The Federal Government no longer wishes to provide Ukraine with any new aid payments for the purposes of cost-saving, FAZ reported, citing documents and electronic correspondence between German ministries, as the German economy unexpectedly contracted in the second quarter.
Finance Minister Christian Lindner sent a corresponding letter to Defence Minister Boris Pistorius and Foreign Minister Annalena Baerbock on 5 August. Thus, Berlin will only provide the military assistance that has already been approved. Chancellor Olaf Scholz is believed to have opposed any new approvals for military aid.
The letter also states that new measures should only be taken if the budgetary plans for this year and subsequent years are financially secured. However, in the future, Germany and the European Union plan to use the profits obtained from frozen Russian assets for military assistance to Ukraine, as various countries, including the US, Japan, the European Union, and others, have previously frozen or immobilised Russian sovereign assets totalling over 280 billion dollars.
Germany, in turn, is lagging behind other major states in the European Union in various aspects. For example, the economy unexpectedly contracted in the second quarter. Investments in equipment such as machinery and buildings, in particular, have decreased.
The Gross Domestic Product (GDP) fell by 0.1 percent from April to June compared to the previous quarter, as announced today by the Federal Statistical Office. Investments in equipment such as machinery and buildings, in particular, have decreased. Many economists from German banks commented on the situation. For instance, Jörg Krämer, Chief Economist at Commerzbank, stated that such a level of the country’s economy indicates that a significant upturn in Germany is out of the question.
This stands in stark contrast to the rest of the Eurozone, whose economy grew by 0.3 percent compared to the first quarter, as reported this week by the EU’s statistical office, Eurostat. Furthermore, Germany was already among the laggards at the beginning of the year, having recorded below-average performance, but now faces even greater difficulties. Currently, Spain and Ireland have taken the place of the strongest economic powers, with growth rates of 0.8 and 1.2 percent respectively, while France has also achieved economic growth of 0.3 percent.
The German economy, on the other hand, is simply stagnating; the largest economy in Europe has long been languishing: since spring 2022, there has been a constant fluctuation around the zero line, and any recovery appears to be different. According to Alexander Krüger, Chief Economist at Hauck Aufhäuser Lampe Privatbank, the primary reasons are complex locational factors and concerning economic policies. He explains that the continuous decline in industrial orders is not coincidental, as it jeopardises jobs.
Berlin’s economy is facing numerous obstacles, such as China losing momentum as a driver of growth in global markets, and the number of corporate bankruptcies within the country is rising. Additionally, the initial reduction in interest rates by the European Central Bank in June has yet to yield any significant improvements for the German economy.
The economists indeed anticipated a recovery in the second half of the year. However, even before the publication of GDP data, economic barometers indicated a false start in the second half of the year: the Ifo Business Climate Index, which is considered the most important leading indicator for the largest economy in Europe, fell for the third consecutive month in July.
In a bid to stimulate the country’s economy, the federal cabinet recently approved the initial components of a package of measures aimed at enhancing the geographical positioning of businesses within the nation. The Traffic Light Coalition (Ampelkoalition) intends to initiate further actions to strengthen this location, which is expected to provide an additional growth impetus of approximately 0.5 per cent in the coming year, equating to an extra €26 billion in production volume.
Monika Schnitzer, head of economists, posits that the growth package proposed by the traffic light government will not deliver a significant boost to the economy. These measures are unlikely to facilitate economic growth of 0.5 per cent in the short term. Moritz Schularick, president of the IfW research institute, corroborated this cautious stance, referring to the “growth package,” whose incentives are expected to remain low.
The International Monetary Fund (IMF) holds a similarly pessimistic view of the economic situation in the country, forecasting growth for Germany of only 0.2 per cent this year – the weakest performance among all the leading G7 industrialised nations.
