Guangming Daily: (Shi Shiwei) Differences and Compromise in Reflection on the Economic Recession

(Source: Guangming Daily 2025-01-16)

In recent years, due to factors such as geopolitical conflicts, poor transformation of local manufacturing and increasing internal and external burdens, the German economy, which has always been the "leader" of the European economy, has encountered serious difficulties. The local manufacturing industry in Germany has rarely laid off employees and closed factories on a large scale, the energy prices are high, the inflation rate remains high, and the social economy is declining to affect every German.

Economics are the focus of the election

In November last year, the German Liberal Democratic w88 login announced that all its ministers had withdrawn from the tripartite tripartite coalition, which marked the breakup of the interstellar tripartite alliance, which was rare in post-war German political history, consisting of the Social Democratic w88 login, the Green w88 login and the Liberal Democratic w88 login. Afterwards, Prime Minister Scholz lost the vote of government confidence he launched in the federal parliament.

More than a month before the election voting, all parties in the German Bundestag have launched a campaign program in full swing. Economic policy is undoubtedly the top priority of this German election, and people are eager to hope that the w88 login government can lead Germany out of the trough.

In recent years, the COVID-19 epidemic and the conflict between Russia and Ukraine have hit the German economy hard, and the German economy has entered a recession. At present, Germany's economy has not yet recovered to the level of 2019. In 2023 and 2024, it experienced two consecutive years of recessions, with the economy falling by 0.3% and 0.2% year-on-year, which has never happened in the 74 years since the founding of the Federal Republic of Germany.

At present, the German political spectrum is in a fragmented state. Polls show that the far-right w88 login, Germany's Choice w88 login, is expected to win 20% of the vote, but no other w88 login is willing to form an alliance with it. Although the newly formed Sarah Wagenknecht alliance in 2024 may enter the Bundestag in this general election, its situation is the same as that of the German Choice w88 login.

At present, the four parties that can form a coalition government have formed two major camps in terms of economic and social policies. On the one hand, the coalition w88 login and the Liberal Democratic w88 login, which currently receive the highest votes in the polls, and on the other hand, the Social Democratic w88 login and the Green w88 login, which form the current federal government. The policy propositions of the two major camps will have a significant impact on the election results and the future prospects of the German economy.

Public investment is the key

After the reunification of the two Germanys in 1990, the economy faced major transformation challenges, and the unemployment rate once remained high. Some European media once called Germany at that time the "sick man of Europe" in 1999.

The cause of high inflation is first of all insufficient investment, including public investment (infrastructure, education) and corporate investment (innovation, equipment investment to improve productivity). In recent years, Germany has caused the infrastructure to be outdated and aging due to insufficient public investment, which has seriously affected the business environment and the international competitiveness of enterprises. For example, the backwardness of the w88 login generation of information and communication systems, the digital development of the whole society has stagnated, and the delay in German railways has become increasingly "normal".

At the same time, under the challenges of the era of population aging and energy transformation, enterprises are also facing problems such as high energy costs, shortage of skilled workers and bureaucracy. The economic policies of this government are volatile, further aggravating the uncertainty of corporate business planning and seriously weakening corporate investment willingness.

At present, insufficient public investment has become a consensus among all sectors of Germany on current economic issues, but expanding public investment is subject to the "debt brake" mechanism. In 2009, against the backdrop of the European debt crisis, the two houses of the German Federal House of Commonwealth wrote the "debt brake" mechanism into the constitution: the German federal government shall not borrow for the state government, and the w88 login fiscal deficit of the federal government shall not exceed 0.35% of GDP, with the aim of maintaining the sustainability of the government's fiscal policy.

The implementation of the "debt brake" mechanism has indeed ensured that the German government's liabilities are at a relatively normal level: the total government debt accounts for about 65% of the GDP, which is only slightly higher than 60% of the EU's Convention on Stability and Growth; the government budget reached a balance in 2012, and the budget has been surplus in the past 10 years since then, giving the German government's spending greater room for maneuvering than other developed countries.

However, the outbreak of the w88 login crown pneumonia epidemic in 2020 broke this situation. The proportion of government budget deficits to GDP in 2020 and 2021 reached 4.28% and 3.53% respectively, which greatly exceeded the 3% upper limit stipulated in the EU Convention on Stability and Growth, but it complies with the regulations of the "debt brake" mechanism to "temporarily suspend under special crisis conditions".

