Germany’s leading economic research institute, the Ifo, has cautioned that the country is not fostering innovation at a sufficient rate to ensure sustained economic growth. Ifo President Clemens Fuest stated on Thursday that comprehensive and well-considered reforms are necessary to simplify the process of innovation.
Fuest emphasized the urgent need for targeted support for new ideas, technologies and business models as a pathway out of the current economic stagnation. He noted a concerning trend of domestic savings not translating into investment in innovative German companies. This often forces even established start-ups to seek funding from US investors beyond their initial stages, despite having access to capital.
A key impediment, according to Fuest, lies within the German tax system, which disincentivizes risky investments. Furthermore, strong employment protection laws are seen as hindering innovation by making it difficult for companies to swiftly conclude failing projects and adjust their workforce without incurring substantial costs.
Fuest expressed concern over the absence of a convincing economic policy framework to actively promote innovation. He suggested drawing inspiration from neighboring countries, specifically citing Denmark’s “flexicurity” model – a combination of flexible labor markets and robust unemployment benefits – as a potentially viable approach for Germany, particularly regarding highly skilled workers.