2024-09-26 15:53:33
The German economy is increasingly slipping into recession. How can the country find its way out of the crisis? Top economist Veronika Grimm explains.
The German economy accelerated its downward trend in September and is heading towards a recession. The Ifo business climate, the most important barometer for the German economy, fell to 85.4 points from 86.6 points in the previous month, the fourth time in a row, according to the Munich-based Ifo Institute’s survey of around 9,000 managers.
The leading economic institutes are also lowering their forecasts. t-online therefore spoke to economic expert Veronika Grimm – and asked how Germany should now emerge from the crisis.
t-online: Ms Grimm, what is your diagnosis of the German economy?
Veronika Grimm: A bad one. The outlook is not rosy.
We have been waiting for a long time for consumption to return and boost the economy, but it is not happening. And this despite the fact that real incomes have risen significantly. This means that people have more money in their pockets again because inflation has been compensated for in wage negotiations, for example.
Why isn’t it making any progress?
We have structural problems and are basically stuck. High energy costs and a lack of directional decisions in energy policy are leading to uncertainty and reluctance to invest. In addition, there is low capacity utilization in industry, which indicates a lack of competitiveness. We are also observing a decline in labor productivity, probably because workers did not go to the more productive companies after the Corona crisis, but were often kept in the companies despite low capacity utilization. Many medium-sized companies are already moving abroad. And more and more large companies are having problems.
Veronika Grimmborn in 1971, is one of Germany’s leading economists. The economist and professor has been a member of the German Council of Economic Experts, commonly known as the Economic Wise Men, since 2020. This council produces an annual report on the German economy.
That’s an example. One can only hope that purchase premiums will not be introduced again. Because that is expensive and does not change the structural challenges. Foreign e-car manufacturers and wealthy buyers would then benefit the most. In addition, companies are not setting themselves up for the long term if they can hope for state help for every problem. That is more likely to create problems.
So you don’t think the traffic lights are solely to blame?
A lot has been missed over a long period of time – unfortunately also in the economically good years of the Merkel governments. Too much was distributed and too little was invested in the future. The current federal government is not responding to the problems in a structured way, but often as a fire brigade. This creates a lack of orientation. All of this is now coming back to haunt us.
Because there is no longer any financial flexibility?
Exactly. In the years 2020 to 2022, there was rightly the option of taking on emergency debt to deal with the acute crises. But now we have to face up to the new conditions. We need more money for defense and other future-oriented spending, and we have to bring social security spending into line with these needs and the reduced scope for maneuver due to growth.
Shouldn’t we reform the debt brake to make it sustainable?
Some flexibility could be increased, but that would not solve the problems. And frankly, the flexibility should not be used for what is currently being planned. The debt brake is currently preventing billions more from flowing into short-term subsidies and an increase in social spending. Example: the pension package II…
… in which the federal government, among other things, wants to permanently set the pension level at 48 percent and introduce generational capital.
This will not increase the sustainability of the pension system, but only the expenditure on it. This will put our young generation in a huge predicament again. With regard to energy policy, we also see high levels of short-term support measures. However, the funds are often not spent in a targeted manner. That is why it is a good thing that there is a debt brake. This forces us to discuss the meaning and purpose of various expenditures.
What do you see as an alternative?
We need to structurally restructure the budget. More room for future-oriented spending and an adjustment of the social security systems – so that the state can fulfil its tasks in the long term.