Germany's economic dilemma: spend or save?

DW (English)

Germany faces a tough economic dilemma: balancing public investment with strict fiscal discipline, all while tackling an aging population and the push for sustainable growth.

Transcript

00:00BASF, Volkswagen, Ford and now ThyssenKrupp are among the big companies planning to cut

00:09jobs in Germany in the order of thousands. And the latest figures show the mood among

00:14German businesses souring due to worries over the direction of the economy. Part of the

00:20problem a pressing need for investment in areas like infrastructure and education.

00:29Out of the world's major economies, Germany has the lowest debt load. A source of fierce

00:35debate is there room to lift Germany's break on debt and spend more?

00:39If we just relax the debt break, what we'll get is more consumption, not necessarily more

00:45investment. So I think we should start by understanding that for certain types of investment,

00:50for instance, replacing our crumbling infrastructure, we need to change the structure of public

00:57spending.

00:58There is also the demographic challenge. The population aged over 65 is expected to

01:02grow to just under half of the population by the year 2050, putting an enormous strain

01:07on public resources like pensions and health care. Plus, the population overall is set

01:12to decline.

01:13If you have a shrinking population, it means you have lower potential growth. You have

01:19lower demand or low demand growth, I should say. And that actually might reduce inflation.

01:26On the other hand, it means you have a labor shortage. My expectation that of many economists

01:32is that we might see a big push on wages over the next 10 years.

01:37One thing that could help? Better European cooperation.

01:42In the last five years, the Europeans, the EU, has neglected what I think is its greatest

01:48assets, and that's the internal market. We have an info study showing that removing obstacles

01:53to trade within Europe in services could increase value added by more than 300 billion

02:00euros per year. So we do have a growth machine that does not depend on either China or the

02:06US, which is the European internal market, but we should use it rather than producing

02:12bureaucracy and regulation, which we've done in the last five years.

02:17The worst of all is the uncertainty. Germany built its post-war boom economy on cars and

02:22chemicals. As for its next act, it's unclear if the country has identified its new major

02:28industries or whether lagging behind will remain a concern for years to come.

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