A multi-year recession, record bankruptcies, and rising job losses -- Germany’s economy is trapped in a deep structural crisis. Now the government is trying to engineer a comeback: massive tax deductions, lower corporate taxes, and a gigantic debt-financed investment package are supposed to restart growth.
Germany is currently in its third consecutive year of economic contraction. In Q1 of this year alone, 5,200 companies filed for bankruptcy -- a 15% increase from 2023. The wave of insolvencies is taking a toll on the labor market as well: more than half a million jobs have disappeared over the past five years.
The causes are no mystery: a crippling energy crisis combined with chronic overregulation. In 2023, companies were forced to spend $159 billion complying with government bureaucracy, according to the ifo Institute. Unsurprisingly, capital and industrial activity are fleeing the country.
Enter the "Investment Booster"
Finance Minister Lars Klingbeil (SPD) now wants to force a turnaround with an ambitious reform package. At its core: a reintroduction of accelerated depreciation allowances for machinery and equipment (30%) and electric company vehicles (up to 75%) for the years 2025 to 2027. These tax perks are supposed to improve liquidity and encourage investment during a period of uncertainty and stagnation.
The "booster" also includes a stepwise reduction of the corporate tax rate from 15% to 10% between 2028 and 2033. But the symbolic nature of this move is undermined by the government’s refusal to eliminate the solidarity surcharge or cut the punishing municipal business tax. Given the budget shortfalls facing many cities, more tax burdens could be on the way.
All in all, the German economy is supposed to receive $50 billion in tax relief by 2029. But most of this relief comes in the form of temporary depreciation acceleration -- a front-loaded benefit that will expire just as quickly as it arrives.
Public Investment on Steroids
In parallel, the government plans to inject additional billions through state-led investments -- all funded by new borrowing. The logic follows a familiar Keynesian script: the state steps in when the private sector holds back, hoping to stimulate demand with debt-financed spending. But where markets hesitate and central planning takes over, the result is usually a mountain of misallocated capital and new debt.
Germany’s real problem isn’t a lack of public money, but a breakdown in the private investment mechanism itself. According to the most recent KfW-ifo credit hurdle, 34.5% of large companies report tighter credit conditions -- the highest level since the survey began. In manufacturing, the figure is even worse: 40.4% of firms face financing difficulties.
This is a red flag. Germany's credit mechanism is faltering under the weight of macro uncertainty, higher interest rates, and global instability. Banks are tightening risk criteria. At the same time, firms are reluctant to borrow -- even with government incentives -- because their business outlook is overwhelmingly negative.
Stimulus or Statistical Mirage?
The so-called investment booster raises expectations it cannot fulfill. While depreciation incentives might boost short-term spending, it’s likely just a temporary shift in already-planned expenditures. The statistical bump will quickly vanish -- and no lasting value will be created.
Germany’s deeper problems remain untouched: a self-inflicted energy crisis, suffocating bureaucracy, and a regulatory state that no party dares to challenge. Real investment depends not on tax tricks, but on the fundamentals of location quality and long-term perspective.
The plan also risks a classic misallocation: the creation of productive capacity that nobody wants. At best, this leads to inefficiencies. At worst, it triggers an even deeper downturn when excess capacity must be unwound -- all driven by tax law rather than market demand.
Instead of a supply-side overhaul, deregulation, and state withdrawal, Berlin delivers another dose of central planning -- adding distortion to dysfunction. What’s missing is a coherent strategy that restores confidence in Germany as a business location.
Right now, the booster doesn’t look like a trampoline -- more like a political life raft for a government running out of ideas and an exhausted industrial base gasping for air.
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