Germans fear bureaucratic strain on economic engine
Merkel government adds regulations
BERLIN | Dressed in blue overalls, an upbeat Angela Merkel chatted easily with staff during a recent visit to the Siemens “digital factory” in southern Germany. Here, robots account for 75 percent of the production chain, while humans shoulder the rest.
Absorbing the German tech giant’s advance toward digitalizing output, the German chancellor wore the Siemens logo on her left lapel with an air of unmistakable pride.
Mrs. Merkel’s optimism is not misplaced. The factory epitomizes booming German business prospects and a buoyant economy, resuscitated from sluggish growth in the final three months of 2014.
Labeled the “sick man of Europe” a decade ago, Germany has emerged to become the Continent’s economic engine, and its motor is humming along smoothly. Unemployment in March fell below 3 million — a record low since reunification in 1990 — growth is steady, consumer spending is up, oil is cheap, a falling euro boosts exports, and business confidence is high.
Even so, all is not well with the Continent’s biggest and most influential economic power. Grumblings are increasing among German business leaders who fear that the long-term outlook exposes serious threats to the country’s international competitiveness. Skeptics say the economy is thriving — for now — despite overregulation from a government that is consistently introducing rules and hindering the ability to sustain growth, much less increase it.
“We have a general tendency in Germany to regulate more and more again and impose more tasks on firms,” said Kiel University economics professor Kai Carstensen, adding that bureaucracy is a long-standing German tradition that threatens to strangle the economic revival in its infancy.
“What we are currently doing is cutting down capacity because we are reducing the ability of companies to operate,” he said.
Over the past year, legislators have been considering a raft of measures that add even more layers of bureaucracy to business operations. The German Chambers of Commerce and Industry, which represents 3 million entrepreneurs and business owners, has identified 35 proposals approved by the governing coalition Mrs. Merkel leads that would dampen the business landscape and discourage innovation, efficiency and investment.
One notable example is the “anti-stress law,” which proposes a ban on reading work email during nonwork hours. The bill symbolizes to many the extent to which German politics has fallen out of step with the modern pace of business and the way the Internet has changed workplace culture, industry leaders say.
Another bill would institute an 18-month limit on temporary work contracts. A survey of 1,000 temp workers showed that about 80 percent feared they would lose their jobs as a result, and the Chambers of Commerce and Industry slammed the measure as an “unreasonable interference” that would reduce companies’ flexibility to manage their payrolls in good times and bad.
Fearing the wage police
What especially inspires fury among the business community is a minimum wage requirement that went into effect Jan. 1. It is viewed as the most cumbersome of recent measures for business. For the vast majority, however, the burden is not because they can’t afford the $9.25 hourly minimum.
East German bookkeeper Dagmar Bubath, who works at her husband’s small construction company on the outskirts of Berlin, supports the minimum wage in principle. She said the couple’s small firm employs 11 full-timers and abides by the hourly minimum wage in German construction — in place since 1997 and, for some sectors of the economy, even earlier.
Yet the “new, wonderful, bureaucratic minimum wage,” Mrs. Bubath said sarcastically, has wreaked administrative and logistical havoc on the company.
Under the law, exact records of hours worked by each employee must be logged every seven days by every German company and kept on file for two years.
Unannounced inspections by uniformed customs officials — dubbed the “wage police” in German media — are carried out to ensure compliance.
“My husband has to wait here every morning to see when the men arrive at work,” Mrs. Bubath said. “We know what time they leave from here, but sometimes they go home straight from the building site. Officials would have to follow them all day to check. Only then would it be verifiable.
“It is all relatively fresh, so there’s obviously huge outrage across the whole industry [over these requirements]. Everyone is ranting and raving about it,” she said. “What do they hope to achieve? Politicians must end this nonsense.”
Although only 12 percent of German companies paid less than the $9.25 minimum wage last year, every German business is subject to the new rules.
As a result, business leaders are calling on Mrs. Merkel and economic officials in Berlin to take strong policy action along the lines of the deregulatory labor and social reforms credited with transforming Germany into an economic juggernaut in less than a decade under Chancellor Gerhard Schroeder.
Agenda 2010, which started in 2003, cut welfare and eased the ability of employers to shed staff more easily in a downturn to loosen the rigid labor market.
Economy Minister Sigmar Gabriel said he intends to introduce measures to cut bureaucracy — a “bureaucratic break” — as of July 1 for the Mittelstand, Germany’s small and midsized companies that are seen as the indispensable backbone of the country’s economy, employing roughly 15.5 million people. The measures are designed to save these businesses $818 million.
The business community, however, is skeptical about any meaningful reduction in red tape. A survey shows that business leaders feel politically alienated under the Merkel-led governing coalition, without a champion in either of Germany’s two main parties: the Christian Democrats and the Social Democrats.
Ingo Kramer, president of the Confederation of German Employers’ Associations, lambasted the coalition last month, saying, “The grand coalition so far has primarily burdened German businesses.”
This disconnect has spurred high business risk appraisals, unprecedented since the “acute phase” of the euro debt crisis in 2011 and 2012, said the Chambers of Commerce and Industry, referring to a survey this year of about 27,000 enterprises.