Guangming Daily: (Shi Shiwei) Disagreement and compromise in reflection on economic recession
(Source: "Guangming Daily" 2025-01-16)
In recent years, the German economy, which has always been the "leader" of the European economy, has encountered serious difficulties due to factors such as geopolitical conflicts, ineffective transformation of local manufacturing industries, and increasing internal and external burdens. Germany's local manufacturing industry has experienced rare large-scale layoffs and factory closures, high energy prices, high inflation, and the deteriorating socioeconomic situation affecting every German. Right now, a profound discussion is taking place in German society, and the representatives of this debate are the German political circles who are also facing huge challenges.
The economy is the focus of the campaign
In November last year, the German Free Democratic Party announced that all its ministers would withdraw from the three-party coalition government. This marked the breakdown of a rare cross-positional three-party alliance in post-war German political history consisting of the Social Democrats, the Green Party, and the Free Democratic Party. Subsequently, Chancellor Scholz lost a vote of confidence in the government initiated by him in the Bundestag. In accordance with German law, the president dissolved parliament, announced an early election and set the Bundestag vote on February 23, 2025, much earlier than the previously scheduled general election on September 28, 2025.
With more than a month left until the general election vote, all parties in the German Bundestag have launched their campaign platforms in full swing. Economic policy is undoubtedly the top priority of this German election, and people are eager to hope that the new government can lead Germany out of the trough.
In recent years, the COVID-19 epidemic and the conflict between Russia and Ukraine have dealt a heavy blow to the German economy, and the German economy has entered recession. At present, the German economy has not yet recovered to the level of 2019. w88 online casino betting has experienced two consecutive years of recession in 2023 and 2024, with the economy declining by 0.3% and 0.2% year-on-year. This has never happened in the 74 years since the founding of the Federal Republic of Germany. According to the latest forecast of the OECD, Germany's GDP growth rate in 2025 will be 0.7%, ranking last among the 38 OECD member countries.
Currently, the German political spectrum is in a state of fragmentation. Polls show that the far-right Alternative for Germany party is expected to obtain 20% of the votes, but no other party is willing to form an alliance with w88 online casino betting. Although the newly formed Sarah Wagenknecht Alliance in 2024 may enter the Bundestag in this election, w88 online casino betting is in the same situation as the Alternative for Germany. w88 online casino betting is almost a foregone conclusion that left-wing parties will not be able to obtain the minimum threshold required to enter the Bundestag.
At present, the four parties that can form a coalition government have formed two major camps in terms of economic and social policies. One side is the Alliance Party and the Free Democratic Party, which currently have the highest vote share in the polls. The other side is the Social Democratic Party and the Green Party that form the current federal government. The policy propositions of the two camps will have a major impact on the election results and the future prospects of the German economy.
Public investment is key
After the reunification of Germany and Germany in 1990, the economy faced major transformation challenges, and the unemployment rate remained high. Some European media called Germany at that time the "sick man of Europe" in 1999. From 2003 to 2005, the then German Federal Chancellor Gerhard Schroeder rescued Germany from the rigidity of low growth, high unemployment, and excessive social welfare through the implementation of the "2010 Agenda" reforms. Now, the dilemma is back, only this time, high inflation has replaced the high unemployment rate of 1999.
The first cause of high inflation is insufficient investment, including public investment (infrastructure, education) and business investment (innovation, equipment investment to improve productivity). In recent years, insufficient public investment in Germany has led to obsolete and aging infrastructure, which has seriously affected the business environment and the international competitiveness of enterprises. For example, the backwardness of the new generation information and communication system 5G has led to the stagnation of digital development in the whole society, and delays in German railways have become increasingly "normal".
At the same time, faced with the challenges of an aging population and energy transition, companies are also facing issues such as high energy costs, shortages of skilled workers, and bureaucracy. The current government's vacillating economic policies have further aggravated the uncertainty of corporate business plans and seriously weakened corporate investment willingness. In addition, geopolitical tensions, rising w88 protectionism and other factors have also had a huge impact on the exports of German companies.
At present, insufficient public investment has become the consensus of all walks of life in Germany on current economic problems, but expanding public investment is constrained by the "debt brake" mechanism. In 2009, in the context of the European debt crisis, the two German federal houses wrote the "debt brake" mechanism into the constitution: the German federal government shall not borrow money for state governments, and the federal government's new financial deficit shall not exceed 0.35% of GDP, in order to maintain the sustainability of the government's fiscal policy.
The implementation of the "debt brake" mechanism has indeed ensured that the German government's debt is at a relatively normal level: the total government debt accounts for about 65% of the GDP, only slightly higher than the 60% stipulated in the EU Stability and Growth Pact; the government budget reached balance in 2012, and the budget has been in surplus for the past 10 years since then, giving the German government more room to maneuver its expenditures than other developed countries.
However, the outbreak of the COVID-19 epidemic in 2020 broke this situation. The government budget deficit accounted for 4.28% and 3.53% of GDP in 2020 and 2021 respectively, greatly exceeding the 3% upper limit stipulated in the EU Stability and Growth Pact. However, w88 online casino betting complies with the "debt brake" mechanism's "temporary suspension under special crisis conditions" regulations.
