Tackling Trade

Private Money to the Rescue?

Mr Schäuble can expect more criticism from international colleagues, including IMF Managing Director Christine Lagarde.
  • Why it matters

    Why it matters

    There is a glut of private money in Germany at the moment. Steering some of it towards public projects could be an answer to the criticism of Germany’s investment shortage.

  • Facts


    • Germany’s trade surplus stood at 7.7 percent of economic output in 2014 – above the 6 percent limit that the European Commission considers to be healthy.
    • Germany responded to calls to reduce the trade surplus by announcing an additional €3.5 billion in spending on infrastructure over the next three years.
    • A 21-member infrastructure commission this week said this was not enough, and has called for more private sector involvement.
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The chorus usually grows louder at this time of year. Germany is too reliant on exports, says much of the Anglo-Saxon community. Europe’s largest economy is not spending enough money on highways, bridges and other infrastructure projects that could boost domestic demand.

German Finance Minister Wolfgang Schäuble is expected to get an earful from his colleagues at an annual gathering of the International Monetary Fund and the Group of 20 nations in Washington later this week. Mr. Schäuble is preparing for “intense discussions,” according to one German official.

The critique is loudest from the United States, where exporters fear they will lose business this year as monetary policy has pushed down the value of the euro. The U.S. Treasury has said that higher consumer demand in Germany and more public spending is “absolutely necessary” to counter the effects of the European Central Bank’s monetary policy.

Nor will Mr. Schäuble’s European partners come to his defense. The European Commission has also had an eye on Germany since last year, when its current account surplus rose above a limit of 6 percent of economic output (see graphic) that Brussels considers healthy for an economy.

For German officials, the debate is as baffling as always. Mr. Schäuble will argue that Germany’s rising trade surplus is a “self-evident” consequence of the loose ECB monetary policy that the United States and much of Europe had indeed called for – and Germany in fact had opposed.

Now that supporters got what they wanted, and the European Central Bank has started buying bonds, “one can’t be surprised by the consequences,” said one German official.

But the international divide is not necessarily as large as it seems. Even most German officials agree that the country faces a chronic shortage of investment back home. The OECD has said that Germany spends about 3 percent less of its economic output on investment than the average developed country.

So the goal of increasing investment is clear. The question is how to pay for it.

For the Finance Ministry, additional public spending is out of the question. The government is determined to maintain a balanced budget in coming years, and officials point out that the ministry has already announced an additional €3.5 billion in spending on infrastructure over the coming three years.

The findings of a much-anticipated government-backed “infrastructure commission” may offer a way out of the mess. The panel this week agreed that more public money is not the answer, but instead called for a more aggressive approach to bring private investors on board.

Indeed there is a glut of private money sitting on the sidelines in Germany right now. With interest rates at record lows, pension funds and insurance companies in particular are desperate for reliable places to park their money.

The infrastructure commission, composed of a cross-section of German economic thinkers and players and appointed by economics minister Sigmar Gabriel, this week submitted a 10-point plan that called for creating a public infrastructure fund to lure private investors.

“The commission is in agreement that investments in Germany are far too low and that the problem is not a shortage of money,” said commision chairman, Marcel Fratzscher, who heads the German Institute for Economic Research, the DIW.

The report welcomed the federal government’s recent decision to set up a €3.5 billion investment fund as a step in the right direction, but said this wasn’t nearly enough.

The commission is made up of economists, civil servants and representatives from banks, insurance companies and industry. Mr. Fratzscher presented the results on Monday along with Deutsche Bank co-chief executive Jürgen Fitschen and the trade union federation boss, Reiner Hoffmann.

The private sector is ready to hop on board. “Pension funds are ready to invest,” said Mr. Fitschen, pushing for more public projects to be structured in a way that also facilitates private investment.

The trouble is that there still isn’t a broad consensus in Germany about the value of public- private partnerships, Mr. Fitschen lamented. He hopes the new plans might prove a way forward.

The commission proposed a public infrastructure fund backed by both federal and state governments – private investors could participate at their own risk. It is hoped that pooling major projects, and getting development banks involved, would also increase efficiency.

To build and maintain highways and federal roads, the panel recommended setting up a transport infrastructure company to attract private money, much like one that exists in neighboring Austria. It also recommends that highway road tolls, which have yet to be implemented in Germany, could flow into the fund.

“The commission is in agreement that investments in Germany are far too low and that the problem is not a shortage of money.”

Marcel Fratzscher, German Institute for Economic Research

The company would also raise money through loans from the private sector, though most members agreed there should be no state guarantee that the loans will be paid back. Instead they called for the loans to be necessarily separated from government, so as not to be included in the state deficit. That would allow the company to get around a constitutional “debt brake” that limits deficit spending, by essentially running the fund through an unofficial shadow budget.

An additional “citizens’ fund” was also recommended, aimed at attracting smaller investors, whose contributions could be subsidized by existing federal and state programs that support saving.

Much of the 131-page final report is also devoted to strengthening local authorities. The infrastructure commission proposes a national investment pact for municipalities, which would provide at least €15 billion to repair schools, for example, over the next three years.

Not everyone agrees with the plan to bring more private money on board. The commission’s final report was only submitted to Mr. Gabriel after the trade unions were granted a minority vote.  The DGB’s leader, Mr. Hoffmann, called “first of all for taxes to be used for more investment” and said they rejected providing tax relief for companies that invest in joint projects.

The call for more financing through taxes was met with dismay from the business community. The president of the German chamber of industry and commerce, Eric Schweitzer, said he regretted that trade unions had “isolated themselves” on how to pay for infrastructure.

There’s clearly still some work to be done before public-private partnerships become part of the spending mix in Germany.


Thomas Sigmund is Berlin bureau chief, while Donata Riedel and Jan Hildebrand lead political coverage out of the capital. Ruth Berschens is Brussels bureau chief, while Torsten Riecke is Handelsblatt’s international finance correspondent. Christopher Cermak,an editor with Handelsblatt Global Edition, contributed to this piece. To contact the authors: sigmund@handelsblatt.com, hildebrand@handelsblatt.com, berschens@handelsblatt.com, riecke@handelsblatt.com, cermak@handelsblatt.com

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