The unsettling state of Germany's economy, hit by the double impact of the Ukraine crisis following the COVID-19 pandemic, has ignited discussions labeling it the "sick man of Europe."
As Germany grapples with economic recession and a spike in inflation to 6.5 percent, concerns have surged. Various economic institutions, organizations, experts, and the leading opposition party, CDU/CSU, under the leadership of German Chancellor Olaf Scholz, are urging swift action within the coalition government comprised of SPD, Greens, and FDP.
The President of the German Economic Institute (IW), Michael Hüther, based in Cologne, cautioned, "Regrettably, it's evident that Germany is once again positioned as the sick man of Europe." Hüther highlighted that, besides business taxes and social contributions, the energy expenses for businesses in Germany have significantly exceeded those of other industrial nations, thus eroding their competitive edge. He noted that this has prompted German firms, especially in sectors like chemicals, automotive, steel, and glass, to redirect investments abroad. Drawing a comparison with the USA, which allocated $400 billion to counter inflation and support businesses, Hüther emphasized the need for Germany's government to take similar steps, advising against any delay.
A survey revealed that 53 percent of the boards of Germany's top 100 companies are contemplating halting planned projects within the next 6 months. Moreover, substantial enterprises intend to transfer investments abroad, citing the loss of competitiveness due to the substantial social deductions (pension, sickness, care, and health insurance), which have risen to 40 percent since 2012. Additionally, the scarcity of skilled personnel in Germany is anticipated to expedite the exodus of businesses.
In response, the main opposition CDU Chairman, Friedrich Merz, and CSU Chairman, Bavarian State Chancellor Markus Söder, proposed an "urgent program" to stimulate the economy. They particularly called for a notable reduction in electricity prices to help German businesses regain their competitive edge.
The CDU/CSU's emergency plan encompasses the following recommendations:
Immediate reduction of energy costs for all, including a reduction in electricity tax as of October 1.
Avoidance of practices that introduce new burdens during the crisis, including the waiving of regulations leading to bureaucracy.
Encouragement of work by exempting overtime from tax.
Lowering of wealth tax to acknowledge property.
Augmentation of support for innovation and research.
