Reuters World News - Weekend episode: Stagnating Germany – can Europe’s biggest economy snap out of it?

Episode Date: September 2, 2023

It’s Europe’s biggest economy – so how worried should people be about Germany’s stagnation? We look at what’s pummelling the country’s economy – and how a Nazi-era bunker-turned-penthouse has become emblematic of its property market woes. Plus, government plans to legalize cannabis have weed smokers on a high. *This podcast was corrected. An earlier version said the amount of time it takes to open a business in Germany is double the EU average. The correct statistic is that the time it takes to obtain a license to open a business in Germany is double the OECD average. The incorrect line was removed. Visit the Thomson Reuters Privacy Statement for information on our privacy and data protection practices. You may also visit megaphone.fm/adchoices to opt-out of targeted advertising. ---- Learn more about your ad choices. Visit megaphone.fm/adchoices

It's long been Europe's economic powerhouse, but Germany is stagnating, forecast to be the only major economy to contract this year. In this special weekend episode, we unpack what's slowing it down and the potential political implications. How a Nazi-era bunker-turned penthouse has become emblematic of the nation's property woes, and why the country's cannabis smokers are on a high. I'm Kim Vinal in London. Germany's fractious coalition put aside weeks of squabbling this week, agreeing to $35 billion worth of corporate tax cuts. They're designed to give the economy what Chancellor Olaf Schultz described as a big boost.

But is it enough? Maria Martinez is in Berlin. So Maria, Germany's Germany. These export-focused economy brought it years of success, but the global slowdown, particularly in China and the higher energy costs following Russia's invasion of Ukraine, are really taking a toll, right? Well, let's say that the German economy is really struggling at the moment. We had a winter recession and then after that the economy was just stagnating in the second quarter.

So then we started talking about Germany as the sick man of euro, which was a term that was first used by an economist, a German economist, in the late 90s. Berlin once labeled itself as poor but sexy. Right now, is Germany at risk of becoming neither rich nor sexy as a place to do business? Definitely. So we can say that we are poorer and this is because of inflation so it is also more difficult for industry to make profits when they are facing these high energy prices. And then the second part, sexy.

Well, Germany is not sexy for companies. And this is due to the high corporate taxes and also endless bureaucracy. So it makes it quite difficult to make business in Germany. And another thing is that it's not sexy for workers. So Germany is struggling looking for talent because there are two million openings that they cannot feel, so they need to attract foreign workers. Germany is known for taking in migrants. When the rest of Europe was panicking about an influx of Syrian refugees, former Chancellor

Angela Merkel simply said, we'll manage it. One of the country's strengths is its technical and engineering know-how. So why is Germany having such an issue attracting skilled workers? Well, demographics is a big part of the explanation, and that's an issue affecting most European countries. So we know that many baby boomers are retiring in the next five years, but not that many young people are coming into the labor market. And that's why Germany is desperate to find workers.

It's very difficult to find people who speak German, and it is difficult to attract workers to come here when we have this bureaucratic. hardens and it's very difficult. What's the government doing about all of this? Well, the government is working in new laws to stimulate the economy. They agreed on this package, incorporate as relief so that companies feel more attracted to do business in Germany. They are also working in a bureaucracy relief act. Can you give us some examples of the bureaucracy? There are many processes that take ages. For example, for people coming to Germany, It is very difficult because you need to find a job and you need to have a phone number.

And to have a phone number, you need to have an address and you cannot have an apartment if you don't have a job. So it's a vicious circle where there's no order and it's very chaotic. It's not just bureaucracy holding people back from buying houses. Germany's property market is suffering a major downturn. A string of property developers have filed for insolvency, including Euroboden in Munich. Its founder, Stefan Hogelmeyer, famously converted a Nazi-era bunker into a luxury apartment building, having bought it in 2010.

He's now struggling to sell the building's penthouse. Hogelmeyer declined to be interviewed. Tom Sims went to the bunker. The bunker is a big concrete structure, very boxy, very solid, on a wide intersection of a posh neighborhood in munich. Nearby, there's a school, a cemetery, and a church. So this place really stands out and sort of juts up from the ground. It has windows that have been cut into concrete walls that are two meters thick.

The apartment itself covers three floors. There's a big rooftop terrace, a music room, and gold leaf walls in the toilet. It's been on the cover of Germany's version of Architectural Digest. the owner put up the pet house for sale last year. And so far, there's been no buyer, even though they've cut the price by a couple million euros. It's still one of the most expensive apartments on the market in Germany. But this difficulty for the developer in selling his penthouse on the one hand, and then the insolvency on the other has sort of been this one-two punch.

And his difficulties illustrate what's going on more broad, in the sector in Germany and in other places across the globe. For many years, there was a huge property boom going on in Germany. The European Central Bank had kept interest rates very low or below zero, which pushed a lot of money into the property sector. Now the European Central Bank has reversed course, raising interest rates, and what you are now seeing are many developers, as many people in the industry and politicians calling on Berlin for help, calling on direct

intervention by the Chancellor Olaf Schultz. There's a meeting in a couple weeks at the chancellery where the industry is going to be asking him for some sort of aid to prop up the sector. So, Maria, longer term, what are the social and political implications if the economy doesn't gain momentum? The far right alternative for Germany party. appears to be benefiting from the economic situation, right? So this party is actually rising in the polls. They are about 20%, and they would be the second most poignant party if there were elections in Germany right now.

So this party is tapping into voters' fears with the economic recession, migration, and of course the green transition, because now the citizens in Germany are realizing that this energy transition has a high cost. But the AFD haven't won everyone over, as you can hear from this grannies against the far right protest outside their party conference earlier this year. Maria, how much political appetite is there right now for bold moves to change things? The first thing is that we need to think about the government. It's a three-party coalition and the three-partners in power, they have completely different views. This makes it really difficult to find agreements when you need to advance with policy.

And that's one of the reasons why the citizens in Germany are trying to find alternatives and this far-right party is rising in the polls. Is there any good news looking ahead? The good news now is that because Germany was struggling so much and it became the worst performing among the big European economies, that made the government really. that they should stop fighting between the different parties and they should really take action. So I think that at the end, like this was a wake-up call for the government. One policy issue the government is taking action on is cannabis.

The cabinet has passed a contentious bill to legalize recreational marijuana use and cultivation in one of the most liberal cannabis laws in Europe. Chancellor Schultz's centre-left government hopes the law will curate. the black market, protect consumers against contaminated marijuana, and reduce drug-related crime. Health Minister Karl Lautibach said a key pillar of the plan is also a campaign to raise awareness about the risks, which should ultimately curb consumption. The legislation, which still has to pass Parliament, would allow adults to possess up to 25 grams of the drug, grow a maximum of three plants, or acquire weed as associates of non-profit cannabis clubs.

Cannabis clubs can have up to 500 associates and must have fenced off greenhouses. Associates will not be allowed to smoke weed at the clubs or in the facility of schools, nurseries, playgrounds or sports grounds. Oliver Vak Juergensen is founder of the high ground cannabis. club. He welcomed the move but said the ultimate goal was the freedom for anyone to smoke anywhere. That's it for this weekend episode. We'll be back with our daily headline show on Monday. To make sure you know what's going on in the world, listen in for 10 minutes every weekday. And don't forget to subscribe on your favorite podcast player or download the Reuters.