While the German coalition recently exploded on budgetary issues with the dismissal of Finance Minister, the liberal Christian Lindner, the news on the economic front is bad. Over the last five years, the gross domestic product has only increased by 0.1% and social plans are coming one after the other, particularly in the automobile industry, causing a social earthquake in certain Länder unaccustomed to such announcements. The tightening of American protectionism in 2025 could also slow down the expected slight recovery. In their latest projection, the Council of German Economic Experts expects meager growth of 0.4% next year. What if Germany was the real weak link in Europe? A thesis defended by one of the most influential German economists, Professor Achim Wambach, president of the ZEW think tank in Mannheim.
L’Express: Germany and France are going through a political and economic crisis but the similarities end there. In your opinion, which of these two countries could be called “the sick man of Europe”?
Achim Wambach : On a strictly economic level, Germany’s situation is frankly more worrying than that of France. Because it is the very model of the country that is in danger. Over the last two years, German growth has been close to zero, industrial production has fallen by 18%, and the activity of automobile manufacturers has plummeted by 25%. Industrial investment is at a standstill. If you look at France, the results are much better. Activity has grown, unemployment has fallen, foreign direct investment has increased significantly, the creation of start-ups is very dynamic and Paris has become a hub for European start-ups.
Even if political uncertainties are currently weighing on the global climate, France’s attractiveness has undeniably improved in recent years. Macron’s reforms have borne fruit. In particular the reduction in the corporate tax rate, which is now lower than in Germany. Very often I say to my German colleagues: “Look what France has done, it’s an example to follow!” Germany has very serious structural difficulties which urgently need to be addressed.
But are you omitting the worrying situation of French public finances?
Obviously, this is a very big problem. And France must absolutely tackle it. But the path ahead is not so insurmountable.
To Germany’s credit, you could raise the trade surplus. Which is not the case for France, which is crumbling under a balance sheet deficit…
I would be more nuanced on the question of the German balance of payments surplus. If the surplus is so large, it is because our internal demand is depressed and because the money of German savers is going to invest abroad. Which is not necessarily good news for the country.
The origin of the political crisis in Germany is budgetary, with Finance Minister Christian Lindner refusing to release the debt brake. Do you think this is an error?
I think he initially acted out of pure political calculation, thinking that he will get more votes in the next elections if he continues to defend very strict budgetary rules. Coming back to the problems that Germany suffers from, the first of them is the glaring lack of investment in infrastructure. We need more public money. But at the same time, I am a strong defender of the debt brake which is enshrined in the Constitution. This rule put in place in 2009, in the midst of the financial crisis, explains not only our very healthy budgetary situation but also the solidity and resilience of the euro, despite all the storms of recent years.
Investing more in infrastructure without violating the debt brake rule, isn’t that squaring the circle?
Times have changed, new threats have emerged and Germany – I repeat – must invest more, in schools, roads, telecom networks, but also electricity connections and hydrogen networks to radically change our energy model again. far too dependent on gas. All this, without throwing our golden budgetary rule into oblivion. We must differentiate between investment expenditure, which structures the future, and operating expenditure. The rate environment has also changed: the period when money was free is over and interest rates are now higher than the growth rate. In this context, the debt can spiral out of control quite quickly. I therefore propose the creation of a large public investment fund for infrastructure, endowed with 100 to 400 billion euros, which will be supplemented by debt. But a debt arrowed. This will require the agreement of two thirds of parliamentarians in the Bundestag.
What should be the priorities of the future coalition which will emerge from the polls next February?
The revival of investment in infrastructure, as I have just described. The second issue must be that of labor shortages. The aging of the active population and, soon, the decline in the number of active workers will structurally weigh on the country’s potential growth. One of the major issues is the increase in the participation rate of women in the labor market and the reduction in part-time work. This requires a considerable effort to welcome young children and develop nurseries.
Do you fear a significant impact on German growth from the trade war promised by Trump?
Obviously ! 10% of our exports are destined for the United States. During Trump’s first term, the increase in customs duties on German cars, steel and aluminum cut into the profits of our large groups. But the situation is more serious this time. Because Trump does not only promise to increase customs duties: he also wants to reduce tax rates for companies established in the United States and reduce regulations. Which can act as a magnet for European companies. The risk is not only to export less to the United States but to see more and more German companies, in chemicals or capital goods, investing and producing in the United States rather than in Europe. Or worse, set up their R&D centers across the Atlantic. This is a subject to take into account when we think, for example, about the regulation of AI: not to discourage research on European soil…
The automobile industry is suffering, like Volkswagen which has announced a vast plan to cut jobs. Do you support postponing the date to 2035 for the ban on sales of new thermal vehicles in Europe?
Yes ! Because from 2027, Europe will adopt a new system of carbon emission quotas for road transport and buildings. Without going into details, the price of a tonne of CO2 will increase significantly. According to our estimates, it could eventually reach 200 euros! Which means that gasoline prices could increase by nearly 60 euro cents per liter. This is considerable. This price signal will be sufficiently important to naturally encourage motorists to switch to less polluting vehicles, and thus reduce their bill. So demand will make supply! In this context, we do not need to ban the sale of thermal vehicles from 2035 because manufacturers will adapt to new market conditions.
The Draghi report highlighted Europe’s undercompetitiveness compared to the United States. Among the many recommendations, one of them concerns a new major European loan. Do you think this is the right answer?
Europe has indeed lost a lot of competitiveness compared to the United States. Many have highlighted the effect of the Inflation Reduction Act launched by Joe Biden. But this loss of competitiveness goes back much further. I think that excessive regulation in Europe has played a big role. An example: in the digital economy, we have counted 60 standards in the Union while there are almost none in the United States. By protecting too much, we destroy business. Europe will also regain competitiveness by developing a single capital market, by placing emphasis on education, and by signing free trade agreements. If we only think about a new big loan, we forget everything else. Let’s simplify first, before thinking about borrowing.
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