Bureocracy is a way of life in Germany. For a country that prides itself on being efficient and organized, getting things done is surprisingly difficult.
Germans spend hours filling out forms to get approval for everything from getting a passport to driving vehicles on the autobahn. And most of the work has to be done personally.
“They love documenting,” says one Australian executive who recently moved to Munich. “There is a joke that most Germans have huge stocks of paper at home and rooms full of folders.”
This has also become a major barrier to economic growth,” says Ulrich Hopper, CEO of the German British Chamber of Commerce and Industry .
“We need too many permissions for so many things. And this, of course, hinders business.”
Germany's reputation for engineering excellence and punctuality is also quickly becoming a myth.
Switzerland has begun halting late German trains at the southern border that threaten to ruin a carefully coordinated schedule.
Meanwhile, the country's aging fleet of government aircraft is also attracting the wrong attention.
Annalena Berbock, Germany's foreign minister, spent several hours waiting in Abu Dhabi this month after a technical problem forced her to return to the airport rather than continue on to Australia. In 2018, the same plane suffered a fuel system problem that caused then-Chancellor Angela Merkel to delay the G20 trip to Argentina.
These microcosms of German life reflect the deeper malady of Europe's largest economy.
Combined with the energy crisis, they threaten to turn the country back into the «sick man of Europe» 25 years after it was up and running Germany will be the only major economy to shrink this year, according to the International Monetary Fund.
Hopper says the combination of a recession and high inflation is a nightmare for the German government.
3108 Germany GDP stagnation
“Currently, there is stagflation, and this slow growth is likely to last for several years, because the country needs time to transition to a different, permanent energy system. It also depends on how quickly the German government is going to free up the economy, reduce bureaucracy and go digital.”
Holger Schmieding, chief economist at Berenberg, who used the term “sick man” to describe Germany at the end 1990s, also says that bureaucracy is partly to blame for Germany's current woes.
«In Germany, it's rarely the lack of money that holds back investment, but the bureaucratic effort required to get all the permits,» he says. “That's usually where a lot of big projects in Germany stop, including infrastructure projects.”
Germany has also fallen victim to bad timing. The energy crisis caused by the Kremlin's invasion of Ukraine hit Germany just as it was decommissioning its last operating nuclear power plants.
Berlin used to rely on Moscow for about a third of its gas and electricity needs. Economists now warn that growth stagnation will continue for years as politicians argue over what comes next.
3108 Energy-hungry Germany
Monika Schnitzer, head of the country's Council of Economic Experts, told The Telegraph in this month that Germany risks plunging into a long period of decline unless politicians let go of some of the country's valuable energy-intensive industries.
This includes the production of ammonia, pioneered by Nobel laureate Fritz Haber in the early 20th century. But Schnitzer's ideas are facing opposition from others who argue that certain strategic industries should be protected and even subsidized in the future.
German automakers also made the wrong bet. Building on strong sales of traditional diesel and gasoline brands in China, many have invested heavily in luxury electric models that they think will leave bus stations just as quickly.
The problem is that German and other European executives love to drive. it's a luxury brand, rich people in China want to be driven.
This makes rear seat space and comfort more important than luxury leather seats and torque.
The decline in sales is creating problems for some German companies, which have also bet heavily on China. According to Deutsche Bank, about a fifth of BMW and Volkswagen's revenues come from that country. As China grapples with its own economic problems, corporate profits are likely to suffer.
3108 China's unstable economy
Indecision is sending the economy on a path of stagnation that will last for years to come, Hopper of the German-British Chamber of Commerce warns.
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«There will be a long period of stagnation due to demographics, energy costs and burdensome bureaucracy that is preventing companies from doing business and generating economic growth,» says Hopper.
Germany is also facing a short-term headache: official data show that inflation in August was 6.1%, almost in line with the overall UK rate of 6.8% in July. The latest data showing soaring energy inflation is a reminder of how vulnerable Germany is to price fluctuations, says Christian Fuertjes, economist at HSBC.
He says: “The strong rise in energy inflation in August is a reminder that the decline in headline inflation over the past few months has likely outpaced the decline in wholesale energy prices and is starting to reverse. Therefore, even as food price inflation continues to decline, there could be some significant upside energy inflation risks in the coming months that appear to be underestimated by both financial markets and, to a lesser extent, some central banks.”
Schmieding of Berenberg believes that Germany is in for a «noble decline» that will jeopardize its status as a European power.
«France is gradually taking over the role of a power,» he says, simply because it is «more dynamic».
Schmieding says Germany is becoming «a bit like Japan — on the decline, but seems happy about it.»
He adds: “Germany will see a decline compared to other economies. This is not a crisis, but it [will go from] the strongest large economy in Europe to the middle and gradually losing its importance on a global scale.
The demographic decline in Germany is also sharp. The low birth rate means that Germany faces a larger demographic hurdle to economic growth than many of its Western countries.
Today, there are about 25 people aged 65 and over for every 100 employees. Fifty years from now, that number will increase to about 65.
3108 Germany Old Age
Schmieding argues that politicians should offer larger tax breaks to force pensioners to pay for their work. The state retirement age in Germany is already being gradually raised to 67 by 2031. “Up to a certain high threshold, I would eliminate income tax on income from employment,” he says.
He also believes that Germany should focus on selling cars and other manufactured goods closer to home. “Poland, the Czech Republic, Slovakia and Hungary are a much larger market for Germany than China,” he says. «Germany sells almost as much to Poland as to China.»
As for Hopper, he hopes Germany doesn't revert to «sick man» status, but warns that Germany will have to say goodbye to the years. abundance. «He is not the sick man, but the slow man of Europe.»
If prevention is better than cure, it may be too late to change the fate of Germany.
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