Germany may be the global byword for efficiency and business success, but you wouldn't know that from the country's infrastructure: Much of it makes Italy's look robust, and some politicians are finally starting to take notice on their way to the polls Sunday.
Take the Leverkusen bridge in Cologne, Germany's fourth-largest city. The massive bridge, which straddles the Rhine, is a wreck, its steel rusting and its concrete crumbling. Endless repairs ensure that traffic jams are unending. Worse, the bridge is so dilapidated that it can't carry trucks of more than 3 1/2 tonnes; to reach Cologne, larger transports have to use a painfully circuitous route, adding hours to any trip and boosting diesel consumption and pollution.
The pity is that the Leverkusen bridge is no exception. Germany's infrastructure suffers from a woeful lack of investment – and the country's own economic model is to blame. Germany is obsessed with the type of austerity that prizes budgets that are balanced or in surplus. At the government, private and consumer level, Germany seems allergic to spending, especially if it means taking on debt. Never mind that the European Central Bank is running negative interest rates and borrowing is almost free.
The result is a massive current account surplus, the difference between national savings (high) and domestic investment (low). Combined with the fattest trade surplus on the planet, it means Germany has been exporting capital to other European Union countries and the rest of the world at an astonishing rate. At last count, Germany's current account surplus was 8 per cent of gross domestic product, while the trade surplus stood at almost $300-billion (U.S.) in 2016 (China's was $200-billion). U.S. President Donald Trump called Germany "very bad on trade" and wants fewer Mercedes, BMWs and Volkswagens sold in the United States (Canada, Britain and the U.S. all run current account deficits – have for years).
The soaring surpluses – the result of spending too little and saving too much – have created problems both outside and inside Germany. Outside, they have led to imbalances. The rest of the world has had trouble absorbing German capital. To offset the surplus, some countries have borrowed and spent like crazy, creating bubbles. Spain's housing bubble, which burst with disastrous effect during the 2008 financial crisis, comes to mind. At times, both the International Monetary Fund and the European Central Bank have warned of the dangers of German surpluses and the country's role as the EU's biggest creditor.
Inside, they have created an investment vacuum. Crumbling physical infrastructure is the most visible result, although the country's digital infrastructure is an international laggard too. "Today, the infrastructure is at breaking point in some areas," said Christian Odendahl, chief economist at the Centre for European Reform.
While the term "current account surplus" has not been uttered by any of the leading politicians in this election, it has been an implicit theme. A recent poll said 58 per cent of Germans are in favour of more investment. "People are realizing that investment in Germany has been weak," Mr. Odendahl said. "These bridges should have been replaced years ago, especially since German budget surpluses are higher than expected."
All the parties are in favour of more investment spending, though only the leader of the centre-left Social Democratic Party (SDP), Martin Schulz, the former president of the European Parliament, has put spending at the heart of his campaign (one he is likely to lose to Angela Merkel's Christian Democratic Union). He has pledged to spend some €30-billion ($36-billion U.S.) over the next four years on everything from roads and bridges to railways and hospitals. The SPD also wants to funnel future budget surpluses into infrastructure.
Still, investment spending – that is, bringing down the current account surplus – is not an easy sell. Germans may be open to some extra spending, but would not tolerate a lot of it. Many Germans, including Finance Minster Wolfgang Schaeuble, are not in favour of spending binges, preferring the "black zero" – as the balanced budget is known in German. They consider the current account surplus a mark of German pride and a glorious reflection of the country's export success, Teutonic work ethic and the wage-growth discipline that made Germany Inc. a global competitive force. "The surpluses are seen as something that the Germans are proud of," said Olaf Gersemann, business editor at German national newspaper Die Welt.
The surpluses came largely by design, not by accident. Germans have always been savers, partly because it's a rapidly aging society whose workers want to sock money away for retirement. But the country's cultural aversion to budget deficits and debt meant that in 1990, when the Berlin Wall came down and West Germany and East Germany came together, reunification came with a hefty bill – by some estimates, €1.3-trillion or more – that had to be paid off.
After reunification, deficits were brought down, and investment spending was the prime casualty. At the same time, wage restraint meant domestic consumer spending suffered, leading to fewer imports and a higher current account surplus. Consumer spending has dropped to just 54 per cent of GDP, compared with 69 per cent in the United States.
The hit on spending has been phenomenal. Data compiled by Mr. Gersemann shows that of the €155-billion in extra government revenue collected by Germany between 2013 and 2016, only 4 per cent went to investment spending while 57 per cent went to social spending. In some quarters over that period, investment spending was actually negative when adjusted for inflation.
Despite the parties' pledges to spend more, Mr. Gersemann doesn't think Germany will see an investment bonanza – even though he argues the country needs one to remain competitive and to boost productivity. Ms. Merkel's party is almost certain to win the election by a wide margin and is far less likely to open the spending spigots than Mr. Schulz's SPD. German unemployment is at record lows, so visions of high spending also create visions of high inflation in the minds of many Germans. And German corporations seem more intent on investing overseas to bolster their global supply chains and bring down overall costs than investing at home.
The upshot is that German surpluses are unlikely to come down dramatically in the coming years. This will not please the countries that have to offset those surpluses. It may also backfire on Germany as its infrastructure falls apart. Falling bridges are not good for business.
Eric Reguly