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Home›German Economy›Merkel’s legacy for Germany on the charts

Merkel’s legacy for Germany on the charts

By Bethany Blackford
September 30, 2021
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German Chancellor Angela Merkel visiting in 2011 the chemical engineering laboratory of the chemical plant of Dow Olefinverbund GmbH in Schkopau, near Merseburg, in eastern Germany.

AFP | AFP | Getty Images

It’s hard to believe now that Germany, Europe’s largest and most prosperous economy, was known as “Europe’s sick man” in the late 1990s and early 2000s .

Germany’s economy has grown under the leadership of outgoing Chancellor Angela Merkel, the conservative leader who has led the government for 16 years. In 2019, before the Covid-19 pandemic struck, a quarter (24.7%) of all of the European Union’s gross domestic product was generated by Germany, according to Eurostat.

CNBC created five charts examining different parts of the German economy and society during Merkel’s tenure. They show that his legacy is not only a legacy of prosperity, but also of missed opportunities and missteps, according to some political experts.

GDP

Germany’s export-oriented economy, heavily based on manufacturing, grew steadily during Merkel’s tenure, this graph shows, and far outperformed rivals in the UK and France.

When Merkel came to power in 2005, it should be remembered that the German economy had experienced a recession just two years before. In the year he took office, Germany’s GDP stood at 2.3 trillion euros ($ 2.6 trillion), according to data from the German Federal Statistical Office. In 2020, it exceeded 3.3 trillion euros.

The coking plant of German industrial conglomerate ThyssenKrupp on the Rhine in Duisburg, western Germany in 2019.

INA FASSBENDER | AFP | Getty Images

Unemployment

The unemployment rate also fell while Merkel was in power, from 11.1% in 2005 to 3.8% in 2020, according to World Bank data.

Germany has one of the lowest unemployment rates in the EU (although not the lowest, this distinction goes to its neighbor, the Netherlands). Nevertheless, the unemployment rate in Germany is honorably low; in July 2021, the unemployment rate stood at 3.6% while for those under 25, the rate was higher, at 7.5%, according to Eurostat data.

Goldman Sachs analysts, assessing Merkel’s legacy, noted that while Merkel has had “great success” in reducing the unemployment rate, “much of the decline in structural unemployment is likely due to reforms in its predecessor (Gerhard Schroeder) and was followed by a decade of stagnant real wages. “

Angela Merkel visiting a steelworks on August 30, 2005, in Georgsmarienhuette, Germany.

Thomas Imo | Photo library | Getty Images

Analysts noted that Merkel governments had nevertheless “maintained sound public finances and adopted the constitutional debt brake at the time, but reacted forcefully in times of crisis, successfully protecting the labor market with the” Kurzarbeit “program. in 2008 and 2020 ”.

Kurzarbeit refers to Germany’s short-term work regime whereby employers reduce the working hours of their employees instead of laying them off in times of crisis, such as the Covid pandemic.

Immigration

One area where Germany differs markedly from its French and British counterparts is its immigration landscape under Merkel. And it is perhaps this area where his Chancellery has faced both much praise and controversy.

Syrian and Iraqi migrants sleep on train tracks while waiting to be processed at the Macedonian border on September 2, 2015 in Idomeni, Greece. Since the start of 2015, the number of migrants taking the “Balkan route” has exploded with migrants arriving in Greece from Turkey, then crossing Macedonia and Serbia before entering the EU via Hungary. The number of people leaving their homes in war-torn countries like Syria marks the largest migration of people since World War II.

Getty Images

At the height of the European migration crisis in 2014-2015, hundreds of thousands of migrants entered the EU, many of them fleeing the civil war in Syria. Disputes have erupted within the bloc over how to fairly distribute asylum seekers among EU countries, with Eastern European countries largely refusing and closing their borders.

Merkel made the bold decision to do the opposite, opening up Germany’s borders and allowing more than a million refugees and migrants to enter Germany in 2015, a move reflected in the graph below. Eurostat data on immigration only dates back to 2008.

Merkel’s migration policies at that time were seen as a catalyst for right-wing voters to flock to the anti-immigration Alternative for Germany party. By 2021, however, his share of the vote had declined, with the party taking in 10.3%.

Disposable income

Disposable household income in Germany has also increased steadily. When she first took the reins of the Chancellery in 2005, household income levels in Germany, the UK and France were not that different, but over time the gap s ‘is hollowed out, Germany leaping forward.

In Germany, the adjusted gross disposable income of households per capita was 30,142 euros in 2019, while it was 25,155 euros in the United Kingdom and 26,158 euros in France, according to Eurostat data.

One of the problems highlighted by discussions about household income in Germany is the growing gap between the rich and the poor. In particular a divergence between the east and the west of the country, reflecting a legacy from the days of pre-unification of Germany in 1990.

In 2020, the OECD noted that while the differences between German regions, in terms of GDP per capita, had narrowed over the past 18 years, “regional disparities between remain above the median of OECD countries, Hamburg having more than twice the GDP per capita. than Mecklenburg-Western Pomerania (a neighboring state). “

Shoppers browse items for sale inside a gift shop in Mannheim, Germany.

Krisztian Bocsi | Bloomberg | Getty Images

As Euromonitor International noted in a September report, “despite income growth and initiatives to promote income equality, regional disparities persist between the eastern and western parts of Germany”.

Public investment

One of the main criticisms leveled at Merkel’s government is that it neglected infrastructure spending and investment due to its apparent reluctance to borrow money and upset its strict adherence to a balanced budget, with the now infamous “schwarze Null” or “black zero”. fiscal rule seen as a symbol of Germany’s obsession with the piecemeal pinch.

The deterioration of infrastructure in Germany has been attributed to this lack of spending and the government has been widely criticized for cutting borrowing and spending at a time when it could have borrowed cheaply, given the interest rate environment. ‘low interest. Others criticized Germany’s lack of spending and weaker German demand created imbalances in the eurozone.

“The failure of the German government (among others) to engage in debt-financed spending after the crises of 2008 and 2011 has contributed significantly to the chronic lack of private demand, to a tilted savings and investment balance and global and intra-euro distortions. Trade imbalances in the area, ”Stefan Koopman, senior market economist at Rabobank, said in a note.

A national election poster for the Christian Democratic Union (CDU) near a residential apartment construction site in Berlin’s Mitte district in 2021. After years of low levels of investment in public infrastructure, it There is a broad consensus among all political parties that more will be needed in the coming decade.

Bloomberg | Bloomberg | Getty Images

The chart below shows uneven levels of gross capital formation (formerly known as gross domestic investment) in Germany, UK and France since 2005.

Capital formation consists of spending on additions to the fixed assets of the economy such as land improvement as well as the purchase of plant, machinery and equipment, construction of roads, railways and others. , including schools, offices and hospitals.

Investing in such infrastructure is what the next German government must tackle, experts note.

However, it is widely recognized that Germany cannot delay much-needed infrastructure spending any longer, and as coalition talks take place to form a new government, much attention is being paid to the extent to which each side involved could push for fiscal easing.


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