ifo President Fuest Opposes Subsidized Industrial Electricity Price in Germany
The ifo President Clemens Fuest has spoken out against Germany’s adopting a subsidized industrial electricity price. “The notion of a bridge electricity price is not convincing,” he wrote in an article for the German Federal Ministry of Finance’s monthly report, which was published on Friday. He adds that electricity costs in Germany are likely to be higher over the long term than in many other countries. This is because other countries benefit more from the production of renewables and because storage is expensive. Moreover, through its nuclear phaseout and move away from its own shale gas production, Germany is pursuing a policy of scarcity.
“Policy for Germany as an industrial location shouldn’t cling to structures that are no longer competitive,” Fuest went on. He also warned that it would be “reckless to accept deindustrialization with a mere shrug of the shoulders.” Instead, action should be taken to improve conditions to allow for successful companies in all sectors. In addition, it is important to create favorable conditions for new companies and sectors with high potential for value creation.
Fuest came out in favor of reforms to strengthen the supply of labor. These should include amended crediting rules for the basic allowance, a reform of family taxation, better childcare, and improved incentives for longer working lives. “Reforms of schools and vocational education and training could increase labor productivity. In energy policy, the aim should be to use market signals, i.e., prices geared to current shortages, and to expand infrastructure to achieve more efficient use of the available energy supply.” Germany also has a vested interest in deepening the integration of the European energy market.
Bureaucracy reduction, faster expansion of infrastructure for transport and data transmission, and more openness combined with fewer limitations for digital business models are further building blocks. “The challenges for Germany as an industrial and business location are immense, and the danger of deindustrialization must be taken seriously. The good news is that there are clear opportunities for economic and fiscal policy to create conditions that allow these challenges to be overcome.”
Published under the title „Industriestandort Deutschland“, Monatsbericht des BMF, Oktober 2023.
Germany as an Industrial Location
ifo Institut, München, 2023
ifo Standpunkt Nr. 254
ifo Viewpoint 254: Germany as an Industrial Location
The German economy is currently in a difficult situation. Germany is the only one of the G7 countries that expects a shrinking gross domestic product in 2023. The Economist magazine asks whether Germany is once again the “sick man of Europe,” similar to in the late 1990s. The end of Russian gas imports through Nord Stream as well as rising energy prices have prompted energy-intensive industries in Germany to scale back production. Several companies want to relocate sites to countries with lower energy prices. All this has led to a debate about whether Germany is under threat from deindustrialization.
