Germany’s major business groups demanded Thursday, almost in unison, that embattled Chancellor Olaf Scholz call elections soon to restore political stability to Europe’s faltering biggest economy.

Already hit by high energy prices, strong Chinese competition in key sectors and slow domestic growth, businesses and industrial lobbies have been even more alarmed by the political unrest in Berlin.

Hours after the world learned that tariff supporter Donald Trump was returning to the White House, German Chancellor Olaf Scholz’s ruling coalition imploded.

“As if an already dramatic day for the global economy needed a little more excitement, Germany has also caused a significant political upheaval,” wrote Carsten Brzeski, an economist at ING.

The center-left Scholz party has said it wants to remain in a minority government until a likely snap election in March, but industry associations say it is far too late.

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The industry federation BDI and the automotive group VDA both demanded a new government “as quickly as possible”.

“Every additional day with this federal government is a day lost,” said the foreign trade association BGA.

Chemical industry group VCI said “we cannot afford months of political stalemate and stagnation.”

And BDI President Siegfried Russwurm said political uncertainty is “damaging the country” and Germany’s attractiveness as a business location.

“With the inauguration of the new WE government at the start of 2025, uncertainty is likely to increase,” he added.

Chinese competition

Germany’s export-driven economy has been the country’s growth engine for many years. Europeis expected to decline for the second consecutive year.

The past few months have brought a series of bad news, the most shocking for Germans being auto giant Volkswagen’s threat to close factories and lay off workers on its own territory, sparking a desperate fightback from the unions.

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Reductions or profit cuts were also announced at industrial giants such as Bosch, Continental, BASF and Bayer.

The high-tech sector was disappointed after the postponement of two semiconductor factories, including a multibillion-euro Intel project near the eastern city of Magdeburg.

The causes of this malaise range from recent shocks, particularly higher shocks energy the prices imposed by Western sanctions after Russia’s invasion of Ukraine, which particularly affected the energy-intensive steel and chemical sectors.

China’s rise as a massive consumer market but also as a manufacturing rival has also hit German industry, with Chinese electric vehicle makers in particular leaving their sluggish German rivals in the dust.

Labor costs are also much lower in the East Asia than Germany, a rapidly aging society that is only slowly trying to counter the shortage of skilled labor with programs to attract skilled workers from abroad.

“Collapse is a blessing”

All of this, coupled with Germany’s notorious bureaucracy, high tax burden and deteriorating infrastructure, means that Germany continues to lose competitiveness on the international stage.

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It now ranks 24th in the world’s ranking of the most competitive economies, after a rapid fall from sixth place in 2014, according to Swiss private university IMD.

The dire state of the economy and political wrangling over a shrinking budget were at the heart of the political turmoil that led to the implosion of the ruling alliance.

The three parties had offered competing visions on how to help the economy and whether to take on new debt to finance reform measures and boost investment.

“Our businesses need support – and immediately,” Scholz said Wednesday evening.

Brzeski said that “given the continuing tensions within the government and the obvious disagreements over how to get the German economy out of its current state of stagnation and structural weakness, the collapse of the government could also be a blessing.”

A new government should “end the current paralysis of an entire country and provide new, clear political guidance and certainty,” he wrote.

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As Trump returns to power, he writes, German politicians on the campaign trail are ready to “offer their own answers on how to make the German economy great again.”

Source: AFP