Expansion of Renewable Energy is Important
EventsFirst-Hand Information on Economic Policy” Event with Head of Federal Chancellery Wolfgang Schmidt
Europe's largest economy is undergoing a difficult transformation and its economic growth is stagnating. The German coalition government collapsed not least over the question of how Germany should deal with the economic and financial policy challenges. On 13 March, Wolfgang Schmidt, Head of the Federal Chancellery and Federal Minister for Special Tasks, and ZEW President Professor Achim Wambach, PhD discussed possible solutions at ZEW’s “First-Hand Information on Economic Policy” event before an audience of around 180 guests. The event was the most recent in a lecture series which is supported by the ZEW Sponsors' Association. In Schmidt’s opinion, the country needs a comprehensive modernisation, the central task being the expansion of renewable energy and the simultaneous establishment of future technologies – also by means of subsidies.
At the beginning of his presentation Schmidt said he was delighted to have been invited to the institute, as there were many economists there who could do the maths. The best example was the most recent study by Holger Stichnot, head of the “Inequality and Public Policy” unit at ZEW in which the financial impact of the party programmes on private households and the federal budget were calculated. This had resulted in two days of fact-based debate during the federal election campaign.
Renewable energy as a core task
After giving a brief outline of the exogenous shocks in recent years (such as the pandemic, inflation and energy shortages due to the Russian invasion of Ukraine) and how they were dealt with, Schmidt spoke about the goal of climate neutrality by 2045. He wondered why it received so little attention in the election campaign although it is such a gigantic task. Germany would not be able to avoid the expansion of “renewables”. In the process, the economy should not change disruptively and economic policy should ensure that world markets remain open.
Schmidt said that this will require free trade agreements, but also government support, for example for green steel. He added that subsidies are also essential to bring future technologies to Germany and that they are a prerequisite for attracting such companies from Taiwan or other countries.
Making Europe a top priority
In the ensuing discussion Achim Wambach stressed that the focus must be more on Europe since 80 per cent of the rules and regulations are created in the EU after all. In this context Wambach referred to the recently published ZEW European economic policy recommendations for Germany’s 2025 coalition talks. Schmidt agreed with this, saying that the EU was the most important national concern for Chancellor Olaf Scholz. Nevertheless, there were some fundamentally different positions within the parties represented in the coalition government on individual topics that were being negotiated in Brussels.
Almost no progress with digitalisation of administration
In other respects, the coalition did not run smoothly either, although it should be borne in mind that it was the first time in Germany's history that parties with contrary ideological orientations had worked together. Schmidt reckoned that he sat with the former finance minister Christian Lindner for around 200 hours to negotiate the budget. Despite diametrically opposed positions on content and the final collapse of the coalition, they still got along well personally, Schmidt said.
When asked by Wambach what he would have liked to have implemented before the end of the coalition, the head of the Federal Chancellery mentioned the example of digitalising administration and asked rhetorically whether it is possible to apply for a driving licence in Germany digitally. He said that in the Philippines the entire process takes 16 minutes and 34 seconds before a new driving licence is issued while in Germany it takes weeks.
More or less state intervention?
When turning to the topic of financing pensions, Wambach pointed out that a higher retirement age is economically indispensable, especially since demographic change is having an ever greater impact. Schmidt emphasised that today the immigration of skilled workers and the female employment rate are already ensuring higher contributions. An increase in the retirement age would achieve little, as many people retire earlier. It would be sufficient if people only retired when they should. He also said that many companies, however, are not willing to hire 60-year-olds.
The discussion finally turned to the public debt and the financing of government expenditure. Here, the two speakers’ positions were naturally at odds. Schmidt held the view that it is the state's responsibility to support companies with loans, since the state would offer more favourable conditions than private banks. In this way, Deutsche Bahn or Germany’s motorways, for example, could be financed without this affecting the debt rule. The ZEW president was sceptical about this, saying it involves risks because, after all, the state is liable if a company goes bankrupt, and not the bank.
