Expert Opinions

Is long-term economic growth compatible with ecologically sustainable development? This question stands as one of the most debated issues of our time. Over the past decades, growth driven by economic liberalization and globalization has brought prosperity to billions and reduced global poverty. However, this positive trajectory has come at a high cost to the environment and the depletion of natural resources. The limitations of economic growth at the expense of the environment are evident. Sustainable economic prosperity can only be achieved in the long run if it is coupled with ecological sustainability.

Debates about the number of working days per week are nothing unusual in Germany. In the 1950s, the six-day week was the norm until the unions pushed through the reduction of working hours with the slogan “On Saturday, daddy belongs to me.” After many decades in which the five-day week was the norm, Germany and other countries are now intensively discussing the introduction of a four-day week.

What is the future of Germany’s economic model? The Russian attack on Ukraine has triggered a debate about the further development of prosperity in Germany. There are growing concerns about economic decline. Rising energy prices, the high costs of climate protection, an increase in geopolitical conflicts, and a shrinking workforce could put an end to the successes of the German economic model. Current decisions by energy-intensive companies to relocate investments to the United States and China seem to confirm this. Optimists counter that the growing global interest in clean technologies ought to benefit the capabilities of German companies. German Chancellor Olaf Scholz even talks about Germany facing a period of high growth rates, similar to the years of the German economic miracle in the 1950s, because of investments in decarbonization.

The fight against climate change requires a combination of global efforts, including investments in renewable energy systems and other climate-neutral technologies. Given positive externalities and incomplete carbon pricing, there is a compelling argument for governments to support the production of such clean energy technologies. However, the location of production of these technologies should at best be determined by the comparative advantages of individual economies and is, at least from a global perspective, of secondary importance for global climate action.

The crises at Silicon Valley Bank and Credit Suisse have shaken the world of finance. While policymakers and central banks are being placatory, the markets are not calming down. Banks that very recently seemed healthy are running into liquidity problems. Interest rate hikes by central banks are a major driver of the crisis. They cause the market value of bonds and other long-term assets such as real estate and stocks, previously inflated by expansionary monetary policy, to fall. At the same time, short-term interest rates are rising faster than long-term rates. As a result, banks must either grant account holders higher deposit rates or expect at least the more astute investors to withdraw their funds and invest them elsewhere on better terms.

There is currently intense debate in many countries about a shortage of skilled workers. For instance in Germany, despite record employment figures, according to surveys by the ifo Institute, close to 50 percent of companies say they are constrained by a shortage of skilled workers – also an all-time high. From an economic perspective, there is a simple answer to shortages: higher prices.

Europe is seeing a renaissance in industrial policy. Industrial policy usually involves influencing an economy’s sectoral development by means of subsidies, partial state ownership of companies, or regulations. It can also include promoting mergers of companies to form national champions – large companies which are supposed to conquer the world’s markets with their governments’ support. It’s also common to bar foreign investors from taking over domestic companies that are deemed strategically important.

The planned investment by the Chinese state-owned group Cosco in HLLA, the operator of the Port of Hamburg, has triggered a fierce dispute. Critics of the investment argue that the Chinese government would gain unwanted control over the port facilities. Supporters, meanwhile, maintain that it is only a minority stake and that the German government is in a position to impose conditions on port operators, regardless of who the owner is.

The energy crisis – especially the shortage of gas due to a loss of supplies from Russia – is plunging Europe into recession and causing social tensions and distributional conflicts. European governments are eagerly seeking ways to defuse the situation, but they will succeed only if they cooperate closely. The cross-border energy market must remain open, and the European Union should leverage its market power when purchasing gas in third countries. But without coordinated national crisis-management strategies, Europe’s response could become a self-defeating subsidy race.