Finally it happened. The “traffic light coalition” that governs Germany – the German Social Democratic Party (PSD), the Free Democratic Party (FDP) and the Greens – has collapsed, meaning an almost absolute curb on controversial budgets of 2025, which were planned a 78 billion euro game. Added to this are other elements such as 75.3 billion euros to achieve NATO’s objective of reaching 2% of GDP in defense spending. Likewise, they proposed a debt of 11.3 billion to cover expenses linked to renewable energies and social assistance.
Political unrest and global uncertainty are taking a toll on Europe’s largest economy. German industry is lagging behind due to high energy costs, weak global demand and growing competition from China. The German economic and industrial model based on exports is practically broken and the recent victory of Donald Trump adds further fuel to the fire, since he proposes to impose customs duties of 10% on products from of Europe.
This Thursday, in addition to a finished government, Germany woke up to data on September manufacturing production that was surprising, but for the worse. Figures published by Destatis show that it fell by 4.6% year-on-year and by 2.5% compared to the previous month.
Bloomberg economist Martin Ademmer said in a commentary that the data “confirms the malaise” in the sector in the third quarter. “That probably hurt GDP growth,” he said. The expert was clear when he assured that “it is possible that there is still 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 glimmer of hope for a 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 due to more optimistic expectations for the coming months,” Ademmer said.
Investments are fleeing
The more likely calling of elections in March casts even more uncertainty on businesses. German law first requires the chancellor to stand in a confidence vote and lose it, which is possible on January 15, so that Federal President Frank-Walter Steinmeier can then call elections.
“The fact that Chancellor Olaf Scholz has called early elections will increase the already very high long-term political and economic uncertainty and cause companies to postpone their investment decisions,” Ademmer said.
But the truth is that Scholz has not been able to retain investments from German companies on 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%, or 260 billion euros, were during the mandate of Olaf Shcolz (2021).
But this only seems to be the beginning, since Trump’s victory seems to further fuel the fact that German companies decide to invest more in the United States to avoid possible customs tariffs that the Republican wants to impose.
The German Chancellor himself, Olaf Scholz, who supported the candidacy of Kamala Harris during the campaign, assured this Wednesday evening in his statement that the Republican’s return to the Oval Office “made it imperative” to release the brake on spending that the The former Minister of Finance, the liberal Christian Linder, insisted on maintaining it.
The economic journalist of the German economic 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 spoke of forgetting the recovery funds to carry out a vast program of tax reductions on certain taxes such as personal or corporate income tax.
The truth is that Ramthun assures that “there is room” to lower corporate taxes “without falling into the tax problems of France or the United Kingdom”. According to the tax competitiveness index developed each year by the Fiscal Foundation, Germany and Italy are the countries with the highest corporate taxes in the Old Continent, with 29.9% and 27.8%. , above the 25% of Spain. On the other hand, Poland reaches 19% and Switzerland 17%.
Businesses demand elections
Many professional associations, particularly in the industrial sector, urged the Social Democratic Chancellor on Thursday to speed up the process of early elections, the first since 2005. The president of the German Federation of Wholesale, Export and Service Trade , Dirk Jandura, assured in a press release that every day that passes with this coalition government “is a day lost”.
The business 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 realigning between the United States and China”.
For his part, the president of the German Industrial Confederation (BDI), Siegfried Russwurm, declared that the country needed “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, appear to be the favorites of the election. Polls show that German voters want a change of government and are favored.
