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How Germany's political leaders want to fix the economy

August 8, 2023

Germany's economy is in decline. Now the main opposition party, the center-right CDU, has presented an emergency program to combat the recession, stepping up pressure on Chancellor Olaf Scholz.

Sunrise beyond the ArcelorMittal steel plant in Bremen
Germany's politicians are looking for ways to combat Germany's economic slumpImage: Sina Schuldt/dpa/picture alliance

There has been more bad news for the German economy: In June,production in the industry, construction and energy sectors declined yet again, this time by 1.5% on the previous month, according to the Federal Statistical Office. This comes after the International Monetary Fund (IMF) recently sounded the alarm with an announcement that Germany is set to be the only one of the more than 20 countries examined in which economic output will fall this year.

Germany is still the largest economy in the EU, and, if it were to become the "sick man of Europe" once again, this would impact other economies.

But Reinhard Houben, economic policy spokesman for the Free Democratic Party (FDP), the smallest member of the governing three-way coalition government begs to differ. "The term 'sick man of Europe' is exaggerated," he told DW. But he admitted: "We are indeed seeing an economic slump."

Olaf Scholz in conversation with BDI President Siegfried Russwurm
Chancellor Olaf Scholz (l) has been hearing about the industry's problemsImage: Kay Nietfeld/dpa/picture alliance

Center-right opposition offers advice

Crises can benefit the political opposition, so in an attempt to exploit the opportunity, the center-right Christian Democratic Union (CDU) and its regional Bavarian partner the Christian Social Union (CSU) have published proposals for a quick-fix plan (Sofortprogramm). CDU chairman Friedrich Merz says they say would work instantly to prevent the current recession from developing into a long-term economic weakness.

The proposals include immediately capping electricity prices, stopping all laws and regulations that increase bureaucracy, scrapping income tax on overtime, and reducing corporate tax and other levies.

Houben is skeptical. The proposals have not been thought through, he argues, "I cannot see them as a policy program."

Government plans to boost economy

Reducing bureaucracy, for example, is something the FDP-led Justice Ministry has long been tackling, Houben says, before adding that the CDU/CSU know full well that Finance Minister and FDP leader Christian Lindner has already proposed no less than 50 tax policy measures in his growth opportunities law.

The other two parties in the German government, the center-left Social Democrats (SPD) and the environmentalist Greens are pointing out that they are on track to strengthen the economy.

Ricarda Lang, co-chair of the Green Party, has said the ruling parties have jointly developed a package of measures to "defend the economic foundation of the German economy." Speaking to the weekly tabloid Bild am Sonntag she insisted her government was on track while admitting that German railways, childcare, and digitalization were still in urgent need of improvement.

SPD co-leader Saskia Esken, meanwhile, has long been advocating a subsidized industrial electricity price and major investments into infrastructure, while Building Minister Klara Geywitz (SPD) wants to subsidize the construction industry by introducing more options for tax write-offs for those who invest in housing projects.

But the German Institute for Economic Research (DIW Berlin) has been warning against subsidies and tax cuts: "An economic stimulus program that just gives another billion to the powerful corporate sector would be counterproductive," said DIW President Marcel Fratzscher. "This would just hand them extra income, but not solve the economic problems."

'Uncertainty' stalls German economy

Chancellor Olaf Scholz, a former Finance Minister in Angela Merkel's conservative-led government, has been on vacation and has not yet issued a statement on the economic downturn, but the pressure on him to do so is mounting, especially from opposition leaders who say he needs to take a stand.

FDP economist Houben says that members from his own government are calling for Scholz to address the issue in public.

Silver lining

The Green Party's Economy Minister and Vice-Chancellor Robert Habeck, meanwhile, is keen to offer an upbeat message: Germany was and is an attractive business location, he said: "Currently two dozen international companies are planning major investments in Germany to the tune of €80 billion [$88 billion]."

There is new hope that the news of a major Taiwanese investment will boost morale: Chip maker TSMC has announced plans to build a large factory in Dresden with Bosch, Infineon and NXP as partners. According to business daily Handelsblatt, the federal government is reportedly earmarking €5 billion in subsidies, and government officials have spoken of an "enormously important" signal for Germany as an investment location.

This article was originally written in German.

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Volker Witting
Volker Witting Volker Witting has been a political correspondent for DW-TV and online for more than 20 years.