Since then, due to the outbreak of the Russia-Ukraine conflict, the German government budget plan for 2022 and 2023 is still in a state of special crisis, with budget deficits of 2.45% and 2.43% respectively. The additional 100 billion euros invested in the Bundeswehr as a "special asset" were not included in the regular government budget for 2022. As the German economy has fallen into recession for two consecutive years, there have been calls for reforming the "debt brake" mechanism to relax the government's debt limit during the 2024 government budget formulation process. However, due to the firm opposition of the Scholz government's ruling partner, the Liberal Democratic Party, the government budget deficit was limited to less than 0.35% of GDP that year. The failure of the reform of the "debt brake" mechanism became the trigger for the Scholz government's collapse, and w88 online casino betting will also become the focus of heated debate among all parties in this election.
Can all parties bridge their differences
After the election date was set, all major political parties in Germany quickly held special party congresses to adopt campaign platforms in a high-profile manner. Mertz, the Union Party's federal chancellor candidate, called the party's campaign platform the "2030 Agenda" and intentionally linked w88 online casino betting symbolically with former Prime Minister Schröder's "2010 Agenda."
In terms of fiscal and tax policy, the core proposition of the Alliance Party is tax reduction, including increasing the upper limit of personal income tax exemption (currently 17,543 euros) and lowering the income lower limit of the highest tax rate (42%) from 667 60 euros to 80,000 euros; reduce corporate tax from the current 30% to 25%, cancel the remaining solidarity tax; adhere to the "debt brake" principle of the government budget; encourage more people to work (referring to overtime and work participation of retirees).
In terms of social policy, the Alliance Party promised to reduce social security fees to 40% of gross wages and replace the existing "citizen's fund" with basic security funds. In terms of energy policy, the Coalition advocates ensuring power supply and lowering energy prices through the development of various new energy sources (including nuclear energy) and reducing electricity taxes and grid charges. w88 online casino betting also advocates the use of more carbon emissions trading and carbon tax methods to reduce emissions, and abandons the EU's previous commitment to ban fuel vehicles from entering the market in 2035. In terms of industrial policy, w88 online casino betting advocates promoting digitalization and high-tech development, increasing the proportion of national and corporate R&D, and stimulating corporate innovation.
The Liberal Democratic Party’s election platform is similar to that of the Alliance Party. Both parties on the center-right claim that the solution to insufficient public investment is to reduce social welfare benefits rather than letting the government borrow more, and to stimulate private investment by reducing the burden on enterprises and eliminating bureaucracy. The two parties also advocate slowing down the pace of achieving carbon neutrality goals, lowering energy prices, and maintaining the competitiveness of German industry.
The center-left Social Democratic Party and the Green Party camp, the core of their fiscal and taxation policies is to establish a government-led "German Fund" to invest in infrastructure and provide subsidies for private investment in structural transformation. Habeck, the current federal economic minister of the Green Party, estimates that in order to meet the challenges of structural reform, this fund will require 300 billion to 700 billion euros, but there is no clear term for the fund; the Social Democratic Party proposed an initial fund of 100 billion euros, and in order to raise this fund, the "debt brake" must be reformed. Activate the debt ceiling and allow federal states to borrow debt; increase the upper limit of personal income tax exemptions, but at the same time tax high-value assets; in terms of social policy, continue to provide subsidies for the reemployment of the unemployed and retain the "citizen's gold"; increase the minimum wage from the current 12 euros per hour to 15 euros per hour to limit rent increases.
In terms of energy policy, they adhere to the goal of achieving carbon neutrality by 2050 proposed in the EU's New Deal, and will vigorously develop renewable energy to this end. In order to overcome the instability of wind and solar power, promote decentralized supply and demand and energy storage, they will vigorously develop green hydrogen energy. Force the electric transformation of vehicles through the implementation of relevant EU regulations. In terms of industrial policy, a subsidy or tax exemption of 10% of the total investment amount is provided for private enterprise investment. Reduce the cost of electricity by exempting energy-intensive enterprises (such as battery production, chemical industry) from carbon emissions trading fees. In addition, the Green Party also proposed to continue its "Growth and Innovation Capital Initiative" to create conditions for start-up companies to obtain more venture capital (reaching a scale of 12 billion euros by 2030).
w88 online casino betting can be seen that the economic and social policy programs of the two camps have obvious differences. Judging from the current poll results, w88 online casino betting is unlikely that either camp will win the election alone. Since the Christian Social Union in the Coalition is firmly opposed to joining forces with the Greens, the most likely outcome is a so-called "grand coalition" government composed of the Coalition and the Social Democrats. Due to the opposition between the two parties in areas such as fiscal and tax policy, especially in the reform of the "debt brake" mechanism, disputes are inevitable after the formation of the cabinet.
The fall of the Scholz government shows that the disputes between the parties in the coalition government have caused huge political uncertainty. In the future, combined with the tariff policy that the new US government may implement towards the EU after taking office, people cannot be optimistic about Germany's economic prospects in 2025. On the other hand, Merz recently said that if he became federal chancellor, he would try to avoid public disputes. Within the Alliance Party, the reform of the "debt brake" mechanism has triggered fierce debates, and some important figures have loosened their attitudes.
Looking to the future, only the two major parties representing Germany's middle groups can reach a certain degree of compromise on their respective core policies. After the new government takes office, w88 online casino betting is possible that a situation of structural reforms and a package of public investment plans will coexist, allowing people to see a ray of light amid concerns about Germany's economic prospects.
(Author: Shi Shiwei, Director of the Sino-German Economic and w88 Research Center of the w88 casino)
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