German politicians are fond of saying, “Work must be worth it.” But ever more people who work full-time need state benefits. And the new minimum wage hike is seen as disappointing.
German politicians are fond of saying, “Work must be worth it.” But ever more people who work full-time need state benefits. And the new minimum wage hike is seen as disappointing.
Only around 3.7% of German workers earn minimum wage. Increasing their wages a little won’t move the needle on the economy. I generally support a healthy minimum wage, but Germany’s economic issues are systemic, and require much broader solutions. Making the cost of doing business even higher right now in Germany - which is what raising the minimum wage does - is antithetical to fostering weak economic growth. Industrial production in particular continues to decline, which is a big problem for Germany. Merkel’s strategy of going all-in on Russian natural gas turned out to be catastrophic. The cost of energy is just too high now for a raft of different sectors. I’m sure you’ve heard all of this before in economic analysis, but these are some of the primary issues and tactical solutions Germany should tackle.
Cheaper energy. This is strangling industries which employ millions and have been the backbone of the economy for decades. Germany needs to build nuclear capacity ASAP, or begin importing massive amounts of Russian natural gas, or begin burning a lot more coal. For environmental, economic, and ethical reasons, I support nuclear. Renewables are about 4x more expensive than nuclear after imputing costs like storage and grid architecture [1].
Germany needs to embrace efficiency at a cultural level. In 2023, 51 % of all point-of-sale transactions were made using banknotes and coins. I cite this not because I think cash is a perfect analogue for efficiency, but to underscore the distrust so many Germans have in technology. Most government departments still use fax machines. Germany’s internet infrastructure is just terrible. There is an astounding lack of digitisation across both the public and private sectors. This aversion to efficiency becomes an increasingly heavy anchor around the neck of the nation as the rest of the world embraces new technologies to build and serve more products and services, faster.
Germany needs a new strategic focus in the economy. Even with cheap energy, industrial production can and will be done cheaper in developing nations. Their car industry is clearly unable to pivot to EVs, and it’s going to completely miss automated driving. Using VW software is like going back to a Nokia flip phone. They need to figure out how to invest in and excel at services and software. This is almost impossible to mandate at a governmental level in a democratic nation. This one will be the toughest to turn around and for this reason, my long term prognosis for Germany is poor relative to many other European nations.
Restructuring Germany’s immigration system to block low and no skilled immigrants, and greatly simplify immigration for high skilled immigrants. Research by the ifo Institute concludes that the 2015 immigration wave has widened the implicit long-term debt burden, i.e., including future pensions, by almost 10 percent of GDP. According to this, every admitted refugee costs the budget around 225 thousand euros over the course of her or his entire life. [2] This problem is getting worse every year. Germany’s immigration system is very difficult to navigate, and can be quite hostile for legal, qualified migrants.
Compounding all of the above is a declining fertility rate. Few countries have solved this issue, meaning [highly skilled and qualified[ immigration is more important than ever. I don’t think we can rely on improving native fertility rates.
When an economy is performing as poorly as Germany, economic stimulus is required. This means lower taxes and increased government spending. QE is not possible for those using the Euro so it might mean accepting higher levels of debt. This is a distinctly un-German proposition. The current government has secured the right to increase national debt but only in the context of Russian aggression. Debt by itself is bad, but if used prudently to stimulate the economy in the right direction, can be useful. I sadly do not trust the German government to invest it wisely. It’s much more likely to go towards manufacturing mortar rounds, and to pay for ever increasing social services.