Schwarz-Rot's Economic Strategy Continues Green Policies

The recently formed coalition government in Germany, consisting of the CDU and SPD, appears to be carrying forward several elements of the previous green economic agenda. The new coalition agreement suggests a cautious approach to economic reform, rather than a transformative shift, as observers were hoping for.

As the government aims to initiate key projects by the start of the summer break, it faces mounting pressure to stimulate economic growth. Recent forecasts from leading economic research institutes indicate that Germany might be on the verge of another recession, with stagnation being a potential achievement in light of ongoing global challenges.

The coalition's commitment to revitalizing the economy hinges on several core questions: Will manufacturing sectors such as steel, automotive, and machinery regain their competitiveness? Are the conditions favorable for entrepreneurs to thrive? These are crucial factors that the coalition will need to address before the next federal election.

Compared to the sweeping reforms of the past, notably the Agenda 2010 introduced by former Chancellor Gerhard Schröder, this coalition agreement lacks a similar transformative impact. Instead, it is perceived as a moderate growth initiative. The proposed 'investment booster', which includes enhanced depreciation options, is likely to encourage businesses to resume postponed investments. Additionally, initiatives aimed at reducing bureaucracy, such as the abolishment of the supply chain law and the relaxation of working time regulations, are noteworthy advancements.

One of the most ambitious proposals is to establish a centralized one-stop shop for business startups that would enable new companies to register within a single day. However, similar initiatives have been included in previous agreements without successful implementation.

While the coalition outlines plans for more efficient business operations, skepticism remains about whether a genuine cultural shift in public administration will occur. Successful examples, like Tesla's establishment in Brandenburg, are currently exceptions rather than the norm.

Notably, the coalition intends to continue key funding programs initiated under the previous green minister, Robert Habeck. This includes subsidies for electric vehicles and financial incentives for semiconductor manufacturing. Despite criticism from the CDU regarding these green policies, the coalition seems committed to a degree of state intervention in industrial policy.

However, questions linger regarding how the coalition plans to lower the comparatively high tax and social contribution burdens that businesses face in Germany. The promised reduction in electricity prices may be welcomed by companies but effectively shifts the costs of the energy transition from electricity consumers to taxpayers.

The structural design of the ministries could also hinder economic progress. Although the CDU secured control of the Economic Ministry, it failed to combine this with the Ministry of Labor, a move that could have facilitated more cohesive reform efforts similar to those seen in the past. The Economic Ministry's loss of responsibility for climate initiatives could limit access to significant funding sources, potentially impacting its effectiveness.

In summary, while the Schwarz-Rot coalition appears to be progressing with certain aspects of the green economic policy, significant challenges remain. The upcoming months will be critical in assessing whether the coalition can deliver tangible economic results or if it will fall short of expectations.