shows a stable picture, with the economically active population reaching 46 million, but also 700,000 jobs remaining vacant. The expected increase in the real income of employees for the current year is also a positive development. As for energy prices, “they may not yet have reached the levels we wanted, but in any case they have fallen faster than we would have expected a few months ago,” Vice-Chancellor Habeck estimates.
“Structural problems” in the economy
The main problem is the insecurity that prevails, as the “co-government” of Social Democrats (SPD), Greens and Liberals (FDP) fails to unite in a strategic direction: More cuts or more debt? The Liberal Finance Minister insists on new tax breaks for businesses , while the “Green” Minister of Economy would prefer to set up a new investment fund, which will be financed by borrowing.
The opposition Christian Democratic Party (CDU) criticizes the “co-government” in high tones. In fact, the vice president of K.O. of the Christian Democrats Jens Spahn argues that “due to intra-governmental conflicts there is such insecurity in the investment climate that the situation is reminiscent of the United Kingdom after Brexit”.
Vice-Chancellor Habeck talks about “structural problems” of the economy, which are largely related to the lack of labor force. He suggests encouraging more elderly and retired people to join the labor market, but also better integration and better acceptance of foreign workers. Excessive bureaucracy, which prevents the implementation of investments, is also considered a structural problem. “There are a lot of unnecessary laws that nobody would miss if we decided to abolish them,” points out Clemens Fist, head of Munich’s Ifo Economic Institute.
For 2024, state investments of 70 billion euros are planned in Germany, while another 49 billion will be allocated from the Climate Protection Fund. However, many of the federal government’s goals are difficult to achieve. For example, the goal of building 400,000 new homes a year, which government partners have otherwise agreed to in an attempt to stem the unprecedented rise in rents due to a lack of housing, seems utopian.
Solution the “Development Package”?
The world expects us to find solutions, warns Manuela Schwesig. Wanting to restart the economy, the three parties of the “co-government” have since last summer approved a “Development Package” with tax breaks amounting to seven billion euros, which, however, has caused strong reactions. The result is that the Federal Council of Germany, the so-called “Upper House”, in which the official opposition also has a significant say, does not give its approval.
Initially the tax exemptions were reduced from seven to three billion euros. But the Christian Democrats are still opposed to the “Package” and are demanding that the government restore tax exemptions for agricultural oil. “Anyone who talks about development cannot ignore the farmers,” says Jens Spahn.
Thus the uncertainty is prolonged. The so-called Mediation Committee between the Parliament and the Upper House seeks compromise solutions. Manuela Schwesig, head of the committee and a top figure in the Social Democrats, warns: “People are tired of the constant confrontations and expect politicians to find solutions…”
Source: DW, Yiannis Papadimitriou
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