Germany’s central bank, the Bundesbank, is calling for a comprehensive package of measures to address the country’s current economic fragility, issuing unusually direct recommendations to the federal government. Bundesbank President Joachim Nagel emphasized the need for streamlined bureaucracy, targeted promotion of skilled worker immigration, incentives to encourage employment and making investments more tax-attractive.
Nagel, speaking at an event in Frankfurt, highlighted that improving the efficiency of the energy transition and diversifying supply chains are also critical elements in bolstering the economy and enhancing its resilience. He acknowledged that the current government has already initiated some corrective actions, citing the newly introduced investment booster allowing for accelerated depreciation of equipment and the reduced electricity levy for industrial companies. However, Nagel stated these steps are insufficient, emphasizing that further significant reforms are necessary.
Addressing the recent weakness in German exports, Nagel attributed the decline not solely to US trade policies or the impact of Russia’s war in Ukraine and the resulting energy crisis, nor entirely to the COVID-19 pandemic. He pointed out that German exports had begun to weaken considerably as early as 2017, signaling a longer-term structural shift. The loss of market share in international trade has been ongoing for several years.
Regarding monetary policy, Nagel voiced his support for the recent decision by the European Central Bank (ECB) council to maintain current interest rates. He advocated for continued caution in the face of ongoing economic uncertainties, reaffirming the effectiveness of the ECB’s data-dependent and meeting-by-meeting approach to decision-making.