Olaf Scholz’s energy policies branded ‘toxic’ by German business chief

The leader of Germany’s main industry association has slammed the German government’s energy policies as “absolutely toxic”, in a sign of declining business confidence in chancellor Olaf Scholz’s stewardship of the economy.

Siegfried Russwurm, head of the BDI, told the Financial Times that Germany’s climate agenda was “more dogmatic than any other country I know”.

The country’s decision to phase out nuclear energy and coal and switch to renewables was placing businesses in Europe’s largest economy at a disadvantage to those in other industrialised nations, he said.

“Nobody can say with any certainty today what our energy supply will look like in seven years’ time, and that’s why no one can say how high energy prices will be in Germany then,” he said. “For companies that have to make investment decisions, that is absolutely toxic.”

His comments come at a time of growing concern about the outlook for Germany, which was the world’s worst-performing major economy last year, according to the IMF. The country has been plagued by high interest rates, low export demand and high energy prices triggered by Russia’s invasion of Ukraine in 2022.

Germany’s gross domestic product shrank 0.3 per cent last year and exports fell 4.6 per cent in December, a sharper decline than economists had expected. The OECD said on Monday that Germany’s economy would expand by just 1.1 per cent in 2024, a much lower rate than the OECD average of 3 per cent.

Germany has also seen nationwide rail strikes and widespread protests by farmers angry at cuts to agricultural subsidies, while industrial action by Lufthansa ground crews on Wednesday was set to cause severe disruption to air travel. 

Meanwhile, the three parties in Scholz’s fractious coalition — Social Democrats, Greens and Free Democrats — argue openly over how to kick-start economic growth.

“Indicators of political uncertainty in Germany show that it is as high now as it was in the UK during Brexit,” said Clemens Fuest, head of the Ifo Institute, a leading think-tank. 

One reason, he said, was the bombshell ruling by Germany’s constitutional court in November that upset the government’s spending plans by striking down its use of off-budget funds. The judgment forced Scholz and his ministers to make huge savings in their 2024 budget, a revised version of which only passed on Friday last week. One of the measures is a sharp increase in transmission grid fees which it is feared will drive up businesses’ energy bills.

But there were other reasons for the febrile mood that were more deep-seated, Fuest added. “It has to do with the fact we have a government with no real economic strategy,” he said. “There is complete disagreement between the economy and finance ministries and that . . . presents risks to the economy, both in the short and long-term.”   

Industrial leaders have long complained about the government’s climate policies, saying they are too ambitious. Germany plans to achieve carbon neutrality by 2045 and to derive 80 per cent of electricity consumption from wind and solar energy by 2030, up from 41 per cent in 2021.

That, Russwurm said, was “too dogmatic”. “We’re pursuing a goal of 100 per cent when it’s obvious the last 10 per cent is going to be incredibly expensive,” he said.

Russwurm said business supported the green transition, but ministers had failed to explain to companies “what happens when the wind doesn’t blow and the sun doesn’t shine”. “We still have no clarity on how and by when we can create reliable reserve capacity,” he said.

Officials dismiss that criticism, pointing to a new strategy adopted on Monday to build and subsidise new gas-fired power plants that can switch to hydrogen, a move that will ensure sufficient back-up capacity for wind turbines or solar panels.

But that will not solve the energy problem in the short term. Russwurm said that in France, companies working in the same sector “pay half as much as they do in Germany for electricity”. 

Energy policy is just one of the areas in which the government is failing, according to business groups. Companies also complain about a growing tax burden, cumbersome permitting procedures and a public administration that is still stuck in the analogue age.

“Our bureaucracy is too perfectionist; it’s stuck in a traditional approach that is really a burden,” said Russwurm.

Other business leaders have been similarly critical. Rainer Dulger, head of the BDA, Germany’s main employers’ organisation, said last month that the business community had “lost confidence” in the government.

He told journalists that Scholz and his ministers were just “pretending to listen” to business and had failed to deliver “any substantial improvement in economic conditions”. “No relief, no predictability, no trust,” he said.

As a result, said Russwurm, an increasing number of companies were looking to invest abroad rather than in Germany. He cited the example of the US, where the Biden administration’s landmark Inflation Reduction Act offers generous subsidies for companies investing in green energy and clean technology.

Experts point to Volkswagen’s decision last year to build a new battery factory in the US and BASF’s €10bn investment in a state of the art petrochemicals plant in China, which coincides with big cuts at its headquarters in Ludwigshafen, south-western Germany.

“Companies are saying they are finding it increasingly difficult to do any long-term planning,” Russwurm said. “They have great doubts about continuing to invest in Germany under these conditions. The conditions are better elsewhere. And they’re going abroad.” 

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