Investing in Germany's and Europe's future

Man and woman with helmets; Source: Kuzma/iStockphoto
© Kuzma/iStockphoto

In spite of a difficult international economic environment, the German economy is in good shape. Economic growth roughly matches potential output growth. Employment is at a record level and unemployment is falling. The good development on the labour market, bolstered by low inflation, is creating scope for appreciable wage rises in real terms.

After two very weak years, economic growth picked up clearly in 2014, at a rate of 1.6%. Germany registered a similar rate of economic expansion in 2015. This positive development is likely to continue. The German government is expecting economic growth of 1.8% in 2016.

Investment and innovation provide a key to higher competitiveness, lasting prosperity, and a better quality of life for people in Germany and Europe. The government has set itself the target of strengthening private-sector and public-sector investment in Germany and Europe. A modern, efficient infrastructure forms the basis for future growth, as does investment in education, science and research.

The labour market is developing positively. In autumn 2015, 43.5 million people were in work - 400,000 more than a year before. This development will continue in 2016. Employment subject to the payment of social security contributions is expanding more strongly than general gainful activity.

For the first time since 1969, the federal budget did not require any net new borrowing in 2014. Despite the increased challenges, the draft 2016 budget similarly does not envisage any new debts.

The German economy is facing the challenges of accelerated technological change and an ageing society. Also, the move to renewable energy sources must be designed in a way that strengthens Germany's competitiveness. For this reason, Germany needs a substantial amount of additional investment in its future.

The Social Market Economy has worked well, and provides the platform for Germany's future. A sustainable economic recovery in Europe is a crucial precondition for growth and employment in Germany.

Strengthening the social market economy

Germany's Social Market Economy is rooted in the understanding that, if a society is to enjoy lasting economic success, it needs to be open, competition-oriented and fair, and show solidarity. The Social Market Economy therefore needs a shared understanding of the balance between individual responsibility and solidarity. The Federal Government would like to further deepen this shared understanding via dialogue, transparency and broad opportunities for all citizens to participate.

Boosting investment

Investment is a key to higher competitiveness, lasting prosperity, and a better quality of life for people in Germany and Europe. The Federal Government is taking a comprehensive approach toward achieving this. This includes:

  • maintaining and expanding public infrastructure,
  • boosting innovative capacities and backing German commerce, and particularly the industrial sector and small and medium-sized enterprises, in the context of the digital transformation,
  • continuing the energy transition in a successful and cost-efficient manner, creating a secure policy environment for investment, and setting incentives for businesses to invest in efficiency technologies,
  • investing more in education in order to ensure a supply of skilled workers, strengthening labour market integration and broadening the possibilities to participate, and
  • stabilising economic and monetary union in Europe.

In the first half of this period of legislation, the Federal Government has taken far-reaching decisions to substantially boost public-sector investment. For example, additional funding is being made available for the transport infrastructure, the broadband roll-out, energy efficiency, climate change mitigation, and municipal investment. At the same time, the environment for private-sector investment is being improved. Further information about the Federal Government's investment strategy can be found here.

Taking a systematic approach to the energy transition

The energy transition is a project stretching across the generations and signifies nothing less than a comprehensive restructuring of Germany's energy supply up to 2050: much of the future energy system is to be based on renewable energy and to be highly efficient.

If the ambitious targets are to be met, whilst Germany also remains a competitive base for economic activity, the energy transition needs to be a success not only in environmental, but also in economic terms. This will happen if it becomes a driving force for investment and modernisation for an innovative economy and contributes to growth and jobs. The overarching principle for the energy reforms is the "energy policy triangle" of a secure, affordable and environmentally compatible energy supply.

The Federal Government's reform of the Renewable Energy Sources Act (EEG) has placed the future expansion of renewable energy sources on a viable basis. The other key projects for this legislative term have been brought together as a 10-point Energy Agenda, and coordinated in terms of timing and substance so that the energy transition can be rolled out in a methodical and efficient manner. In order to examine various options for the future design of the electricity market, the Green Paper entitled "An electricity market for the energy transition" was published at the end of October 2014 and made available for public discussion.

