German business is fed up with a government in disarray

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Mr.any GERMAN the bosses just wanted one thing for Christmas—Förderbescheid. Since November 15, the country's business circles have barely talked about anything other than these “formal financing notices”. On that day, the Federal Constitutional Court declared that the government's plan to reallocate 60 billion euros ($66 billion) in “emergency” covid-19 credit lines towards infrastructure and the energy transition was unconstitutional . This blew a hole in the coalition government's spending plans. It has also raised concerns among companies that rely on public support for their investments. Even though there are not that many of them, they are at the heart of the government's economic vision – and this vision, in turn, matters for German business as a whole.

In early December, Northvolt, an innovative Swedish battery manufacturer, received a Förderbescheid for a subsidy of 564 million euros for the construction of a 4.5 billion euro factory in the state of Schleswig-Holstein, in northern Germany. Other companies, notably those behind 11 of Germany's 27 “important projects of common European interest” which have not yet received a formal offer of financing, were eagerly awaiting their economic assets.

image: The Economist

Instead, they were treated to a bitter dose of austerity. “We have to get by with a lot less money,” declared Olaf Scholz, Social Democratic Chancellor, on December 13. After tense discussions with his Green and Free Democrat partners, Mr. Scholz revealed 29 billion euros in savings, including 12 billion less for an off-budget fund for climate and transition. The details still need to be worked out, but some of that will come from the early end of subsidies for electric vehicles and solar power, a higher-than-expected increase in the carbon tax, and a new tax on businesses that use plastic. Not another Förderbescheid preview.

Mr. Scholz's austerity measures fuel doubts about other promises from the federal government and the Länder. “The bosses are lobbying frantically at the Economy Ministry while the Finance Ministry is doing its best to block new spending promises,” says Christoph Bertram of fGS, a consulting firm. A 10 billion euro grant to Intel, a US chipmaker, to build a 30 billion euro semiconductor factory, which would be Germany's largest post-war foreign investment, seems to be in doubt. The same applies to the construction of a chip factory in Dresden within 5 billion euros. tSMC, a Taiwanese manufacturer. These giveaways are a costly, and perhaps futile, attempt to compete in the global race for chip subsidies. Yet removing them now would “send a catastrophic signal” about the government’s reliability, warns Marcel Fratzscher, director of the German Institute for Economic Research, a think tank.

Wither Coalition

Fiscal disaster adds to litany of German companies Angstein addition to shrinking GDP, high energy prices, the shortage of skilled workers, persistent administrative burden and the rise of the populist far right. It is no wonder that the bosses are increasingly deeply disappointed with Mr Scholz and his coalition partners. Nearly 83% believe that the government is not doing a good job, according to a survey carried out in early December by a business publication; 75% would like new elections to be held in Germany in 2024. A business climate index from the Ifo-Institut think tank, which has exceeded its pre-pandemic level for much of 2021, ranks well again below this level (see graph 1). ).

image: The Economist

Gloomy sentiment affects investment decisions. Business capital spending fell in the third quarter year-on-year, after barely increasing in the previous few quarters (see chart 2). Companies have “considerably” reduced their investment plans, according to a new survey of 5,000 companies by the Ifo Institute. According to the latest quarterly survey of Middle standOnly 24% of admired family-owned pocket multinationals in Germany plan to invest in expansion, the lowest proportion since the survey began in 2010. At least 42% said they would no longer invest in Germany .

All this reflects concerns about high interest rates, weak demand and general uncertainty over economic policy, says Ifo's Lara Zarges. It may also paint a flattering picture, since the survey was conducted before the budget fiasco. Although most economists predict a slight recovery in the German economy next year, Sebastian Dullien of IMK The research institute expects the recession to persist until 2024 due to spending cuts following the Constitutional Court verdict.

Mr Dullien says it is “economically absurd” to stick to strict spending limits, as Mr Scholz intends to do next year, at a time when the country faces a energy crisis, sheltering more than a million war-torn refugees. Ukraine and suffers from economic weakness. Siegfried Russwurm, head of BDI, Germany's main industry association, views the spending bill as a “strict austerity budget that will pose a heavy burden on the economy and consumers.” He agrees with Mr Dullien that this will make Germany's recovery in 2024 more difficult.

The government is trying to prove the prophets of doom wrong. On December 11, Green Economy Minister Robert Habeck interrupted budget negotiations to travel to Völklingen, a city in southwest Germany. There, the federal government is partnering with the state of Saarland to finance the transformation of Stahl-Holding-Saar, a large local steelmaker, into a climate-neutral company. HSS is the third of four major German steel companies to be promised state aid for an ecological transformation. It could ultimately benefit from 2.6 billion euros in subsidies. But first he waits for his Förderbescheidwhich has not yet landed under his Christmas tree.

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