Mr. Wambach, we were looking forward to at least a bit of an upswing this year. Is it gone again now?
That’s not good news.
Our institute has a financial market indicator that collapsed in March and fell even further in April. My interpretation is: At the beginning it was the high level of uncertainty – and now it is the realization that our problems will remain for a long time. There is no quick end in sight.
It sounds like the Iran War is the main problem.
You can see that nicely: We expected one percent growth. Of this, 0.3 percentage points came from the fiscal package. Another 0.3 percentage points came from the fact that more public holidays fall on weekends this year. We would only have managed 0.4 percentage points on our own. They’re gone now. So: Our problems are homemade. Our growth is inherently weak.
Where does our growth problem come from?
The big problem is the lack of investment. Companies do not invest in Germany. Last year I was in Eastern Europe and visited several capitals. They were all surprised: When Germany weakens, they usually weaken too. But they’re doing well at the moment. Why? Because we don’t have an economic problem, but a structural problem. The companies then invest in Prague. We have one of the highest burdens on labor costs with taxes and fees. The regulatory costs are higher, which also has to do with a lack of digitalization. And we have had no economic growth for three years now.
Germany is still at roughly the same level of prosperity as in 2018.
The mood is very bad. Now we have to create jobs that will not only be there tomorrow, but also in ten years. For this we need innovation. And that has everything to do with investments. Companies invest where they think they can generate profits in five to ten years.
And what should people who are currently looking for work do?
In recent years we have cut jobs in industry and created jobs in nursing and the public sector. That’s not sustainable, but it covers a lot of things. And the German labor market is very dependent on the old structures.
Actually, the crisis would be the time for reforms. We had fewer bankruptcies during the Corona crisis than afterwards. In crisis! And we had extensive short-time working benefits – instead of the workforce moving to more sustainable companies. This rarely happens by itself in Germany.
Do you have to relax protection against dismissal?
More would have to come from the employees themselves. One could consider: Are they allowed to take their rights with them to the new company so that a change is more attractive? The real estate market is also a major obstacle. It’s just not fun to move to Frankfurt or Munich if you don’t have an apartment there. In the case of very innovative projects or start-ups, you can certainly be a little more relaxed about protection against dismissal.
And where can you find jobs?
Companies are currently hesitating to hire people, now also because of the economy. In principle, however, there is still a shortage of skilled workers. This is no longer the biggest problem, but in company surveys it always comes up behind bureaucracy.
Even in IT, prospects have now become worse. So where do you have to apply?
Artificial intelligence also needs to be guided. You need analytical knowledge to structure problems. You have to be able to work in a team. We will still have engineers. Our mechanical engineering remains a strength. And I’m not as pessimistic as many others in the auto industry.
The industry still has a lot of research and development. There are also a lot of patents coming out, often related to electric motors and autonomous driving. And now the phase is coming when the competition for Chinese companies is getting tough. Many companies will certainly leave the market, especially in Asia. You shouldn’t sugarcoat the industry, but you shouldn’t badmouth it either.
Give us even more courage, please! What is positive?
The geopolitics. People always say: Our foreign trade is reaching its limits because the USA is demanding tariffs and we have to be more careful with China. But these two countries together only account for a fifth of our foreign trade. Almost 80 percent are the rest of the world. Now we see free trade agreements with South America, with Indonesia, with India. And these are the parts of the world that are growing. In addition, a large part of our trade goes to neighboring European countries, and the European Commission has learned that it has to maintain the internal market instead of just issuing new rules.
But energy is now expensive.
Energy prices are high, but only a small part of the economy is really at risk, namely energy-intensive production with low added value. Many energy-intensive companies also have many patents and higher margins and are therefore better able to deal with higher energy prices. And the defense sector is growing worldwide. This is an opportunity for German industry. The Americans, Israel, South Korea – they all conduct military research that also benefits the civilian economy. This can be a real opportunity.
But the state has to organize this properly. The governments of the United States and other countries have done a better job of this in recent decades.
The USA has its own independent military research agency. Doing something similar for the Bundeswehr would be a logical step. That’s a thick board. At the moment, a lot of the Bundeswehr money is being used for new barracks and administration so that military training can be expanded. But we also have to be there on the technical front.
A lot of this is a thing of the future. What is going well in Germany today?
The government has already decided that taxes will go down. The reform commissions submit their proposals. And of course some of the new investments will go into infrastructure, although it can be debated for a long time how much of the money is misused. . .
. . . On the other hand, debt costs money, we now realize that.
Yes, this can quickly become a problem if interest rates are higher than economic growth. Germany still has financial leeway. But growth must be high.
In which field could investment be boosted most quickly?
It’s just the structural reforms that politicians have avoided for years. It doesn’t happen quickly. There are reasons why no one has done that. But at least the expert commissions will deliver in the summer. If this isn’t talked about, if the reforms are tackled and companies know that we have a sustainable system here – then something can really happen here this year.
How confident are you at the moment?
Times of crisis are times of reform. Everyone in the ministries is aware that action must be taken now. If the government does it well, it creates a package in which everyone gets along and, overall, achieves what is a good solution for everyone. Sometimes you lose, sometimes you win, but overall you get a sustainable tax and social system.
One has the impression that progress in the political process is very slow.
Yes, Popper was right – political progress is only incremental. In view of the current reports about the dispute in Berlin, it seems as if even this forward feeling has given way to a standstill. But we must not forget: Prosperity in Germany has grown by a total of 30 percent since 2000. With all the reform restrictions, we will still be much better off than we were back then. Pensions shouldn’t fall, just rise more slowly.
For many people, life feels no better than it did in the year 2000.
The health system alone has improved significantly. We can treat diseases much better and early detection has increased. Life expectancy has increased by three years. We live on more square meters than before. We travel a lot more. We’re not doing that bad. We should be proud of what we have achieved and look forward from there.
Recently there has been a long period of stagnation. And many people think the prospects are bad.
Yes. People often say: I’m doing well, but the country is doing bad. We should not lose sight of the problem. Part-time has become too attractive for us. The burdens are too high. We need to improve work incentives.
If you praise the growing prosperity so much, isn’t part-time part of it? We feel better, then we take more free time.
Yes too. But when we feel better, we react to the stress even more. More of what we earn should stay with the employees.
Patrick Bernau and Alexander Wulfers asked the questions.