The National Energy Efficiency Action Plan, which was adopted in December 2014, sets out the Federal Government's efficiency strategy for this legislative term. It aims to raise awareness of the economic viability of efficiency measures on a cross-sectoral basis and to put the conditions in place for full use to be made of the potential for efficiency improvements. The energy efficiency strategy for buildings, which the Federal Government is drafting this year, is intended to make a major contribution towards the achievement of a virtually climate-neutral building stock in Germany by 2050. In the 2020 Climate Action Plan, the Federal Government has adopted further measures to reduce greenhouse-gas emissions by at least 40% between 1990 and 2020 in Germany.

Strengthening the foundations for growth in Europe

A sustainable economic development in Europe is a crucial precondition for growth and employment in Germany. Sustainable, balanced economic growth which opens up opportunities for economic and social participation for all citizens can also improve and safeguard the social situation of people in the European Union. In order to improve the potential for growth in Europe on a lasting basis, the Federal Government is relying on a triad of accelerated investments, ambitious structural reforms and pro-growth fiscal consolidation.

The Federal Government welcomes the European Commission's investment initiative. In addition to investment in key areas like energy and digital infrastructure, the Federal Government believes that it is particularly necessary to bring about lasting improvements in the environment for private-sector investment - which accounts for the bulk of investment activity - in all EU member states.

Safeguarding the supply of skilled labour

Together with the social partners, the Federal Government is developing strategies to counteract the effects of demographic change on the business sector and to maintain the performance of the German economy. The Federal Government's aim is firstly to strengthen and activate the potential pool of skilled labour in the domestic economy, and secondly to make Germany more attractive for qualified professionals from other countries.

The Federal Government has agreed on an alliance for training together with the business community, the trade unions, the Federal Employment Agency and the Länder. By reforming the Federal Training Assistance Act, the Federal Government is making an important contribution towards improving the situation of students at school and in higher education. The Federal Government has continued to develop the Qualified Professionals Initiative, an information and mobilisation campaign forming part of the Skilled Labour Concept.

Shaping the course of digitisation

The digital transformation and the related rise in international networking is bringing about changes in almost all areas of society. Digitisation is also creating new scope for innovation and new business models in the commercial sector. Here, Germany - and particularly its strong industrial sector and innovative SMEs - needs to take advantage of the new opportunities so that it will not fall behind the leading group.

In view of this, the Federal Government has adopted a comprehensive Digital Agenda 2014-2017, and it will continue to develop it and implement it on an ongoing basis together with commerce, science, unions and management, and civil society.

Making progress on pruning bureaucracy

If companies are relieved of red tape, they have greater scope to add value, create jobs and generate innovation. On 11 December 2014, the Federal Government adopted key points for a further reduction in the level of bureaucracy affecting small and medium-sized enterprises.

These key points contain 21 measures, e.g. on tax and accounting law, on relief for start-ups and young entrepreneurs, and on reducing obligations to provide statistics and information. In particular, the Federal Government will introduce the principle of "one in, one out" by 30 June 2015, so that in future any new regulations are balanced by a pruning of the same amount of bureaucracy.

Supporting start-ups and corporate growth

Germany needs a new "age of entrepreneurship". Germany has one of the world's most innovative economies. However, the number of start-ups - especially in the high-tech sector - is continuing to fall. The Federal Government is therefore promoting a spirit of enterprise, entrepreneurial initiative and better financing conditions in order to boost entrepreneurial dynamism and to better develop the potential for small and medium-sized enterprises to grow.

In the growth phase in particular, however, many capital-intensive young companies lack access to finance, not least because Germany's venture capital market is comparatively underdeveloped. For this reason, the Federal Government will further improve the policy environment for venture capital in Germany and will ensure that the young market segment for crowd funding can continue to develop.

Improving international commerce and trade

Successful integration into the global division of labour is essential for the open German economy so that prosperity, growth and employment can develop successfully and sustainably. The Federal Government is therefore advocating a further improvement in international economic relations.

It supports the resolute implementation of the WTO's Bali agreement, and is also advocating free-trade agreements in order to improve market access for German and European companies in major countries outside the EU. The negotiations on a Transatlantic Trade and Investment Partnership (TTIP) between the EU and the USA commenced in 2013. The Federal Government is calling for their conclusion by the end of 2015. The aim is to open the markets further on both sides of the Atlantic and thus to foster growth and higher employment.