Past Peak

German Economic Strength Threatened By State Spending

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Sometimes I really feel like a mummy.
  • Why it matters

    Why it matters

    Recent surveys from important economic organizations give Germany good rankings, but they are not based on current new policies, which the author argues are worrisome.

  • Facts

    Facts

    • Germany fell to 5th place in competitiveness, but far more worrisome is the economic condition of major euro zone powers such as France and Italy.
    • New policies regarding pensions in Germany will burden future economic growth while virtually no government action has been taken in the areas of tax reform and health policy.
    • The blame falls to the government’s grand coalition, which has failed to deliver on its promise of positioning Germany for the future.
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    Audio

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It was a day of supposedly good news: Germany fared well in two international rankings.

The Organization for Economic Cooperation and Development acknowledged very low unemployment figures, comparatively speaking, while the World Economic Forum ranked Germany in fifth place worldwide in terms of competitiveness, one spot lower than in the previous survey.

The fact that Germany dropped one place and was again overtaken by the United States, which moved up two slots in the rankings, is of little significance.

Of greater concern is that the survey is based on past efforts and successes. It doesn’t reflect the mistakes the federal government is making at this time. The negative impact of pension reform, for example, will only unfold in the future. And the fact that the government has been largely inactive on issues of tax reform and health policy, for example, is something no analysis can detect.

The fact that the government has been largely inactive on issues of tax reform and health policy, for example, is something no analysis can detect.

Yet, the positive results of the surveys will lull Germany into a false sense of security, at least if the nation allows itself to be dazzled by the success stories. But a closer look at the WEF study already shows warning signs within the fine print.

Germany might be in good shape, and even nations still fighting their way out of the crisis such as Portugal might make up some ground, but two other European heavyweights, France and Italy, languish in 23rd place and 49th place respectively. The weakness of our euro zone neighbors will affect Germany sooner or later.

Meanwhile, the OECD confirms Germany still suffers particularly from long-term unemployment, though the favorable economic climate of recent years has obscured the problem. If the German economy begins to slow down – and there are many indicators it will – those problems will be laid bare for all to see.

It will then become glaringly apparent that the government’s grand coalition of the Social Democratic Party and the Christian Democratic Union failed to govern in the way promised by its motto, “Shape Germany’s Future.”

Instead, the government will be seen as happy to just administrate. 

This article was translated by Bob Breen. Jeff Borden also contributed to this story. To contact the author: hildebrand@handelsblatt.com.

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