Germany has been acting as an obstacle for EU be it economically or politically, and here’s how? Germany has traditionally been a driving force behind the European Union’s economic growth, but recent incidents suggests that the country’s policies and attitudes may be contributing to a slowdown in business growth across the EU. This is a cause of concern, not just for Germany, but for the entire EU, as a healthy and vibrant business sector is essential for continued economic growth.
One of the factors is Germany’s labor laws. The country has some of the most rigid labor laws in the EU, which can make it difficult for businesses to hire and fire employees. While these laws are intended to protect workers, they can also discourage companies from investing in Germany or expanding their operations there. This can be especially problematic for small and medium-sized enterprises (SMEs), which often have limited resources and cannot afford to navigate the complex legal framework.
Another issue highlighted is Germany’s reluctance to embrace digitalization. While many other countries in the EU have been quick to adopt new technologies and digital platforms, Germany has been slow to adapt. This can be seen in the country’s lack of investment in digital infrastructure, as well as in the slow pace of digitalization in many key industries. This reluctance to embrace digitalization can make it difficult for businesses to innovate and compete in today’s rapidly evolving business landscape.
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Germany’s approach to taxation is also problematic for many businesses. The country has one of the highest corporate tax rates in the EU, which can be a deterrent for companies looking to invest or expand in Germany. Additionally, the country’s complex tax system can make it difficult for businesses to navigate the tax code and comply with regulations. This can be especially challenging for SMEs, which often do not have the resources to hire tax specialists or legal advisors.
Germany’s trade policies may be contributing to a slowdown in business growth across the EU. Germany has traditionally been a major exporter, but its focus on exports has come at the expense of domestic demand. This can make it difficult for other countries in the EU to compete, as they may not have the same level of export capacity. Additionally, Germany’s trade policies can be seen as protectionist, which can make it difficult for businesses in other countries to enter the German market.
Does politics hinder economic development?
While the above-cited structural issues are one of the major causes behind Germany’s economic crisis, there are political problems attributable as well.
Germany’s ruling coalition’s erratic actions are starting to have a negative impact on Europe and are causing consternation all around the continent.
Last month’s desperate attempt to thwart a European Union initiative to phase out combustion-engine vehicles was only the latest instance. On issues ranging from financial aid for Ukraine to reform of state-aid and budget rules, Germany’s EU partners and officials in Brussels have grown disenchanted with Chancellor Olaf Scholz’s centre-left coalition of his Social Democrats, the Greens, and the business-friendly Free Democrats.
The unwieldy nature of the three-party coalition is part of the problem, according to people familiar with EU decision-making processes. Members of Scholz’s government are sometimes slow to agree among themselves on the most basic elements of proposed legislation and when they do it can be either too vague or too late, said the people, who asked not to be identified discussing confidential negotiations.
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At a time when the EU is anxious to show a united front on the war in Ukraine and struggling to adapt to the upheaval triggered by Russia’s invasion, Germany’s conduct is seen as especially unhelpful. It also stands in contrast to public comments by Scholz and his ministers, who portray Germany as a pillar of EU unity and integration.
“Germany is giving mixed messages about its own interests as well as the larger European interests,” said Sudha David-Wilp, regional director of the Berlin office of the German Marshall Fund. She highlighted “cracks within the coalition” appearing after a year and three months in office.
“Germany has often said that it does good things for Europe, is embedded in the EU, but often decisions are more about German interests which really don’t help European interests,” David-Wilp added.
Economy Minister Robert Habeck, a member of the Greens who is also the vice-chancellor, pushed back against the idea that the ruling coalition is dysfunctional and may be testing the limits of its usefulness. He said a two-day cabinet retreat north of Berlin that ended Monday could help give the government some fresh impetus.
“The coalition works very, very well together professionally,” Habeck said Thursday. “There is also a very fine human interaction.”
However, reality seems otherwise. You see, The row over the combustion—engine ban that Germany provoked this month has been a particular source of bitterness in Brussels and beyond.
The hard-won deal to decarbonize the automotive industry, seen as a major element in the EU’s drive to achieve climate neutrality by 2050, was essentially vetoed by FDP Transport Minister Volker Wissing only days before a final vote.
As a prerequisite for German approval, Wissing insisted that the European Commission deliver the promised proposal on how new combustion-engine cars running exclusively on so-called e-fuels—produced using renewable electricity and carbon sequestered from the atmosphere—can be registered after a 2035 deadline.
Critics accused the FDP, the junior partner in Scholz’s alliance, of exploiting the situation in a bid to woo voters and raise its profile in the government following a series of poor performances in regional elections.
Germany was even denounced by its European counterparts. Teresa Ribera, a deputy Spanish prime minister, said that modifying the proposal at such a late stage in the process could set a negative precedent and disrupt the way the EU crafts key policies in the future. It also risks sending confusing signals to investors and industries planning for the shift to clean energy, she added.
German cooperation in efforts to change the fiscal constraints entrenched in the Stability and Growth Pact has reportedly been less than ideal, in addition to the dispute over e-fuels, according to EU officials and diplomats.
According to the officials and diplomats who spoke on the condition of anonymity, Finance Minister Christian Lindner, the chairman of the FDP and self-described “guardian of stable finances,” is wary of attempts to relax the debt and deficit rules and for weeks to avoid participating in the reform efforts.
Lindner has also clashed with EU partners over whether financial aid for Ukraine should take the form of loans or grants.
While Germany argued for grants, other member states pushed for loans and the disagreement delayed the payment of some of the €9 billion promised to the government in Kyiv for last year.
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Germany is known for its tradition of coalition governments, where several political parties come together to form a government. However, the current coalition government of Germany, consisting of the Social Democrats, Greens, and Free Democrats, has failed to reconcile their differences and this has led to structural problems in the German economic policymaking apparatus.
The Greens, in particular, have a strong focus on environmental policies and could push for stricter regulations on carbon emissions and other environmental standards. While this may be positive for the environment, it could also lead to increased costs for businesses, especially those in the manufacturing and energy sectors. The Free Democrats, on the other hand, is a pro-business party that typically advocates for lower taxes and less regulation. They often push back against some of the more stringent environmental and social policies, thereby creating tensions within the coalition. Failure to contain these fundamental differences within the coalition has precisely led to Berlin’s downfall.
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