A Fresh Look at Germany's Economic Situation and the Role of the SPD
Redirection Possibility: Changing Direction Unveiled
By Stephan Lorz, Frankfurt
It's high time the German economy shook off its slumber, and the SPD should heed the wake-up call. The Merz cabinet is walking a tightrope.
US President Donald Trump's trade policies have made the necessity for a policy shift abundantly clear, but the German political landscape should have seen the writing on the wall even before. Three long years of economic stagnation, declining competitiveness, and sky-high labor costs, taxes, and energy prices compared to other thriving economies call for drastic changes.
Experts from the economic world concur - Germany needs to steer away from its comfortable course, focus on its strengths, modernize its economy, create an appealing investment climate, embrace new technologies, and tackle Europe's integration head-on. The Union parties seem to be up to the challenge with their comprehensive programs brimming with commitments to boost competitiveness, spur growth, foster innovation, promote entrepreneurship, and drive the European Union forward.
However, the SPD clings stubbornly to outdated ideas, persistently believing that the wellspring of prosperity lies solely in more state intervention, social policies, and increased state regulations.
A telling example is the coalition agreement's approach to demographic change, which reflects the thinking of the 70s, according to Achim Wambach, president of the Center for European Economic Research (ZEW). Despite the urgent need for economic and social reforms, the SPD's stance remains resolute. Wambach, however, remains hopeful that the two coalition partners will eventually embrace the need for change. He observes that the crisis is becoming increasingly clear, and every government needs a crisis to instigate reforms.
Investment hesitance and consumer restraint have already taken a toll on society and the economy, even before Trump's intervention. A few signs of support and pro-investment measures, such as electricity price reductions, bureaucracy reduction, and increased infrastructure spending, could help trigger a shift in sentiment, which would then snowball into further positive effects, Wambach believes.
He also questions the Euro's potential as an alternative to the dollar. Productivity, which has been on a downward spiral for years, is the key to success, Wambach stresses, quoting Nobel laureate Paul Krugman, who said, "Productivity is not everything, but in the long run, it's almost everything."
Germany must forsake the promotion of sectors with little value creation and instead focus on new technologies and highly productive areas, Wambach advises, adding that digitization should be at the forefront of the new government's priorities. In his opinion, both the new government and the SPD have recognized the urgency of this issue.
Trump's policies are a step backward, in Wambach's view. He recommends a measured response from Brussels and Berlin, arguing that tariffs only harm the one who imposes them. He cautions against excessive retaliation, as Europe is still heavily reliant on the dollar zone and the US market, making the financial sector vulnerable.
Though the Euro may not serve as a viable alternative to the dollar anytime soon, Wambach suggests it could be a political objective for Europe, in light of aggressive US trade policies. A fully perfected internal market could potentially offer the Euro the opportunity to establish itself as a leading and global trade currency.
In the current economic climate, Germany and Europe face myriad challenges, but the road to progress demands a departure from the past and a discerning approach to policymaking. The SPD's traditionalist stance runs the risk of hindering much-needed change, while the Union parties seem poised to seize the day and drive economic growth. Which path Germany chooses will determine its future prosperity.
- The US President's trade policies have highlighted the need for a policy shift in Germany, but the German political landscape, including the SPD, should have seen the need for change even before.
- Despite the urgent need for economic and social reforms, the SPD persistently believes that more state intervention, social policies, and increased state regulations are the keys to prosperity.
- Achim Wambach, president of the Center for European Economic Research (ZEW), questions the Euro's potential as an alternative to the dollar and suggests it could be a political objective for Europe in light of aggressive US trade policies.
- Wambach believes that the new government and the SPD have recognized the urgency of digitization, which should be at the forefront of their priorities to focus on new technologies and highly productive areas.
- He also advises Germany to forsake the promotion of sectors with little value creation and instead focus on new technologies and highly productive areas to boost competitiveness and spur growth.
- Wambach cautions against excessive retaliation in response to Trump's policies, as Europe is still heavily reliant on the dollar zone and the US market, making the financial sector vulnerable.
