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Angela Merkel economy Germany

The Merkel era ends but problems persist

Economist Csaba Szajlai takes a look at the state of Germany’s economy and society as the Merkel era draws to a close

editor: REMIX NEWS
author: Csaba Szajlai

Putting aside politics, let us examine the state of affairs of Germany as Merkel prepares to leave office. It is worth recalling that it was way back in 2017 that the chancellor promised a significant economic transformation. Yet, structural change did not take place. Of course, at first glance, there is no problem, since the euro was imposed on a Germany of 80 million people at the time.

What is a strong currency for the majority — that is, for members of the eurozone — is “weak” money for the Germans. Their competitiveness has been temporarily pushed upwards by the EU currency, while others — Greece, Italy, Portugal, and Spain — have suffered and continue to suffer significant losses. But it is not possible to make a living from the exchange rate advantage for a long time: Germans have an interest in making the euro the “normal” currency for most EU member states, as their main markets are eurozone states.

Germany’s economic structural problems have deepened in recent years: the best example of this is the once-dependable German industry, which has experienced growing crises in the last three years. Despite the economic shock caused by the coronavirus, Germany’s fiscal policy has responded well.

However, this is only a short-term indicator: if we look at international rankings, the German economy has been stagnant since 2017, but in reality it is lagging behind even relative to its own performance. The main reason for this is that, thanks to neo-liberal principles, central budgets have run with zero deficits in recent years, while the German government has completely cut its deficit.

At the same time, this also means that public investments in traditional physical infrastructure have been delayed or proved to be too small, and that they are constantly being depreciated. In other words, previously robust motorway, railway, and building real estate investments have fallen short of the euro area average.

Meanwhile, current trendy digital developments lag behind even more. It is no coincidence that the focus of the current election is on the systemic (!) transformation of the economy and the reform of economic policy. In other news, voters in Germany have taken the news about a looser, subsidies-based budget rather well: the fiscal response to the economic shock caused by the coronavirus, for example, was a popular success.

The Merkel era is slowly coming to an end, and the following problems will have to be solved in Germany: catching up with digital infrastructure, education, e-government, responding to demographic challenges, and relaunching large, central highway and rail investments. All of this can be costly. Parties vying for votes will broadly agree that much more central development and budgetary resources will be needed than before.

The biggest difference between the parties is in how these projects should all be funded. However, the economic miracle that has characterized Europe’s largest country for decades remains elusive, as extending that miracle would require state incentives.

Finally, Germany played a major role in the “concept” of a two-speed or multi-speed Europe, which was born in the mid-1990s as part of the intellectual search for the expected great wave of Eastern enlargement that would affect us, as well. Although Angela Merkel’s European policy has been crucial in this regard, the credibility of anti-European arguments has been severely eroded.

From Budapest’s point of view, however, Berlin has benefited enormously from the enlargement to the East.

Title image: German Chancellor Angela Merkel. (MTI/AP/DPA/Michael Kappeler)