The head of the German central bank, Joachim Nagel, called on the government to take immediate steps to boost the country's declining investment attractiveness. Nagel stressed that Germany, Europe's largest economy, is lagging behind other countries in terms of growth and faces major challenges, especially in developing renewable energy sources.
Speaking at a conference in Frankfurt, Nagel cited a study by the KfW development bank that said Germany would need around €5 billion in investment to reach its goal of climate neutrality by 2045. However, corporate investment is declining, and there are growing concerns that financiers are increasingly shunning Germany. Nagel pointed to a number of structural problems holding investors back, including high labour and energy costs, a shortage of skilled workers, regulatory uncertainty and high tax burdens.
To address these problems, Nagel proposed several measures. First, he proposed raising the carbon tax from the current level of €45 per tonne to encourage a move towards a carbon-neutral economy. Second, he proposed lowering taxes, especially corporate tax rates, which are unfavorable by international comparison. Third, Nagel urged the government to ease the bureaucratic burden, especially in licensing renewable energy producers such as wind turbines, he wrote. Financial Times.
Nagel also stressed that to address the shortage of skilled workers across sectors, the supply of labor must be increased. He suggested tapping into the hidden reserve of some 3.2 million people who would like to work but cannot because of childcare responsibilities or the belief that they will not find suitable work. But Nagel cautioned the government against relying too heavily on financial incentives, such as the tens of billions of euros given to chipmakers to build new semiconductor factories in Germany.
He warned that this could lead to companies postponing investments in the hope of obtaining state aid.
The German economy grew by 0.2% in the first quarter of the year after contracting in 2022. Economists expect consumer spending to pick up on rapidly rising wages and slowing inflation. However, a study by Swiss university IMD found that Germany lags behind in terms of international competitiveness, falling two places out of 67 countries to 24th in the ranking. Nagel’s call highlights the urgent need for Germany to address its structural problems and improve its attractiveness to investors to ensure long-term economic growth.
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