Mein folgender Kommentar erschien bei the Globalist:
How the Merkel government is risking Germany’s future by underinvestment and other ill-applied policy approaches.
“Poor Germany?” Really? Is that not a crass overstatement? Isn’t Germany the powerhouse of Europe, boosting a huge export surplus, historical low unemployment and shrinking government debt? Yes, it is.
But this view is superficial and overlooks what is happening behind the shiny facade of a booming economy. The country is wasting its future by consuming too much and not investing in the future. To blame are the various governments led by Angela Merkel.
In their sum total, the individual causes of this under- and malinvestment, as detailed below, explain much of the sense of profound frustration that voters feel with Germany’s major political parties. They explain a widening sense of national malaise that extends far beyond the oft-cited issue of migration.
The fetish of the “black zero”
It all starts with the politics of the so-called “black zero” in government finances, which is nothing else than the commitment to a permanent budget surplus for the government at the national level.
Achieving this goal was quite easy over the last years. Thanks to ECB policy and the unresolved crisis of the Eurozone, interest rates on German government bonds fell below zero. Due to this effect alone, the German finance minister has saved 300 billion euros in interest expenses since 2009.
In addition, the economic boom fueled by the low interest environment and the relatively weak euro reduced costs for unemployment support and led to record high tax revenues in Germany.
Still, the “black zero” is an illusion created by politicians, notably former finance minister Wolfgang Schäuble, to boost their own image. A closer look reveals that the “black zero” comes at a high cost and, if one applies proper accounting, is even not true.
Fixated on the goal of the budget surplus, the German government continued its practice of taking a very high share of the incomes of the average German citizen (Germany has the highest fiscal burden of all OECD countries behind Belgium). It also cut expenditures in certain areas, notably infrastructure spending.
As a result, the public infrastructure of Germany is deteriorating. About 50% of Germany’s highway bridges were built between 1965 and 1975. They are in urgent need of replacement. In addition, 17.5% of all motorways need to be urgently reconstructed, as well as 34% of country roads.
This casts a dark shadow over the long-held idea that Germany has world-class infrastructure. To be sure, the deteriorating quality of German infrastructure is hindering private investment and undermines the country’s future economic growth potential.
To make up for the underinvestment of the past years, an immediate investment of more than 120 billion Euro is required. Long term, Germany would need to invest at least on the level of the OECD average of 3.2% of GDP, implying additional spending of 33 billion per year, or 1,000 billion over a period of 30 years.
This one dimension of severe underinvestment alone demonstrates that the “black zero” is pure political fantasy. Instead of addressing these issues, the current government has announced it will reduce investments in the coming years even further.
But it is not just country roads and highways that are falling apart. German schools suffer from chronic underinvestment in buildings, never mind the stunning lack of digitalization and tens of thousands of missing teachers. This is in spite of this shortfall having long been visible, given the impending retirement wave of public-school teachers.
Only 2% of all German households have fast internet via fiber, compared to the 22.3% average in the OECD. In Spain, not as rich as Germany, more than 50% of households have access to fast internet. This not only hinders economic development, but gives German companies a clear-cut incentive for investing outside of Germany.
The German military, the Bundeswehr, is suffering from outdated and non-functioning equipment. Many of its fighter jets, tanks and ships are not ready for combat. The soldiers do not even have adequate clothing for winter time.
One would think that this would be a matter of embarrassment for the country’s politicians, but they remain rather nonchalant about it. Perhaps they see it as a politically convenient way to avoid being asked to support the West’s joint international missions.
Fixing this shortfall will require another 130 billion euros just to get the German military working again. In the long run, the country will need to fulfil the NATO target of spending 2% of GDP on defence. This would imply a budget increase of roughly 26 billion euros per year, or 750 billion over a 30-year period.
But despite paying lip service to these needs, the junior partner in the government, the SPD, remains opposed to making the required funds available.
At the same time, the governments of Angela Merkel increased the spending on social welfare to a new record of nearly 1,000 billion euros per year. This is remarkable given that Germany currently experiences record low unemployment and a booming economy.
Pushing savings abroad
The obsession of German politicians with the “black zero” not only has significant negative implications for the economic outlook due to lacking investments, but also in light of global trade tensions. The export surplus notably is not only the result of a weak euro and hyper-competitive German industries, as is argued so often (falsely), but significantly also the result of insufficient spending and investment within Germany.
The corporate sector, private households and the government itself are all net savers, pushing savings abroad and contributing to the significant trade surplus of more than 8% of GDP. A significant trade surplus and excess savings go hand in hand.
Contrary to folklore, this surplus is not even in Germany’s own interest. For one, Germany’s track record of investing its savings abroad is downright bad. During the financial crisis, German banks, insurance companies and pension funds lost in the range of 400 to 600 billion euros. Today, a significant part of our savings ends up as non-interest bearing receivables of the Bundesbank as part of the ECB system (the so-called Target 2 balance).
Overall, it is not a good idea, to be a creditor in a world awash with more and more debt. But Germany continues to disregard this fundamental insight, to its own detriment.
The German government is also blind to the fact that the trade surplus leads to increasing frustration in other countries, not just in the case of U.S. President Donald Trump, but also in France and Italy. The risk of protectionist measures especially targeted against the automotive industry, which German government politicians are otherwise overly keen on protecting, is high.
There is an alternative
It would be much smarter if the German government would use the excess savings of the private sector to fund the urgently needed investments in the country. This would:
- Offer the private sector a safe and attractive opportunity to save within Germany
- Improve German infrastructure in all dimensions
- Reduce the country’s trade surplus and therefore reduce the risk of protectionist measures
- Reduce the exposure of German savers to doubtful creditors abroad.
Obviously, it would be in everybody’s interest if Germany were to change its policies.