Pride in its economic growth model ignores massive 'lack of investment'
The Straits Times, 29 Sep 2014
BERLIN - Germany, which has long seen itself as the star pupil among debt-mired European economies, is heading for a steep decline driven by serious delusions about its own model, prominent experts are warning.
The Straits Times, 29 Sep 2014
This gloom-and-doom scenario for Europe's top economic power is at the heart of a new book by Professor Marcel Fratzscher, head of the influential German Institute for Economic Research, which is coming out today and already inviting wide scrutiny.
In The Germany Illusion, Prof Fratzscher argues the bare facts paint an angst-inducing vision of the future in which some of the key sources of German national pride - discipline and thrift - become the tools of its undoing. "The economy of this country is sputtering. Its growth since 2000 is weaker than the European average. Salaries have risen more slowly and poverty, on the rise, is impacting one child in five."
Prof Fratzscher argues that Germany's own flattering self-image when it comes to management of its economy, a model driven by deficit-trimming and trade surpluses, is simply "dangerous". Germany, he says, is "resting on its laurels" while the average household income has sunk 3 per cent since the turn of the millennium, and 5 per cent for the poorest citizens.
He acknowledges the country has come a long way since it was known as the "sick man of Europe" a little over a decade ago.
All the trumpeted achievements, however, cannot mask "the fundamental weaknesses of the German economy", notably its "enormous lack of investment". Outlays for investment, at 23 per cent of gross national product in the early 1990s, have now fallen to 17 per cent - markedly below the 20 per cent average for industrialised countries. This has hobbled growth in output as well as salaries.
After watching a dreary march of negative indicators in recent months, Mr Olaf Gersemann, business editor of Germany's Die Welt and Welt am Sonntag newspapers, also presents a bleak outlook in a book released earlier this month, The Germany Bubble. We are witnessing the "swan song of a great economic nation", he warns.
A ranking of economic growth over the last two decades puts Germany at 156th out of 166 countries, in the same ranks as Italy, Portugal, Ukraine, Haiti and Greece, Mr Gersemann notes. And despite a steep drop in the number of unemployed, many have gone back to work in part-time or temporary jobs that offer far less financial security.
Mr Gersemann argues it was rather the country's renowned auto industry and its robust machine tools sector that have been able to exploit the emergence of a large middle class in countries such as China.
The final component of a German fall from grace will be the ticking time bomb that is its shrinking population, the experts argue. Germany in 2050 will slip from the top to become only the third most populous country in Europe, after Britain and France.
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