Inflation: What an exit strategy for Germany could look like

Analyse

Food prices in Germany are still high – although energy prices are slowly falling, inflation is still being felt strongly. Unions have therefore been fighting for wage adjustments for weeks so that their members do not have to accept any real wage losses. Again and again there are strikes, for example in rail traffic.

Some critics of this industrial action threaten the wage-price spiral that would further fuel inflation – other experts on macroeconomics, on the other hand, believe this narrative to be false. At a forum of the Institute for Macroeconomics and Business Cycle Research (IMK) of the Hans Böckler Foundation, they exchanged views on possible ways out of the crisis. Economics Minister Robert Habeck (Greens) was also present.

At the IMK, Robert Habeck is in favor of an industrial electricity price.Image: dpa / Bernd von Jutrczenka

Demand for industrial electricity price

For the chairwoman of the German Trade Union Confederation (DGB), Yasmin Fahimi, it is clear that the economic policy of the past 30 years is to blame for the dilemma. The liberal market economy did not cause the crisis alone, but it actually made it worse. The question that now has to be asked is: What does a new relationship between state and market look like?

DGB boss Yasmin Fahimi demands that the workforce be included in the fight against inflation.Bild: IMAGO/Chai von der Laage

If Fahimi has his way, the answer is: we have to break with neoliberal dogmas. “I’m not talking about the nationalization of key industries,” she clarifies. Rather, the DGB boss is about binding contracts that also protect the workers. She uses the US Inflation Reduction Act (IRA) as an example.

In Germany, too, the reorientation must go hand in hand with green investments and the employees, says Fahimi. For this reason, she demands that both the energy price brake must remain – so that people do not have to worry about their electricity and gas bills. But she also calls for an industrial electricity price. And that is until green electricity is cheap and widely available.

But it must also be clear: blind help without counterclaims is useless. “We need a common bet on the future,” said Fahimi. And that means that state support for companies must be conditional. For example, that companies remain loyal to the location.

Habeck expects inflation to flatten out further

An assessment that Economics Minister Robert Habeck also agrees with. Yes, an industrial electricity price is needed, he says. And yes, the companies should be true to their location. Overall, Habeck is convinced that prices will drop significantly again in the coming months.

The lesson to be learned from the crisis: a transformative supply policy is needed. “There can’t be a return to the 80s,” said Habeck. Classic means of supply policy are, for example, low corporate taxes or write-off options. What does Habeck mean by transformation?

For Habeck, one thing is clear: a new economic policy must also grow out of the crisis.Image: dpa / Kay Nietfeld

Among other things, he mentions a new market organization: Gaps in antitrust law have been closed by new competition law. Habeck also wants to further restrict the digital markets. The expansion of the infrastructure is also important: both the digital and the transport infrastructure. Habeck also mentions the reduction of bureaucratic hurdles and a modern immigration law, as well as a new form of investment.

He is not a fan of watering can politics, but investments should also be possible in times of inflation. For this reason, an investment network is needed for industries that dare something new. This means: industries that want to operate ecologically. It is also clear that the money that the state puts into this sector must eventually be returned to the tax authorities. The Economics Minister does not want to commit himself to whether this is to be done via special levies or regular taxes.

Excess profit taxes as a possible brake

The economist Isabella Weber from the University of Massachusetts Amherst is clearer. She emphasized: What is needed is an excess profits tax. And already today. Weber, together with her colleague Sebastian Dullien from the IMK, discussed a gas price brake back in February 2022, which finally came into force as an energy price brake this spring.

For Weber it is clear: The state must react as quickly as possible in this situation. And, at least that’s what the data she collected from the USA suggests, inflation is being driven by the price shocks in the key sectors. Because here, inflation has an impact on the whole system.

Weber has identified the three most important sectors:

Although the data has so far only been collected for the USA, Weber assumes that the same sectors are decisive in Germany. And she also assumes that inflation is not just a product of the war and the high prices associated with it. But it is also made by maximizing the profits of the company.

For this reason, Weber calls for the excess profit tax. It’s time, she says, to rethink inflation. Because the current situation is not about a wage-price spiral. And in this respect, this price increase must also be reacted to differently.

Effects of concerted action

In order to get inflation and the associated effects under control, Chancellor Olaf Scholz (SPD) called for concerted action last year. Economist Sebastian Dullien was also part of this body. From his point of view, the joint approach was successful.

With the concerted action, Scholz wanted to get the inflation under control.Image: dpa / Michael Kappeler

But despite packages of measures such as a 9-euro ticket, a fuel discount and a brake on energy prices, it is still poorer households who are hit hardest by inflation. For this reason, it is also good that trade unions are currently fighting against the real wage losses. And even if the concerted action was largely successful: From Dullien’s point of view, it would have been important for the companies to have made a voluntary commitment.

This is because profit maximization could stand in the way of a rapid fall in inflation. An excess profit tax, says the expert, is not that easy. However, inflation does not have to remain permanent.