The condition of a country can be expressed in many economic indicators. Ifo President Clemens Fuest has this ready. His lecture at the Munich Economic Debates event organized by the Ifo Institute and South German newspaper is full of it. He floods with facts. In the end, a sentence and a number are enough. “Germany is falling behind,” says Fuest. According to the joint diagnosis from autumn, the German economy will shrink by 0.6 percentage point in 2023. Of the G-7, the leading industrial nations, Germany is the only one that is not growing.
Germany is the sick man of Europe, the magazine wrote Economist in 1999. In August 2023, it again dedicated a cover story to Germany and wrote: Is Germany the sick man of Europe again? The analysis followed a description of a multimorbid patient: shortage of skilled workers, aging, bumpy energy transition, high greenhouse gas emissions, high bureaucratic burdens, geopolitical risks, the fetish of a balanced budget. And and and.
Ifo boss Clemens Fuest rejects subsidies like those to Intel.
(Photo: Friedrich Bungert/Friedrich Bungert)
Ifo boss Fuest’s diagnosis is similar to that of the magazine. For months, economists, politicians and citizens have been discussing the state of Germany and ways out of its misery. Even more controversial after the Federal Constitutional Court’s ruling, because where will the money for the cure come from? Fuest has a clear position on this: “We should leave it at the debt brake.” Federal Finance Minister Christian Lindner estimated the gap in the 2024 federal budget at 17 billion euros. The federal government’s subsidy report could prove to be a fund. And if she doesn’t want to come to an agreement, then with the “lawnmower”. We should only talk about new special funds when the restructuring process has been completed and a gap remains.
Fuest has other suggestions. One could discuss whether the CO₂ price needs to be increased more quickly and whether diesel should not be taxed in the same way as gasoline. And much more. Fuest also doesn’t believe in subsidies like the ten billion euros for the Intel factory in Magdeburg: “Wealth comes primarily from companies that pay taxes, not from companies that need subsidies.” There would be no significant economic effect if 17 billion euros were saved. The Ifo Institute has calculated this.
The question that Fuest is not the only one asking: Is German industry a phased-out model? Is there a risk of deindustrialization? In the energy-intensive sectors, including the chemical and steel industries, but also in the automotive industry, the prospects are “poor”.
The proportion of industry in a country does not allow any conclusions to be drawn about the economic prospects. “It depends a lot on the economic model.” In the past, Germany’s economic success and prosperity was based on industry. “It’s a risk to give that up and say, do something different,” says Fuest. Today, no one knows where the added value will come from in the future.
Medium-sized companies have high growth potential, says Fuest
Fuest has identified a potential candidate, it’s one of the old ones: her Hidden champions and medium-sized companies, often family businesses. “They have very high growth potential.” “We have to give them space,” says Fuest. These companies could achieve much more if they had more skilled workers, lower tax burdens and less bureaucracy. Fuest has recommendations for action. “Wealth is created by working on factors that limit the overall economic supply,” said the economist. Example of skilled workers: The tax and transfer system creates artificial incentives to work part-time rather than full-time. Germany has shown in the past that new paths can be taken. “But that doesn’t work if you trample on business and entrepreneurship at the same time.” After all the scolding, Fuest sounds somewhat optimistic in the end.