Germany before the election: globalization or turning away? Experts warn!

Germany before the election: globalization or turning away? Experts warn!

The German Institute for Economic Affairs (DIW) is about to celebrate its 100th anniversary in July, and President Marcel Fratzscher addressed the current economic situation in Germany and the need for action in business and politics. In a current report, he addresses the risks that threaten if Germany does not decisively combat negative developments such as those that became apparent in the USA under Donald Trump's presidency. Fratzscher warns of a “mental depression” that is hindering innovative solutions and complicating the economic situation, although he emphasizes that the German economy is not currently in the worst crisis in 70 years.

Fratzscher predicts geopolitical, economic, technological and climatic crises for the next ten years. Globalization, which was historically considered the basis of economic prosperity in Germany, has been exaggerated in the last 30 years and has led to an increase in inequality within societies. Instead of isolation, he advocates a redesign of globalization in order to meet the challenges of deindustrialization, which at the same time also offers opportunities for new developments.

Economic uncertainties and desires for sovereignty

In the wake of the ongoing uncertainties, companies are concerned about the economic situation. The corona pandemic will remain a central issue in 2022. The supply chains disrupted by the pandemic and the uncertainty about future problems such as port closures and a lack of workers increase the vulnerability of the German economy, which suffers from its great openness. According to the DIW, a growing number of voices can be heard calling for de-globalization and a relocation of production. However, these efforts could be counterproductive and endanger Germany's competitiveness.

An example of such misjudgments could be Brexit, as a result of which Great Britain lost more sovereignty. However, in a globalized world, no country can claim complete sovereignty as dependence on foreign technologies is already a reality. The search for technological sovereignty could reduce productivity in Germany.

Trendsetting changes for the future

Fratzscher emphasizes that smart risk diversification and more globally diverse production structures are essential to increase the resilience of economies. It is important for Europe to act in a forward-looking and unified manner in order to protect its own interests in competition with major global players such as China and the USA. He sees the need to take trade tariffs less seriously and instead set global standards.

The DIW also sees itself as having a responsibility to accompany and clarify socio-political debates, which is particularly important given the challenges. Fratzscher criticizes current policies that create difficulties for refugees and thus endanger the openness and diversity of society.

Overall, 2022 could be a year of reorientation, as the DIW predicts. It remains to be seen how Germany and Europe will respond to these challenges in order to secure future economic prosperity and at the same time address social inequalities.