Germany’s Scholz faces wrath of business leaders against grim economic backdrop

German business leaders read Chancellor Olaf Scholz the riot act on Tuesday, blaming him and his warring coalition for an extended recession and uncertain investment outlook.
At the Confederation of German Employers’ Associations (BDA) gathering in Berlin, Mr Scholz insisted his government was delivering and urged managers to avoid a self-fulfilling gloom prophecy.
“Together, we have to get out of this bad situation where bad figures lead to bad sentiment – and bad sentiment leads to even worse figures,” Mr Scholz told the gathering. “We need more growth. The pie has to get bigger again,” he said, flagging a growth initiative aimed to incentivise investment, cut energy bills and cut bureaucracy.
As he spoke, delegates were distracted by their phones and new International Monetary Fund (IMF) data correcting down its 2024 German growth forecast to zero.
Echoing other grim economic data in recent weeks, Mr Scholz – oblivious to the new data – continued listing explanations for why Germany, unlike its European and international competition, remains on the critical list.
“Inflation, rising interest rates, geopolitical conflicts, strained supply chains – as an industrialised and export-oriented country, we have been hit harder than others,” he said.
In an unusually blunt broadside, Mr Scholz blamed Brussels for many bureaucratic measures and promised to prune back European supply chain rules – the same rules recently backed by his own coalition.
“There are things that emerge from [Brussels] where you have to wonder,” he said.
Onstage and off at the BDA gathering, delegates were scathing of the Social Democratic chancellor. Many noted his speech found excuses for the economic slump everywhere except his coalition with liberal Free Democrats and Greens. After three years, there is a wide managerial consensus that the previously untested alliance has proven ideologically incompatible.
At the BDA gathering, its president Rainer Dulger was in attack mode on Tuesday, even by his own standards.
Too many Berlin coalition reforms were “failures that belong in a museum”, he said, claiming the kindest thing he could say after three years was that the government was finally aware of Germany’s many problems.
“The economy is shrinking, unemployment is rising, Germany has lost attractiveness for investors,” said Mr Dulger, noting Germany was the second most expensive country to do business in a recent survey of 45 industrial economies.
“An investment location has to be as good as it is expensive and that is not the case here,” he said. “Our firms are still competitive because they are investing abroad.”
With an eye on foreign direct investment, and attracting skilled workers to Germany, Mr Scholz is leading a business delegation to India this week to attract workers and address the labour market’s growing demographic difficulties.
Employers happy to hear of greater efforts to address labour shortages were far cooler on the centre-left chancellor’s vow to increase the minimum wage to €15, after rising earlier this year to €12.41.
“I know,” Mr Scholz told the silent rows of managers, “that we are not always of the same opinion here.”
Many are waiting out the Scholz era and looking to the centre-right opposition leader Friedrich Merz.
Of 500 leading executives and entrepreneurs quizzed by the Allensbach polling agency, 73 per cent are in favour of Merz as Germany’s next chancellor – a surge of almost 20 percentage points compared with the same time last year.
In power, the Christian Democratic Union (CDU) leader has promised an Agenda 2030 to “set a new framework” for the German economy and businesses. Among his promises are to slash bureaucracy and reduce energy costs – among the highest in Europe – to match the continent’s lowest.
Some 300,000 industrial jobs have been lost in Germany under the traffic light coalition, he told the Bundestag last week. Turning to Mr Scholz, he added: “During your administration we have had the highest-ever capital outflow from Germany, this is the economy’s daily vote of no confidence in you.”
With Germany’s fragile economy an obvious battleground in the looming federal election, Mr Merz is viewed with greater reserve beyond the business bubble. Some see the true causes of Germany’s ongoing recession elsewhere.
For German economist Jens Südekum, Germany’s real problem is not down to bureaucracy or energy costs – challenges it shares with European neighbours – but two decades of below-average investment.
“We need a huge private investment push which needs to be incentivised and will cost the state at the outset,” said Prof Südekum of the University of Düsseldorf. Given such spending is hampered by Germany’s so-called fiscal brake on deficit spending, he added: “We have to have a real reform of the debt brake to allow a real investment push.”
While the Scholz coalition remains deadlocked here, Mr Merz gave a first glimpse of compromise last week. On the debt brake, he said there was “room for manoeuvre, but only if savings are made elsewhere”.