French Economy

Lessons from a Fallen Champion

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Down and out?
  • Why it matters

    Why it matters

    Germany only needs to look at France, its next door neighbor, to see what can happen if wayward politicians lose control of the economy.

  • Facts

    Facts

    • Germany is on top these days – not only in soccer but economically as well. But the country could fall if it continues to pursue overly restrictive and unimaginative policies.
    • In 1998 France won the World Cup in soccer and had a booming economy that was about to challenge Germany’s famous auto sector.
    • The country lost ground through a combination of bad policy and not watching the basics: you can spend what you don’t earn.
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    Audio

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Germany is still an economic powerhouse, even though many countries are worried about the effect of the crises in the Middle East and Ukraine. There are reports of a slight economic weakening in the second quarter.

Yet there is no reason for real pessimism. Germany is a champion exporter and growth is respectable. Tax income is overflowing. Employment is at record levels. The key automobile and chemical sectors are performing well and while the manufacturing sector has been slightly hit by Russian sanctions, overall Germany – viewed as the “Sick Man of Europe” just 10 years ago – is doing remarkably well.

Now all eyes should be on France, and not just because the Economist magazine recently labeled its troubled economy “the time bomb at the heart of Europe.”

German politics can, above all, learn from the French example of what a fallen champion looks like. In 1998, France was the World Cup soccer champion, just as Germany was this year. The economy was humming along. In the years that followed, the French even overtook the Germans when it came to gross domestic product. French cars were about to become a serious competitor to VW or BMW.

German politics can above all learn from the French example of what a fallen champion looks like.

Whoever experienced French Prime Minister Manuel Valls’ pleading with Chancellor Angela Merkel will realize just how much it hurts when you gamble with your future. France should be a warning to the chancellor and her economics minister, Sigmar Gabriel: Prosperity doesn’t fall from the sky, but has to be earned anew every single day.

Everyone contributing to the German economy knows that when they wake up every day and go to work. But some members of the ruling right-left coalition of the Christian Democrats and Social Democrats, don’t have this simple understanding.

Otherwise, there is no way to explain the plans of the CDU and SPD to present an anti-fracking bill that has the world’s toughest restrictions on the technology.

While the United States is making itself oil and gas independent – and experiencing an unprecedented industrial boom in the process – Germany is putting on the brakes wherever it can. The plan is a complete ban on fracking until 2021. The coalition should stop such excessive restrictions.

Energy isn’t the only sector affected by lame economic policies. The defense sector is also caught up in politics as well. Why can Germany deliver weapons to Iraq but mid-sized companies can only export “dual use” products that are directed toward civilian use under the most complicated export restrictions?

That remains a question only the government can answer. It shouldn’t be a surprise when the arms sector then threatens to take jobs away from Germany. If the Left Party doesn’t believe that, then it should simply speak with the unions, which have been warning of such a development.

Investment is also lacking in infrastructure. Politicians have offered many suggestions in the past months. But it’s slowly but surely time to put one of those suggestions to work. Additionally, more creativity and private capital is needed. Why not encourage the insurance companies to come on board? They’re sitting on billions of euros in premiums and don’t know where to invest their money for a decent return.

The German election was almost exactly a year ago to the day.  The year behind us was one in which those favoring a wealth shift had their say: retirement for mothers, retirement at age 63 and the minimum wage. To finance further social programs, the government needs to keep in mind: You can only spend money that you’ve earned. Mr. Gabriel has rejected giving industry a respectable explanation. Now consequences have to come.

The SPD’s suggestion for an anti-stress law is, therefore, completely inappropriate for the times. Instead, we should be thinking about a plan for tax benefits to support research. That would be a tax exception but one with a positive effect. The rule of thumb that applies here is one euro of research support produces one euro of value added products.

Germany is still a champion, but there’s no guarantee that the country will always remain one. Just look at France.

Thomas Sigmund is the bureau chief in Berlin, where he directs political coverage. To contact the author: sigmund@handelsblatt.com

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