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    What Germany’s Election Result Means for Its Economy

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    The next German government faces calls to loosen borrowing rules, slash energy costs and spur innovation. It won’t be easy.Friedrich Merz and his center-right Christian Democrats emerged victorious in Germany’s election on Sunday, but the celebrations may be short. The next government, almost certainly led by Mr. Merz as chancellor, faces a stagnant economy, President Trump’s threat to put tariffs on the country’s crucial export industries and a fourth year of war in Ukraine.What’s more, the ability to address these issues is hamstrung by strict limits on government debt and deficits, making it difficult to finance higher military spending, update crumbling infrastructure and carry out other initiatives that economists say are crucial to spur growth.A dispute over this rule, known as the debt brake, brought down the government of Chancellor Olaf Scholz of the center-left Social Democrats, paving the way for Sunday’s early election. But relaxing the rule would require a two-thirds majority in Parliament to amend the Constitution, and the election outcome suggests it would be difficult to muster that much support.Already on Monday, Mr. Merz was facing calls from other politicians, economists and even the traditionally conservative central bank for the new government to find a way to adjust the spending limits to fit the country’s urgent economic demands.“In principle,” the Bundesbank wrote in a report on Monday, “it is entirely justifiable to adapt the debt brake’s borrowing limit to changing conditions when the public debt ratio is low.” German government debt is just over 60 percent of gross domestic product, far lower than in countries like Britain, France and the United States, where debt is near or above 100 percent of G.D.P.But after Sunday’s election, the two-party coalition that Mr. Merz hopes to form between his Christian Democrats, which won 208 seats, and the Social Democrats, with 120, will have to rely on other parties to achieve the two-thirds majority in Parliament necessary to change the Constitution.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Reject the quiet life — there is no growth without competition

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    Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is professor of economic history at Sussex University and a research fellow at CAGE and CEPR. Tim Leunig, Nesta chief economist, also contributed Every economist, and certainly every politician, has their own theory of growth. Thankfully, history provides us with strong evidence as to what works and, even more critically, what doesn’t.The 1930s taught us that protectionism favours no one. But this is not the only important lesson we can draw from that decade, and from those that follow. The period from the 1930s to the 1950s saw a wholesale retreat from laissez-faire economics in Britain, caused by the apparent failure of capitalism in the Great Depression and by the apparent success of the planned economy during the second world war. As well as restrictions on trade, the UK government also imposed restrictions on competition at home.This took two main forms. The first was the creation of “national champions”. The aim was to create domestic companies that could use their market power to raise prices, make profits and invest in the innovations of the future. Mergers were not assessed for their effect on competition or consumers — quite the reverse. Governments encouraged the creation of larger, more monopolistic companies. The second was the creation of managed markets. Companies were allowed to set prices jointly, and agree to restrict competition. These restrictions could be enforced in law. By the 1950s more than half of all manufactured output was produced by companies that were part of formal cartels. Some industries, such as shipbuilding and steel, were almost 100 per cent cartelised. That this approach would fail was predicted by serious economists at the time. The future Nobel Prize winner Sir John Hicks remarked in 1935 that “the best of all monopoly profits is a quiet life”. And so it proved. Companies used their monopoly status to avoid tough decisions. The adoption of new technologies lagged behind other nations, particularly the US, but increasingly, Britain fell behind Europe as well. Working practices did not keep up with global standards either. In the short run both management and workers enjoyed their quiet lives, but in the medium term they immiserated themselves and the nation. Having fallen behind our European neighbours, Britain only began to catch up after 1979, when the Thatcher government took domestic competition seriously. Competition policy improved, and foreign companies came here to fight for market share. The 1990s were also a period of greater international competition, with the deepening of the EU single market after 1992, and the rise of China and other east Asian nations. The combination of greater domestic competitive pressure, allied with greater competition from abroad, led Britain to close the productivity gap markedly with its European neighbours, raising our living standards substantially. More recently, the Conservative party took us out of Europe. Since then trade rates with the EU have fallen substantially. The reduction in both exports and imports means that fewer UK companies are kept on their toes by having to compete with the best in the world. The quiet life awaits, with all the dismal consequences that follow. The reduction in trade makes it more important than ever that domestic levels of competition are kept high. In that context it is even more surprising that the current government seems to be intent on doing the reverse. The replacement of Marcus Bokkerink with Doug Gurr as head of the Competition and Markets Authority, on the grounds that the former was too committed to competition, is the reverse of what the UK needs if it wants to be a growing, high-productivity, economy. Similarly, the government’s now rejected attempt to protect the banks in the car loan scandal does not bode well. Competition is the strongest spur to management, and the surest route to prosperity. We need the government to remember that, because the alternative is that our country will continue to stagnate. More

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    Trump wants a world safe for autocracy

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    Is China investable again?

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    Standard Digitalwas $540 now $319 per yearSave now on essential digital access to quality FT journalism on any device.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts10 monthly gift articles to share More