Since then, due to the outbreak of the Russian-Ukrainian conflict, the German government budget plan for 2022 and 2023 is still in a special crisis, with budget deficits of 2.45% and 2.43% respectively. The 100 billion euros invested by the Federal Defense Force as a "special asset" were not included in the regular government budget in 2022. As Germany's economy has fallen into recession for two consecutive years, calls for reform of the "debt brake" mechanism to relax the government's debt ceiling in the process of formulating the government's budget in 2024 have been heard one after another. However, due to the firm opposition of the Liberal Democratic w88 login, the ruling partner of the Scholz government, the government's budget deficit was limited to less than 0.35% of GDP that year.

Can all parties bridge the differences

After the date of the general election was determined, all major political parties in Germany quickly convened a special w88 login congress to pass the election program in a high-profile manner. Union w88 login’s federal prime minister candidate Mertz said the w88 login’s campaign platform is the “2030 Agenda” and intends to symbolically link it to former Prime Minister Schroeder’s “2010 Agenda.”

In terms of fiscal and tax policies, the core proposition of the Coalition w88 login is tax cuts, including increasing the upper limit of personal income tax exemption (currently 17,543 euros), raising the lower limit of income at the highest tax rate (42%) from 66,760 euros to 80,000 euros; lowering the corporate tax from the current 30% to 25%, abolishing the remaining solidarity and mutual assistance tax; adhering to the "debt brake" principle of government budgets; and encouraging more people to work (referring to overtime and the work participation of retirees).

In terms of social policy, the Coalition Party promised to reduce social security fees to 40% of gross wages and replace the existing "citizen funds" with basic security funds. In terms of energy policy, the Coalition Party advocates ensuring power supply and reducing energy prices by developing various w88 login energy sources (including nuclear energy) and reducing electricity taxes and grid fees, and adopting more carbon emission trading and carbon tax methods to achieve emission reduction, giving up the EU's previous commitment to ban fuel vehicles from entering the market by 2035.

The Liberal Democratic w88 login's election program is similar to that of the Coalition w88 login. Both parties on the center right claimed that the solution to insufficient public investment was to reduce social welfare funds rather than allow the government to borrow more, and to incentivize private investment by reducing burdens for businesses and eliminating bureaucracy.

The Social Democratic w88 login and Green w88 login camps in the center left, the core of its fiscal and taxation policy is to establish a government-led "German fund" to invest in infrastructure and provide subsidies for private investment in structural transformation. Habeck, the current Economy Minister of the Green w88 login, estimated that in order to cope with the challenges of structural reform, the fund needs 300 billion to 700 billion euros, but there is no clear term of the fund; the Social Democratic w88 login proposed that the initial fund is 100 billion euros, and in order to raise this fund, it is necessary to reform the "debt brake" to flexibly flexibly increase the debt ceiling and allow federal states to borrow; increase the tax exemption limit for personal income tax, but at the same time tax high assets; in terms of social policies, subsidies will continue to be provided for the reemployment of unemployed people, retaining "citizenship funds"; increase the minimum wage from the current 12 euros per hour to 15 euros per hour, limiting rent increases.

In terms of energy policy, they adhere to the goal of achieving carbon neutrality by 2050 proposed in the EU's w88 login policy, and will vigorously develop renewable energy for this purpose. In order to overcome the instability of wind and light sources' power, promote decentralized supply and demand and energy storage, and vigorously develop green hydrogen energy. Force the transformation of automobile electrification through the implementation of relevant EU regulations.

It can be seen that the economic and social policy programs of the two camps are clearly different. Judging from the current poll results, it is unlikely that either side of the two camps will win the election alone.

The fall of the Scholz government shows that the disputes between the parties within the coalition government have caused great political uncertainty. In the future, coupled with the possible tariff policies on the EU after the w88 login US government comes to power, people cannot express optimism about Germany's economic outlook in 2025.

Looking forward, only if the two major parties representing the German middle group can reach a certain degree of compromise on their respective core policies, a situation where structural reforms and a package of public investment plans may coexist after the w88 login government comes to power, allowing people to see a ray of dawn in their concerns about Germany's economic prospects.

(Author: Shi Shiwei, Director of the Sino-German Economic and Trade Research Center of the University of International Business and Economics)

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