The Merkel era is over, but its economic legacy will continue
Qualitatively, German economic performance faced two major challenges. First, in addition to stiffer competition, its traditional excellence in engine manufacturing has recently been plagued by scandals involving diesel testing. And now, the German auto industry is facing a complete change of environment with the shift to electric vehicles and eventually to autonomous vehicles.
The second challenge is digitization, which is transforming the shape of all economies. But Germany has been far from being the leaders of this revolution and it is doubtful that its conservative industrial establishment can meet the challenge. The German government has not excelled here either. Germany is lagging behind in the implementation of fast broadband.
How much of Germany’s economic performance is due to Merkel? Not a lot, for good or for bad. After the creation of the euro in 1999, before Merkel took office, Germany ceased to control its own monetary policy and there was no longer an exchange rate against its main trading partners. in Europe.
Yet Germany could still pursue an independent fiscal policy. And during the Merkel years, German fiscal policy was too strict.
During the Merkel period from 2006 to the last pre-pandemic year of 2019, Germany recorded an average annual surplus of 0.2 pc of GDP. It may seem like an achievement to be proud of. Yet again, while fiscal prudence is welcome, there is too much you can do.
And, like exports, fiscal probity is not an end in itself but rather a means to an end, namely a high and growing GDP. German fiscal probity both hampered the performance of the German economy and exacerbated imbalances within the euro area.
In addition, it has resulted in a reduction in public investment which has had a detrimental effect. For much of the Merkel era, net public investment has been negative, with results you can clearly see in Germany’s creaky infrastructure.