Brussels Slams Germany Over Persistent Economic Imbalances
Brussels
EU Commission advocates for increased investments by Germany
Germany has found itself under the microscope of the EU Commission yet again, with concerns about its economic health raised due to long-standing imbalances. As part of the "European Semester," Germany is among the eleven countries highlighted in the so-called "Excessive Imbalances Procedure" (EIP).
A Too-Familiar Scene
While the specifics of the EIP for Germany aren't explicitly detailed, recent economic analyses paint a concerning picture. Several interrelated risks have emerged, shedding light on Germany's persistently lackluster growth:
Growth Stagnation and Structural Weaknesses:
- The German economy contracted by 0.2% in Q4 2024, quarter-on-quarter and 0.2% year-on-year, signaling ongoing stagnation.
- Industrial production, although experiencing a 2.3% monthly increase in January 2025, remained 1.8% lower than a year prior.
- The static growth is in line with broader eurozone trends, affected by energy costs and trade deficits.
Strained Labor Market:
- Unemployment reached 3.5% by February 2025, up from 2.9% in early 2023, with over 26,000 jobs lost in the industrial and construction sectors in 2024 alone.
- Underemployment increased by 17% between 2022 and 2024, highlighting lingering workforce slack despite strong employment numbers.
Fiscal and Debt Sustainability Concerns:
- Projections suggest a rise in public debt to 64.6% of GDP by 2026 and 70% by 2030, pushing compliance with EU stability norms to the brink.
- Deficit estimates for 2025 show a deficit of -2.9% of GDP, alongside a €500 billion infrastructure investment plan, which could lead to delayed returns.
- Productivity gaps persist, particularly when compared to the U.S. IRA-induced industrial competitiveness.
External Sector Vulnerabilities:
- Reliance on exports places both the automotive and chemical sectors at risk amidst new U.S. tariffs and stiff competition from China's EV market.
- EU industrial energy prices remain inflated, sitting at 3 times their U.S. counterparts, eroding profit margins for energy-intensive industries.
These factors resonate with EIP criteria like external imbalances, competitiveness erosion, and long-term fiscal sustainability risks, although direct EIP citations are largely absent from the available documentation. The EU Commission's broader warnings about divergent competitiveness and debt-driven stagnation contextualize Germany’s challenges within the broader fragility of the EU.
- The EU Commission in Brussels has once again highlighted Germany in the "Excessive Imbalances Procedure" (EIP), expressing concerns about persistent economic imbalances in the country.
- The economic analysis reports concerning growth stagnation, strained labor market, fiscal and debt sustainability concerns, and external sector vulnerabilities in Germany, mirroring the EIP criteria of external imbalances, competitiveness erosion, and long-term fiscal sustainability risks.
- Business sectors such as automotive and chemical, heavily reliant on exports, potentially face risks due to new U.S. tariffs and competition from the Chinese EV market, exacerbating Germany's macroeconomic imbalances.
- To sustain growth and address these imbalances, the appropriate financing and legislative procedures are crucial for German businesses and the overall macroeconomic health of the country.
