By Tony Barber

What business wants are policies that help competitiveness

Edginess, not enthusiasm, coloured the response of German business leaders
to Chancellor Angela Merkel’s commanding election victory. No sooner were
the official results released than the heads of the biggest business
federations called a news conference to publicise an appeal for energy and
infrastructure policy initiatives. The speed of their action almost
suggested that they doubted whether her next government would grasp the
urgency of their plea.

One can see why. For the curious consequence of Ms Merkel’s triumph is that
the only coalition partners available to her centre-right Christian
Democrats occupy the left of Germany’s political spectrum. Given that she
failed to construct coherent energy and infrastructure policies during the
four years that she ruled Germany with her favoured political partners, the
pro-business Free Democrats, why should anyone expect a more convincing
outcome if she governs with her adversaries?

Yet there are reasonable grounds to think the next government, whatever its
make-up, will try to put matters right by spending more on infrastructure
and by sorting out the unholy mess that goes by the name of German energy
policy. Quite simply, the state of affairs on both fronts is unsustainable.
No event better captured the long years of under-investment than the
temporary closure in March of the Kiel Canal, a vital artery of trade,
because two locks were in a state of disrepair.

In their election manifesto, the Christian Democrats promised to spend
€25bn over the next four years on infrastructure projects, mostly
improvements of the autobahn network. Business leaders would like to go
further. Ulrich Grillo, president of the Federation of German Industry
(BDI), which represents about 100,000 companies, says any federal
government budget surpluses should be channelled into an “investment
offensive” on infrastructure.

His proposal seems sensible enough, but it may collide with a second
Christian Democrat manifesto pledge: to cut Germany’s public debt from its
present level of 81 per cent of gross domestic product. An increase in
infrastructure spending stands out, nonetheless, as an objective that Ms
Merkel and the Social Democrats should not find difficult to insert in a
joint government programme.

For German business, it will be even more important to devise and implement
a thorough reform of energy policy, which has been in chaos since Ms
Merkel, reacting with uncharacteristic abruptness to the Fukushima disaster
in 2011, ruled that Germany must abandon nuclear power and rely on a mix of
other energy sources. In particular, renewables are to supply 80 per cent
of electricity needs by 2050. While some companies have benefited from huge
investment in renewable energy, most industrialists are still furious at
the lack of forethought behind this decision: Mr Grillo, speaking at a BDI
conference in June, denounced Ms Merkel’s government for “pulling the plug
on German industry”.

Business rightly complains that under the Energiewende, as Germany’s turn
to renewables is known, producers of wind, solar and biomass power are
guaranteed fixed “feed-in tariffs” – in laymen’s language, subsidies – for
20 years. This spurred an investment boom in renewables that, along with
other taxes and levies, has made electricity 40 per cent more costly for
consumers and 20 per cent more expensive for industrial users in Germany
than the European Union average.

Add the impact of the US shale gas revolution, and it turns out that German
companies pay almost three times as much as their US competitors for
electricity, according to a Siemens study. No wonder that IG Metall,
Germany’s largest trade union, says big business is shifting production to
the US and other countries with less punitive energy costs. No wonder,
either, that BusinessEurope, the pan-European employers’ group, told EU
leaders this week that its members need “cost-competitive energy prices to
enable companies to compete globally”.

One bizarre feature of the Energiewende is that Germany’s carbon emissions
are expected to go up this year for a second successive year, something
unknown since the 1980s. The US shale gas boom means more cheap coal is
being exported to Europe, while power supplies from solar and wind sources
are so erratic that polluting, coal-fired plants make up the difference.

What German business wants from the next government are policies that help
rather than hinder competitiveness. The top priority must be to reduce the
subsidy-driven distortions of the energy market.

Tony Barber is the Financial Times’ Europe editor

Copyright The Financial Times Limited 2013.


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