Germany at a standstill: is an Agenda 2030 needed?
By Olgerd Eichler, portfolio manager in Mainfirst’s Blend/European Equities team
Germany needs a fresh start. The upcoming federal elections could provide the necessary impetus. But is the pain already big enough?
Germany faces significant challenges. Although the economy has recovered from the effects of the Covid-19 pandemic, the energy crisis and the war in Ukraine have exposed weaknesses. Dependence on fossil fuels is affecting competitiveness. Economic growth has stalled, and industrial production is declining in key sectors such as the automotive and chemical industries.
At the same time, the digital transformation is posing structural adjustment problems for the economy. Germany, a pioneer in engineering, is falling behind in key technologies such as artificial intelligence. Geopolitical tensions are adding to the pressure: The competition between the U.S. and China, the war in Ukraine and the global reorganisation of trade relations call for a strategic reorientation.
A major obstacle to progress and renewal in Germany is bureaucracy. Lengthy approval procedures, over-regulation and a lack of coordination between federal, state and local authorities often hinder the implementation of projects and ideas. These hurdles not only slow down economic development, but also hamper much-needed progress in areas such as digitalisation, infrastructure and renewable energy. Therefore, consistent reduction of bureaucracy and the expansion of digital administrative processes are essential to ensure Germany's long-term competitiveness.
The country also faces domestic challenges: rising inflation, social inequality, migration, political missteps and the climate issues are polarising society. Many citizens are frustrated by political stagnation and are calling for bold reforms.
It is more than twenty years since Gerhard Schröder announced the Agenda 2010 in a government statement. At the time, Germany was facing one of the worst economic crises in its post-war history. Unemployment was alarmingly high and economic growth was stagnating. Added to this, high social contributions were burdening companies and undermining the competitiveness of the German economy. The British magazine The Economist described Germany as ‘the sick man of Europe’ – a bitter characterisation for a nation once regarded as the economic engine of Europe.
In the midst of this crisis, Gerhard Schröder’s government embarked on a historic reform: the Agenda 2010. Measures such as the easing of employment protection legislation, the introduction of Hartz IV and the deregulation of the labour market were designed to boost employment and enhance economic competitiveness. The reforms were controversial, but they laid the foundations for the subsequent economic upswing that helped Germany regain its strength and competitiveness.
Elections 2025: Germany’s chance for a turning point
Just as twenty years ago, Germany finds itself in a period of uncertainty and disorientation that urgently requires decisive political action. The crisis then was largely self-inflicted, while today’s challenges are also deeply rooted in Germany’s global interdependence and thus far more complex. Yet, there is a crucial parallel: the need for profound reforms to secure the country’s competitiveness.
The upcoming elections offer an opportunity to reorient the country and tackle the reform backlog. A new government could drive the necessary changes in the areas of digitalisation, migration, bureaucracy and energy. Above all, this will require clear goals, bold decisions and targeted economic policies. This will enable Germany not only to regain its position as Europe’s economic powerhouse, but also strengthen its global presence. Germany must once again prove that it is capable of meeting the challenges of the times. With a proactive policy that prioritises innovation, performance and global competitiveness, the ‘sick man of Europe’ can become an anecdote of the past again. Common goals and a reform-minded government could turn Germany into a role model of renewal in Europe – a pioneer for the economy, the climate and social cohesion.
Positive outlook for German equities
German’s small and medium-sized enterprises (SMEs) in particular stand to benefit from new economic policy stimuli. Not only could companies regain confidence, but they could also show a greater willingness to invest. The prerequisites for this are a stable political framework and new impetus for growth. Many of these SMEs have been overlooked by investors in the past, which leaves them with considerable potential to catch up. The low valuations of these stocks make their price prospects particularly attractive.
