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Michael Scherz, Austria's business delegate in Germany, hopes that trade with Germany will pick up in the second half of the year. Because the current development of the German economy is becoming an increasing challenge for Austria.

“We are already noticing this”, says business diplomat Scherz, summing up developments in Germany in an interview with diplo.news. “If you look at long-term developments, the production sector for energy-intensive products as well as foreign investment have been declining since 2017. These are alarm signs that do not speak for the location in the long term and are also becoming an increasing challenge for us.”

More and more under pressure

Many companies are no longer investing in their own country or are relocating production abroad. Even the trend of trying to balance out every problem with money is not bringing the necessary liberation steps for the German economy. Germany's neighbors and main trading partners also came under increasing pressure as a result of such policies.

Germany is by far Austria's most important partner in every respect. This is still the case and will remain so for years to come. “But if economic output here is no longer as dynamic as it used to be, we will feel it.”

Home-made problems

The reasons are partly home-made. Twenty years ago, Federal Chancellor Gerhard Schröder pushed through major reforms with “Hartz four,” which had ultimately cost him his job. “But I don't see anyone here today who would be willing to embark on such fundamental structural reforms.” As a result, the mountain of problems is getting bigger: sometimes chaotic energy policy, sprawling bureaucracy from Berlin and Brussels, labor shortages, deficits in digitization, high investment requirements in infrastructure, etc. Germany needs 600 billion euros for infrastructure over the next ten years. “At some point, Germany will have to make real reforms.”

The problems are also homemade because the current federal government — consisting of the SPD, the Greens and the FDP — wants to spend money primarily on ideology-driven conversion to sustainable energy and on social issues. The FDP is too weak to oppose this. The weakening of the debt brake is also a permanent point of contention.

Reporting requirements from Brussels

Another factor is the EU. Brussels is imposing one reporting obligation after another, which is a burden on companies.

In addition, international conflicts were partly to blame. There are also supply chain issues, energy issues, and other factors. “All of this has resulted in things not running smoothly here.”

Finally, the sanctions against Russia would also have caused great damage. The big economic beneficiary of this was the USA. “Perhaps we should have thought about that more carefully.

Location in a vicious circle

Large medium-sized companies would shift their investments, for example to China, which in turn would increase dependence, also to Poland “and, absurdly, to Switzerland as well.” The higher European tariffs on Chinese electric cars would not let the Chinese sit on themselves and take action against the combustion engines, which would affect Germans in particular. “A vicious circle. We would have to work our way here to make the location more attractive.”

You should invest because the conditions are good, “but not because the federal government is throwing billions behind to invest here. It's no honor to have to pay an investor tens of billions to stay here.” That is not sustainable. The question was whether the money would not be better spent by granting tax breaks and reducing bureaucracy.

Absurd rules

Many absurd regulations cost money and achieve nothing. For example, even companies that only employ men would have to make provisions for pregnant women.

The Supply Chain Due Diligence Act is putting a further burden on the economy. It would not lead to a better human rights situation in Africa, but would exclude European companies from business. “The idea behind many laws is very good,” admits Scherz. There are good intentions behind the many reporting requirements. “Everyone is in favour of respecting human rights and environmental protection. But the fact that everything is only at the expense of the economy cannot work.” The new EU Commission will have to change something about this.

Good long-term prospects

Austria generally has a good offer for the German economy. Since a lot of money goes into rail and road construction and apartments are also needed, Austria benefits. Scherz expects “that it will put on again next year or the year after next. In the long term, these are very good prospects.”

Austria's service exports had “gone great.” These included banking and financial services, agency services, insurance services — “we're surprisingly strong there” —, transportation, but also tourism.

In the past year, Austria's exports of goods held up quite well; imports from Germany fell by 6 percent. “Last year, with 59 billion euros in exports to Germany, was still relatively okay compared to 58 billion imports. But we're still supporting the deficit.”

Ideology-driven rather than pragmatic

Transformation remains Germany's big topic. One wonders why Germany could not approach the issue more pragmatically and less driven by ideology and prohibition, as is the case now. “Our biggest wish would be for Germany to find a more pragmatic approach, namely to reduce bureaucracy and cut taxes. Then the location would be very good again.”

Deficits in digitization

The lack of digitization in Germany's public sector is also a major problem. Austria, which is much more advanced than Germany when it comes to digitization, offers solutions here. “We are trying to compensate for German weaknesses with Austrian strengths.”

Although there are many negative points in Germany, Germany still has so much economic power that it will recover again, Scherz is convinced. “But there must be more market again and less government. If we stay on this path, the whole of Europe will ultimately sink.” At the latest, the next German federal government will urgently have to do something for the location.

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The interview with economic diplomat Dr. Michael Scherz, representative of the Austrian Chamber of Commerce (WKÖ) in Germany, was conducted by Ewald König for diplo.news and the Austria Press Agency at the Austrian Embassy.