Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Germany’s Slowdown That Dare Not Speak Its Name

Posted by hkarner - 2. Februar 2019

Date: 01-02-2019
Source: The Wall Street Journal

The rise of the AfD and the threat of recession have so far failed to upset the country’s complacency.

Alexander Gauland, co-chairman of the Alternative for Germany party

Of all the reasons to worry about Germany’s economy, the biggest is that Germans themselves don’t seem to be concerned enough about it. The eurozone’s largest member is coasting into a slowdown. Where’s the outrage?

Indignation may be too much to hope for, but surely if Europe’s economic engine is downshifting you’d expect the political class and the economic caste to notice. They’re noticing the data. Berlin this week cut its economic-growth prediction for 2019 to 1% from 1.8%, as business sentiment wobbles. But many German economists and politicians still hope this is only a moderation in the growth rate and not the first step toward a recession.

That’s how you end up with the policy debates Germany has at the moment.
Those include a plan unveiled over the weekend to phase out coal-fired power generation over the next 20 years, at a cost of €40 billion on top of the tens of billions of euros Berlin already has spent on its so-called Energiewende, the “energy transformation” to nowhere. Then there’s the plan voiced by Finance Minister Olaf Scholz a few days ago to increase taxes on the middle class (to 45% from 42% starting at incomes as low as €56,000, or around $64,000) lest the government’s books fall into the red as a downturn weighs on revenues.

The policy debates Germany needs concern chronic weaknesses that would be laid bare by a recession. Those include a failure to cultivate entrepreneurial startups, especially in service industries; a stubbornly unreformed banking system, made vulnerable by decades of political meddling in management and years of profit-sapping ultralow interest rates; and a tax code that kills incentives and investments. That’s for starters.

The surprise is that almost none of this has bubbled into the political sphere. Germany has had its own version of a popular uprising, with the antiestablishment party Alternative for Germany, or AfD, coming third in 2017’s national election with an unsettling 13% of the vote. That result roiled German politics, as did strong showings for the AfD in two state elections last autumn. The party is expected to fare even better in a round of state elections in its heartland of the former East Germany this year.

The AfD is often called a “far right” group, but its true base of support is disaffected blue-collar former members of the center-left Social Democratic Party. Those workers have been left behind by an economy that works beautifully for those who already have high-tech jobs and considerably less well for those who don’t.

Americans know where this is going. Some nontrivial number of votes for the AfD are a cry for help from Germany’s abandoned-feeling voters, in the same way that votes from disaffected former Democrats pushed Donald Trump over the finish line in crucial states in 2016.

But there the similarities end. In America, Mr. Trump’s ascent has catalyzed a policy debate we haven’t seen in many years. On the left, this means Alexandria Ocasio-Cortez, Elizabeth Warren, Kamala Harris and others who are exploiting the opportunity to advance a radical agenda while the likes of Starbucks ’ Howard Schultz try pitching liberal centrism. On the right, it means new arguments between Reaganesque supply-siders drawing strength from the success of the 2017 tax cut and Mr. Trump’s deregulation agenda, so-called reformicons appealing to more socially conservative instincts, and many somewhere in the middle of those schools.

The net effect is to give American voters real choices—and real consequences.

Meanwhile in Germany . . . crickets. Recent elections have left all major parties weakened and in need of a new direction, thanks in part to the all-scrambling rise of the AfD. Yet the dominant center-right Christian Democratic Union has taken as its new leader a local politician from a small state whose economic views remain a mystery. The Social Democrats lack any exciting thinkers on the economy, even though one of its number is Mr. Scholz, the finance minister.

The AfD’s electoral successes have catalyzed only the ascent of the Green Party from among the portions of the center-left that haven’t fled to the AfD. Green economic views are confused, other than to voice the insight that decades’ worth of government meddling have not created an economy that works for everyone.

Otherwise, Germany lacks meaningful debate about the proper size of the state in a modern economy, how tax laws should shape incentives for investment and job creation, how entrepreneurial startups can or should be financed, or any other topic that serious politicians and economists should be discussing in a serious country. The next downturn will show that Germany can’t afford this complacency—and neither can the rest of the eurozone.

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