Blame Red Tape for Germany’s Ailing Infrastructure

(Bloomberg) -- Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

Germany needs to start spending to make up for years of underinvestment, and there’s a ton of money on the table if political parties agree on terms to form a new government.

Maybe half a trillion euros for climate-related projects could be unlocked over a decade, and squaring such ambitions with demands for budget restraint is a crucial issue for Germany and its much maligned public infrastructure. 

But ramping up spending isn’t just about fixing the roads, hospitals and telecom networks that are a source of daily frustration for Germans. It’s also about modernizing and greening the economy, and helping it hold its own against the might of China and the U.S.

Global climate talks kick off Sunday as some 200 countries gather in Glasgow this week to come up with strategies to rein in a warming of the planet. 

Germany has woken up to the challenge though its track record with big projects raises doubts that the new government will be able to pull it off. The country has a reputation for thrift with public money -- critics regularly cite its controversial debt brake -- and bureaucracy and a lack of staff are adding to concerns.

There’ve been headline-grabbing fiascoes like the mishap-plagued Berlin airport or the Stuttgart railway station that bear testament to inefficient planning and construction. During the pandemic, Germany’s technology shortcomings were laid bare when health departments had to rely on faxes for Covid-19 test data.

That means putting Europe’s largest economy on the vanguard of technological innovation and remedying years of neglect while also fighting climate change will be a herculean task for the next government, which may take office in December. Germany is already more than 400 billion euros ($466 billion) behind on investments, according to Scope Ratings, threatening competitiveness in a quickly changing world.

“I would like to see us tackling these tasks head on because they’re urgent,” said Fritzi Koehler-Geib, chief economist at Germany’s state-owned development bank KfW. “The longer we wait, the more expensive it’ll get.”

Germany is ranked 23rd for government efficiency in the IMD World Competitiveness Yearbook, lower than Kazakhstan and Chile. On infrastructure, it’s behind Sweden and the U.S.

The OECD criticized Germany late last year, saying that although public investment had picked up, it wasn’t enough to resolve the backlog. 

A big chunk of that backlog is at the local level. KfW estimates that underspending by municipalities in areas such as roads and education is close to 150 billion euros.

Years of belt-tightening to get a handle on high public debt in towns and cities led to staff cuts in planning and construction offices, and a shortage of qualified personnel. Of the more than 10,000 jobs currently listed on Germany’s public-sector job portal, nearly 10% are for architects and engineers.

That skills gap means there’s an investment hurdle even with money available. 

The current budget plan includes 50 billion euros a year for investments through 2025, with another 25.6 billion euros flowing from the European Union’s recovery fund. On top of that is infrastructure spending by federal states and municipalities -- more than 80 billion euros this year alone.

There’s also no shortage of grants supporting investments -- in broadband and wireless technology or digitization in schools -- but applying for them is often much too complicated, according to Gerd Landsberg, managing director of Germany’s cities and municipalities federation.

“It would make a whole lot more sense to trust the municipalities, give them money and see that they make progress,” he said.

The nightmare of German regulations and paperwork reaches far beyond the public sector. Electric car maker Tesla Inc. has bemoaned an “irritating” system of governmental approvals that’s put construction of its new factory not far from Berlin months behind schedule.

The government has removed some hurdles to speed up processes, streamlining regional planning procedures and waiving approvals for important construction projects such as electrifying rail tracks.

“Covering the rising investment needs with regard to digitization and climate neutrality is in fact a mammoth task,” said KfW’s Koehler-Geib. “Much suggests that in the absence of changes the investment gap will continue to grow.”

©2021 Bloomberg L.P.