The end of an era is approaching in Germany.
Angela Merkel’s 16-year reign as chancellor is almost over.
However, while Mrs Merkel has undeniably been a towering figure in global politics, there is a huge debate over her economic legacy.
First, the positives.
As the economics team at Goldman Sachs point out, Germany has become significantly wealthier under Mrs Merkel, with its GDP rising by more than its neighbours Italy and France and by roughly the same amount as the UK.
However, factor in population changes – chiefly the fact Germany’s population has grown less rapidly than that of comparable economies – and the record looks better still, with GDP per head having grown far more strongly during the period than either Britain, the US or the rest of the eurozone.
The team notes that although Germany contracted more sharply during the global financial crisis than the rest of the eurozone, it has averaged 1.1% growth annually since Mrs Merkel took office in 2005, roughly twice as much as the rest of the monetary area.
It points out that unemployment has fallen to an all-time low during her time in office, without the economy overheating and inflation taking off, although much of the credit for this must go to Gerhard Schroder, her predecessor, whose reforms of the labour market made it more worthwhile for millions of Germans to get a job rather than sit at home on benefits.
The Goldman team also highlights the benefits of Mrs Merkel’s frugal approach to Germany’s public finances.
The outgoing chancellor frequently likened herself to the ‘schwaebische hausfrau’, or Swabian housewife, a stereotypical woman from southwest Germany who is careful with her family’s money.
Mrs Merkel summarised her approach when, during the global financial crisis, she was asked about the collapse of Lehman Brothers and replied: “One should have just asked a Swabian housewife.
“She would have told us that you cannot live beyond your means in the long run.”
The outgoing chancellor slashed Germany’s budget deficit and ensured that the country’s finances were in a robust shape when first the global financial crisis and then the COVID-19 pandemic struck – enabling Germany to navigate the twin crisis.
She also oversaw minimal disruption to the financial crisis with the so-called ‘Kurzarbeit’ scheme on which Rishi Sunak, the UK chancellor, modelled the UK’s furlough scheme during the pandemic.
Those are all entries in the credit column but there are also plenty of debits.
Mrs Merkel ‘s attempts to install the values of the Swabian housewife in the wider eurozone tested the idea of European monetary union almost to destruction; arguably, the single currency only survived the crisis – admittedly caused by countries like Greece cooking the books for many years – due to the bold action taken by Mario Draghi, then the president of the European Central Bank.
That action, it should not be forgotten, was taken in the face of furious opposition from the Bundesbank, Germany’s central bank, presumably with the tacit support of Mrs Merkel.
As Roger Bootle, founder of the consultancy Capital Economics, puts it: “German fiscal probity has both restrained the performance of the German economy and exacerbated imbalances within the eurozone.”
That fiscal conservatism has also resulted in miserable standards of public infrastructure.
During Mrs Merkel’s time in office, net public investment in Germany as a proportion of GDP has lagged that of comparable economies, including the US, the UK and France.
The upshot is that Germany’s once-admired network of autobahns is dilapidated in places while the country lags its peers in its pace of digitalisation and high-speed broadband capacity.
The Goldman team sum it up thus: “Germany has fallen behind in the modernisation of its economy.”
This did not stop Mrs Merkel from winning re-election four years ago but may be storing up problems for the future.
Germany’s industrial sector remains the envy of the world, particularly in areas such as car-making and machine tools, while its businesses spend more on research and development than their peers in Britain, the US or elsewhere in the eurozone.
But that picture is skewed by heavy research and development spending by German carmakers – masking weakness in other areas like artificial intelligence (AI), semiconductors and nanotechnology.
The economics team at Deutsche Bank delivered a damning assessment earlier this year: “Germany is falling behind as a research and innovation powerhouse.
“With respect to green tech, Germany is well positioned to keep technological leadership and reap the benefits of adopting the technologies by exporting competitive products.
“An important wildcard is the evolution of foreign regulatory frameworks and industrial policy initiatives. In terms of big data and AI, the picture looks less rosy.
“Germany (and the EU) are unlikely to catch up in the AI race. They struggle, in particular, to transfer AI research into viable business models and applications.”
Another blemish, ironically for a country where the Green movement has been stronger and more deeply entrenched than most other European nations, is Mrs Merkel’s record on energy.
Her abrupt decision to phase out nuclear power following the disaster in the Japanese city of Fukushima in 2011 threw Germany’s energy giants into chaos.
The country is burning coal and in particular its dirtiest version, lignite, like it is going out of fashion.
Germans have also been shocked to learn, via a series of corporate scandals, that some of their country’s most prestigious businesses were not as good as they were cracked up to be.
The car-making sector was rocked by revelations that Volkswagen had been cheating emissions tests on its diesel vehicles while last year saw the spectacular collapse of Wirecard, one of the German tech sector’s flagship businesses and a constituent of the DAX, Germany’s equivalent of the FTSE-100.
Other formerly proud stalwarts of German industry, such as the engineering conglomerate ThyssenKrupp, have also been brought to their knees.
These corporate calamities are not necessarily the fault of Mrs Merkel but they epitomise the sense of drift there has been at times.
There are plenty of challenges, then, for Mrs Merkel’s successor.
One is that Germany’s workforce is ageing more rapidly than elsewhere.
The country’s old age dependency ratio, a measure of the number of retired workers being supported by people of working age, is far worse than in France, Britain, the US or Canada.
That could potentially lead to higher taxes or erosions in benefits down the line.
German business also needs to invest more in AI and other new technologies and, arguably, to reduce its dependence on exports – which makes German GDP more vulnerable to swings in economic fortune elsewhere in the world than other countries.
The biggest challenge of all is the transition to electric vehicles.
The jobs of many thousands of Germans currently working in car-making and its supply chain are going to be lost because electric vehicles require fewer parts than…