by Anke Hassel*
The older folks among us have been experiencing a sense of deja vu in recent weeks. The debate about Germany as a business location resembles the one from 20 years ago.
A sense of deja vu
Back then, toward the end of the first legislative period of the “red-green” coalition government formed by the SPD and the Greens under Gerhard Schroder, Germany was shaken by poor economic data.
The economic crisis at that time was due to the high costs of German reunification in the 1990s, combined with the collapse of the brief boom of the New Economy stock market at the turn of the millennium.
The sick man of Europe back then, but now?
Between 1998 and 2005, the German economy grew by only 1.2% annually. Unemployment reached 10% and Germany’s budget deficit violated the European requirements of the Stability and Growth Pact. Without any doubt, Germany was the sick man of Europe.
Today, the German economy is doing badly again. Between 2019 and 2024, it grew by less than 1% – compared to more than 10% growth in the United States.
Persistently high energy prices and the new competitive conditions in trade with China and the United States are bringing the German economy to a standstill. Added to this are structural problems carried over from 16 years of governments led by Angela Merkel.
Mobilize capital for investments – and use it properly
After the German government held two competing(!) economic summits in Berlin in late October, with large and medium-sized companies, respectively, one thing is clear: The 2030 agenda will come.
But what would a 2030 agenda consist of? It would and should be a triad of investment, bureaucracy reduction and modernization – a triad that was already the inspiration for the founding of the so-called progress coalition. It has lost none of its importance to this day.
A broad reform coalition?
Indeed, the odds are that even the current CDU/CSU opposition under Friedrich Merz as its leader should be quite amenable to such an agenda.
On the subject of investment, progressives – and companies – can quickly agree. The Federation of German Industries (BDI) has estimated the investment requirement at 400 billion euros over ten years. The question here is how to mobilize sufficient public and private capital.
Switching from the reporting principle to the results principle
De-bureaucratization, a crucial issue to which only lip service has been paid for a long time, is finally being recognized as a core issue. There is no need to immediately scrap the supply chain law, as Robert Habeck, the German Economy Minister, demands.
But one can switch existing regulations from a reporting principle to a results principle. No report on supplier inspections alone will change supply chains.
It is better for companies to invest in supply chain transformation than in paperwork. Companies are right to complain about excessive reporting requirements.
Excessive bureaucracy now affects all areas of life
When my daughter became unemployed this spring and applied for unemployment benefits, she had to apply to her former employers for a certificate of her earned income.
There were more than 100 questions on the form. When a former employer, a large U.S. corporation, did not respond to her request either in writing or by telephone, the employment agency sent a notice threatening to deny her unemployment benefits due to a lack of cooperation.
Of course, the employment agency knew exactly how much her salary was, even without the proof from the former U.S. employer, and the unemployment benefit was calculated based on that.
Excessive bureaucracy also numbs academics
Another example: I myself regularly have to fill out forms with working hours for projects that have nothing to do with my workload but permanently employ several people at my university.
These time-wasting procedures need not go on. If the German government had wanted to, it could have defined the most important immediate measures for reducing bureaucracy together with civil society, companies and authorities at its summits.
Digitization of public administration
And finally, the modernization of Germany as a business location must be tackled. The lack of digitization in public administration is a big-time embarrassment.
Any sensible modernization must also include the restructuring of the welfare state. In 2024, a total of 110 billion euros – roughly one-quarter of the entire federal budget – are being transferred to the statutory pension insurance fund.
Before German reunification in the 1980s, those transfers amounted to a share of just 15%. At the time, the purpose of those transfers was a legitimate one – to finance pensions in eastern Germany from the federal budget. However, after 35 years, there are now only a few people who have retired and have not paid into the statutory pension insurance.
Adding a capital-funded pillar to the German pension system
A reasonable capital-funded pillar in the pension system would be an important instrument for creating space in the federal budget for investments and infrastructure.
Former German Finance Minister Lindner’s generational capital was a step in the right direction, but it is far from comprehensive enough. Private provision – which, incidentally, the younger generation is already making anyway – should be better promoted and organized.
Note as well that a capital-funded pillar in pensions could also provide companies with better financing for investments.
Fiscal federalism is – once again – coming unstuck
In my view, the conclusion is clear: There will be an Agenda 2030. 2025 is an election year in Germany. This will create a political dynamic that forces all three topics – investment, de-bureaucratization and modernization – into the center of the debate.
There should be grounds for optimism for Germany getting its act together insofar as even today the governors of the CDU-led states are calling for a relaxation of the debt brake. Likewise, the local municipalities and regions regularly send urgent letters to Berlin calling for reforms.
Municipalities as well as the 16 federal states all need investment, less bureaucracy and a modern state. The progressive forces in German politics should start looking at a broader reform agenda that links all three issues to make Germany dynamic again.
*Professor of Public Policy at the Hertie School
**first published in: Theglobalist.com
By: N. Peter Kramer
