Germany requires 450 billion euros to boost growth potential
The German industry association BDI and the DGB trade union have released a joint statement, in which they call for the federal government to radically rethink its budget priorities. They argue that the government needs to urgently increase public spending by some 450 billion euros over the next 10 years, in order to modernise infrastructure and boost growth potential.
Time for Germany to increase public spending
The joint statement is testament to how much public opinion in Germany has changed on budget policy in recent years. The government has long committed itself to keeping a balanced budget by not creating any new debt. Some voices, however, are increasingly calling for the federal republic to step away from this "black zero" budget policy and to increase public spending.
With borrowing costs at record lows and the economy barely growing, the study suggests that a massive fund injection is required to make Germany more competitive and to boost its growth potential. The president of the BDI, Dieter Kempf, said that increasing public investment “is not primarily about fighting symptoms of a recession, but rather tackling more deeply rooted causes of weak growth.”
What does the German government need to invest in?
Germany is still Europe’s largest economy but it suffers from a significant deficiency in digital communication services, like mobile phone coverage. Germany has one of the lowest 4G availability rates in Europe, with millions of people unable to connect to a 4G network on their mobile phones.
Unsurprisingly, therefore, Kempf has identified digital infrastructure as an area that is in dire need of investment. He said that the government should increase public investment in both digital infrastructure and public transport by half a percentage point of overall economic output, equating to about 16 million euros a year.
Business owners have also complained about unnecessary bureaucracy in Germany, particularly in fields such as road-building and wind energy. The head of the DGB, Reiner Hoffmann, called for more investment in the education system and suggested that, with such outdated infrastructure, “the prosperity of future generations is at risk.”
Ensuring economic growth for the future
Hoffmann said that the only way to ensure the sustainability of future growth was to implement a long-term investment programme. According to him, increased public spending would help strengthen social cohesion, establish well-paid jobs and promote equal living conditions across the country. According to analysts, just ten billion euros of investment will permanently increase GDP by around 2,5 billion euros a year.
Cities and municipalities across the country are also suffering from lack of investment. The KfW, the German state-owned bank, estimates that they are in need of 138 billion euros. Similarly, Germany’s budget surpluses could help inspire growth in Europe, as described by Christine Lagarde, president of the European Central Bank.