Veronika Grimm Discusses Economic Challenges and Fiscal Policies

The state of the German economy is concerning, as highlighted by economist Veronika Grimm, who has been a member of the Council of Economic Experts since 2020. In a recent interview, Grimm expressed her worries regarding the ongoing economic crisis and the need for significant reforms following the recent federal elections.

Grimm emphasized that the country is facing a severe structural crisis. She noted that the economic output has stagnated at levels comparable to five years ago, with exports declining and both production and investments waning. Furthermore, industrial capacity utilization has reached historic lows, compounded by soaring energy prices. Looking ahead, she is particularly troubled by the sluggish productivity growth.

To navigate out of this crisis, Grimm outlined several critical steps required to make Germany more attractive for growth-oriented companies. She pointed out that traditional sectors like the automotive industry and mechanical engineering are under intense competition from Asian countries, particularly China, which has the advantage of a vast domestic market enabling rapid scaling of production and cost reduction.

Grimm argued that the existing business model may not be sustainable, necessitating a structural transformation. She called for embracing innovation and reducing regulatory burdens that could stifle the emergence of new technologies, particularly in fields such as artificial intelligence and biotechnology. For instance, in the chemical sector, she mentioned the potential of genetic modifications to enhance crop resistance, while also highlighting the need for Germany to engage in cutting-edge research areas like space exploration and nuclear technology.

When asked about potential influences from international leaders, Grimm acknowledged the complexity of Donald Trump's presidency and his unconventional approach to governance, which she finds concerning. In contrast, she views the Argentine president, Javier Milei, as a bold economist implementing necessary deregulation measures to rejuvenate Argentina's economic growth. She noted that while such strategies may not be directly applicable to Europe, valuable lessons could be gleaned.

Amid ongoing discussions regarding fiscal policies, including the debt brake, Grimm asserted that incurring new debts would not resolve the underlying economic issues. She highlighted the urgent need for increased defense spending, suggesting that Germany requires more flexibility in its budget to enhance its defense capabilities in light of changing geopolitical dynamics.

Grimm proposed that corporate tax rates should be lowered from the current 30% to around 25% to restore competitiveness. She also indicated that high labor and energy costs are barriers to economic growth. A comprehensive realignment of energy policy is essential, including adjustments to electricity consumption forecasts and exploring alternative energy sources such as gas to ensure security and affordability.

She estimated that these reforms could yield substantial savings, potentially in the tens of billions, across various sectors, including healthcare. For example, by optimizing hospital bed availability, unnecessary procedures could be reduced, leading to both cost savings and better patient outcomes. Grimm expressed that the current situation is more challenging than during the period of the Agenda 2010 reforms, necessitating a focused approach from the new government with a clear set of priorities.

While she acknowledged that additional resources may be necessary for defense, especially in light of the shifting American commitment to Europe, Grimm emphasized that these should be approached judiciously. She suggested that using the debt brake's emergency clause could provide a viable solution, allowing the government to act without extensive political negotiation.

Lastly, she cautioned against the potential risks associated with increasing national debts, especially in the context of European economies like France, Italy, and Spain, which are already heavily indebted. She warned that failure to manage these debts could have broader implications for the European Union and its stability.