Finally, it has happened. The ‘traffic light coalition’ that governs Germany – Social Democratic Party of Germany (PSD), Liberal Democratic Party (FDP) and The Greens – has broken down and this means the almost absolute brake on the controversial 2025 budgets, which were intended a game of 78,000 million euros. In addition to other items such as 75.3 billion euros to meet NATO’s objective of reaching 2% of GDP in defense spending. Likewise, they proposed a debt of 11.3 billion to cover expenses on renewable energy and social aid payments.
Political turmoil and global uncertainty are taking their toll on Europe’s largest economy. German industry has lagged behind due to high energy costs, weak global demand and growing competition from China. Germany’s export-based economic and industrial model is practically broken and Donald Trump’s recent victory adds even more fuel to the fire, as he proposes imposing 10% tariffs on products from Europe.
This Thursday, in addition to a finished government, Germany woke up with data on manufacturing production for September that was surprising, but for the worse. The figures published by Destatis show that it fell 4.6% year-on-year and 2.5% compared to the previous month.
Bloomberg economist Martin Ademmer said in a comment that this data “confirms the malaise” of the sector in the third quarter. “This probably took away from GDP growth,” he said. The expert was clear when he assured that “it is possible that there will still be some time for the industry to improve.”
Recently, it was published that GDP growth in the third quarter was 0.2%, probably boosted by the good performance of the services sector, but these data in the industry could cause a downward revision, according to experts.
“Recent indicators show a small silver lining for depressed industry. The manufacturing PMI rose in October, albeit from a low level, and the Ifo business climate index for the manufacturing sector rose slightly on more optimistic expectations for the coming years. months,” Ademmer said.
Investment flees
The more than possible call for elections in the month of March casts much more uncertainty on companies. German legislation first obliges the chancellor to appear in a vote of confidence and lose it, which is possible on January 15, so that the federal president, Frank-Walter Steinmeier, can then call the elections.
“The fact that Chancellor Olaf Scholz has called early elections will increase the already very high long-term political and economic uncertainty and lead companies to postpone investment decisions,” Ademmer said.
But the truth is that Scholz has not known how to retain the investment of German companies in its territory. According to a Bundesbank report, the transfer of resources out of the country since 2010 amounts to 650,000 million eurosof which 40%, that is, 260 billion euros, were during the mandate of Olaf Shcolz (2021).
But this seems to be just the beginning, since Trump’s victory seems to add more fuel to the fact that German companies decide to invest more in the United States to avoid the possible tariffs that the Republican wants to impose.
The German Chancellor himself, Olaf Scholz, who supported Kamala Harris’ candidacy during the campaign, assured this Wednesday night in his statement that the Republican’s return to the Oval Office “made it imperative” to unblock the spending brake that the former Finance Minister , the liberal Christian Linder, insisted on maintaining.
The budget journalist for the German business magazine Wirtschafts Woche, Christian Ramthun, assured elEconomsita.es that “German industry is investing in Poland, Austria and even Switzerland”, due to the lack of competitiveness.
The former minister was talking about forgetting the stimulus funds to carry out a large program of tax cuts in some taxes such as personal income tax or corporations.
The truth is that Ramthun assures that “there is room” to lower the corporate tax “without falling into the fiscal problems of France or the United Kingdom.” According to the tax competitiveness index prepared each year by the Tax Foundation, Germany and Italy are the countries that have the highest corporate tax on the Old Continent, with 29.9% and 27.8%, above the 25% of Spain. On the other hand, Poland’s is 19% and Switzerland’s is 17%.
Companies ask for elections
There are many business associations, especially in the industrial sector, that urged the Social Democratic Chancellor this Thursday to speed up the process of early elections, the first since 2005. The president of the Federation of Wholesale Trade, Export and Services Sector of Germany, Dirk Jandura , assured in a statement that every day that passes with this coalition government “is a lost day.”
The employer leader assured that the country is “stuck” in the middle of a structural change in the economy and “at the same time, the poles of the economy are being realigned between the United States and China.”
For his part, the president of the German Industrial Confederation (BDI), Siegfried Russwurm, said that the country needs “as soon as possible” a new government “capable of acting with its own parliamentary majority.”
In this sense, the liberals of the Christian Democratic Union (CDU), Angela Merkel’s party, emerge as the favorites for the election. Polls show that German voters want a change of government and are starting as favorites.
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