Saturday

10th Jun 2023

Policy change in Germany only when economy 'hits wall'

  • Germany's economy is slowing down (Photo: Valentina Pop)

Germany is at risk of economic hubris, a top economist has said, noting that the country should not think it is invulnerable nor that EU membership makes it a victim.

In a new book – The Germany illusion – Marcel Fratzscher, president of the prestigious German Economic Research Institute (DIW), makes the case for a change in Berlin’s economic policy.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

His book says that Germany sees itself as a “superstar” something he castigates as an illusion as the country would not have an economic future outside the EU.

The 43-year-old economist, who has also worked for the European Central Bank and the World Bank, accuses Germany of being “obsessed with structural reforms”.

The book has made a few waves in Germany and prompted economy minister Sigmar Gabriel to ask Fratzscher to head up a group of experts meant to deliver an outline for an investment agenda by early next year..

But this does not herald a sudden change in Gabriel’s economic course. On Tuesday (13 October) he made it clear that he supports finance minister Wolfgang Schaeuble’s 2015 zero debt target.

“More debt in Germany does not create growth in Italy, France, Spain or Greece,” said Gabriel.

But Fratzscher believes this is out and the wrong course. This path will be “fatal for the German economy” he says, adding that “debts are not bad” if they enable good investments.

“Germans make bad savings: they own less real estate than in other member states; only a low percentage of the population invested in shares and relatively few have life insurance. Most of them keep their money in their bank accounts with negative return. None of these are good long-term investments”, the economist told this website.

Even if Germany can count three major economic achievements, such as a stable budget, record-high exports and a reduction in unemployment, there are severe problems in the economy, he says. He notes that Germans do not see them only because other countries in the eurozone face even bigger challenges.

Problems with economic growth (Germany currently ranks 13 out of the 18 member states in the eurozone), under-employment (volume of labour and a drop in real wages), low private assets and large income inequality - all this is a result of lack of public and private investments, suggests Fratzscher.

The solution would be what he calls a “grand bargain” of a successful monetary policy linked to structural reforms and a responsible fiscal policy.

Germany’s economic course, particularly its trade surplus, has come in for criticism from outside the country too, including from the International Monetary Fund and the European Commission.

Jyrki Katainen, a future vice president of the European Commission and currently in charge of economic affairs, recently said that German economic growth is not sustainable unless the government increases investments in public infrastructure and the educational system.

But Fratzscher does not see change on the horizon.

“I wish I could be optimistic about a change of policy but it all depends on the growth in the following months,” he said.

“The only hope for a turn in policy will be if economic growth 2015 does not reach the predicted 1.2 percent. Big changes in Germany only come when we hit the wall.”

Final push for EU-Mercosur deal, amid deforestation fears

Finalising the EU-Mercosur agreement is a priority for the EU and the upcoming Spanish EU council presidency, ahead of the summit with Latin America and the Caribbean countries to be held in Brussels on 17 and 18 July.

Opinion

The 'BlackRock exemption' has no place in the EU's due diligence directive

With the EU's Corporate Sustainability Due Diligence Directive, there's an opportunity to harness the power of investment for truly sustainable activities. But to do this, it must not allow the 'BlackRock exemption' and instead cover institutional investors and asset managers.

Final push for EU-Mercosur deal, amid deforestation fears

Finalising the EU-Mercosur agreement is a priority for the EU and the upcoming Spanish EU council presidency, ahead of the summit with Latin America and the Caribbean countries to be held in Brussels on 17 and 18 July.

Latest News

  1. Negotiations on asylum reform to start next week, says MEP
  2. EU gig workers compromise dubbed ‘a disaster for workers’
  3. EU's one-off chance to influence Laos taking over ASEAN chair
  4. Belgian bâtonnier on Russia: 'You can have a client you don't like'
  5. EU's proposed ethics body 'toothless', say campaigners
  6. Study: 90% of Spanish inflation 'driven by corporate profits'
  7. If Spanish economy is doing well, why is Sanchez poised to lose?
  8. EU lawyers for Russia: making 'good' money?

Stakeholders' Highlights

  1. Nordic Council of Ministers20 June: Launch of the new Nordic Nutrition Recommendations
  2. International Sustainable Finance CentreJoin CEE Sustainable Finance Summit, 15 – 19 May 2023, high-level event for finance & business
  3. ICLEISeven actionable measures to make food procurement in Europe more sustainable
  4. World BankWorld Bank Report Highlights Role of Human Development for a Successful Green Transition in Europe
  5. Nordic Council of MinistersNordic summit to step up the fight against food loss and waste
  6. Nordic Council of MinistersThink-tank: Strengthen co-operation around tech giants’ influence in the Nordics

Stakeholders' Highlights

  1. EFBWWEFBWW calls for the EC to stop exploitation in subcontracting chains
  2. InformaConnecting Expert Industry-Leaders, Top Suppliers, and Inquiring Buyers all in one space - visit Battery Show Europe.
  3. EFBWWEFBWW and FIEC do not agree to any exemptions to mandatory prior notifications in construction
  4. Nordic Council of MinistersNordic and Baltic ways to prevent gender-based violence
  5. Nordic Council of MinistersCSW67: Economic gender equality now! Nordic ways to close the pension gap
  6. Nordic Council of MinistersCSW67: Pushing back the push-back - Nordic solutions to online gender-based violence

Join EUobserver

Support quality EU news

Join us