Growth package: hero or bully – Friedrich Merz still has all the options

Do you still remember the Chancellor a good eleven months ago? "Because of the high investments in climate protection," said Olaf Scholz in an interview at the time, "Germany will be able to achieve growth rates for some time, as last happened in the 1950s and 1960s.

Growth package: hero or bully – Friedrich Merz still has all the options

Do you still remember the Chancellor a good eleven months ago? "Because of the high investments in climate protection," said Olaf Scholz in an interview at the time, "Germany will be able to achieve growth rates for some time, as last happened in the 1950s and 1960s." Scholz promised nothing less than a new “economic miracle,” and the catchphrase for this already existed: “Scholzonomics.”

The slogan was a good fit, because the promise was typical Scholz – a bit megalomaniacal. But back then people were still in good faith, after all the Chancellor had already proven at least twice that he could do the impossible: his own election as Chancellor, for example, or the first winter without Russian gas. Despite all the skepticism and astonishment, one would have hoped that he and the country would have achieved the impossible a third time: finally growth again and an upswing that was worthy of the name.

Today we know that there was actually nothing more behind the sentence than hubris. No plan, no idea, no real will to implement it. Just an arrogant, somewhat flippant sentence.

The economy shrank by 0.3 percent in the last quarter of 2023, after two quarters of stagnation. And economists are also predicting a decline in economic output for the current first quarter of this year, this time by 0.2 percent. The International Monetary Fund in Washington halved its economic forecast for Germany this week; experts there still expect an increase of 0.5 percent for 2024.

Now you can argue whether Germany is deep in recession or whether the economy is “just” not growing for a long period of time. The discussion is already underway, the slogans are “black painting” and “praying for health”.

But the numbers are pretty clear: While all other industrialized nations in the world are growing fairly decently, Germany is falling behind. This also applies in Europe, as this graphic shows very impressively.

What is striking is that the problems began much earlier than with the work of the traffic light coalition or with Russia's attack on Ukraine and the end of cheap gas from Russia. Germany's industry in particular has structural problems that cannot be explained solely by high energy prices.

What is now paralyzing many companies and deterring them from making further investments is deep uncertainty: on the one hand, about the new technical standards in which they should invest - whether heat pumps, hydrogen networks, electric cars or fuel cells - and, on the other hand, about the economic conditions under which they have to invest should do this. This applies to the energy sector as well as to transport, infrastructure and construction - to name just four important economic sectors in which Germany actually has a high need for investment. The infamous traffic light heating law from last year caused great damage, far beyond the heating installer industry.

But how do you get out of there? Until the Federal Constitutional Court's ruling last November, the SPD, FDP and Greens thought they had a tried and tested approach with their numerous additional budgets. Money and subsidies should overcome the hesitancy in the industry. But the Karlsruhe judges rejected this plan. In the three months since then, failing to find an alternative plan and instead only increasing the uncertainty in the economy is the second major failure of the traffic light coalition. Finance Minister Christian Lindner's "design budget", which at least passed the Bundestag this week, doesn't change that. The coalition has primarily shaped its own helplessness.

How deep the desperation within the coalition now reaches is shown by the latest initiative by the Green Economics Minister Robert Habeck, with which he sets himself apart from the previous government line: A new special fund is to be created, outside the regular budget and secured by the Basic Law, in order to invest in... to stimulate those areas of the economy that are particularly important for the transformation of the economy. Habeck is thinking – following the example of the USA – of tax relief and better depreciation options for companies.

His idea is interesting for three reasons: Firstly, such instruments would actually be an answer to the deep uncertainty in many industrial sectors. Secondly, Habeck takes up an idea that companies, associations and the conservative camp of the Union and FDP always demand as a better alternative to direct government investment subsidies - because it is open to technology and does not favor individual companies. And thirdly, by proposing a special fund he openly addresses the question of financing.

Cheap long-term depreciation options and general tax relief would really be a relief in the current situation, but they would also be very expensive because they have a broad impact. If the relief volume is below 20 billion euros, or 50 billion euros would be better, you don't even need to start with it. The FDP will say that this could easily be saved elsewhere in the budget - but we have been able to see what this actually means in the past few weeks.

Habeck's proposal is therefore primarily an offer to the Union, which he would need to change the Basic Law. CDU leader Friedrich Merz is also quick to call for savings in social budgets - but the closer the next federal election gets, the more he will start to ponder whether he really wants to do the SPD and the Greens a favor in the approaching election campaign to give big grinders to the welfare state. Especially since the savings potential in citizens' allowance and parental allowance would not be enough to finance major relief for the economy.

This year, under Merz's leadership, the CDU and CSU are faced with the difficult question of whether, as opposition, they really want to reject everything that is brought to them from the traffic lights. Or whether they don't want to take the opportunity to do something good with their current strength. You can also mentally turn the whole constellation around: While the Chancellor will no longer be able to spark an economic miracle with his coalition on his own, Friedrich Merz still has all the options.

This article first appeared in the business magazine "Capital", which, like stern, is part of RTL Deutschland.

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