German business angst

Readers' Views No 238, July 2003
OECD Observer

Your article on the German economy (“Germany: The case for reform”, OECD Observer No. 237, May 2003, also online) depicts only a small part of Germany’s problem. Foreign investment in Germany dropped in 2002 to only one-eighth of what it had been in 2001. Germany should implement reforms in bureaucracy and in the social state that could decrease costs for employers. The strict labour laws mandate high severance packages and a strict social benefits plan for the discharge of employees that do not take business requirements into consideration.

Small businesses have no flexibility in difficult times. Foreign investors are deterred by this and by the high labour costs. Cost per employee is one of the highest in Europe. The Basel II financial regulations to be implemented in January 2007, combined with tighter bank credit checks, have hit business hard. Insolvency hit an all-time peak in 2002 which is expected to be exceeded in 2003, and 600,000 jobs are expected to be lost this year.

My company, Trust in Business (, founded four years ago, boomed until foreign investment dropped. Simultaneously, many middle-sized corporations liquidated and small businesses struggled to pay their way, as their own customers could not pay due to a lack of short-term bank credit. The result: personal and company insolvency, despite all the hard work.

More than any other country, Germany’s economic success is dependent on small and middlesized enterprises. Government support programmes are too slow and only address part of the problem. Banking restrictions are taking their toll on business.

Foreign investment needs to be boosted instead of having government offices abroad close down just when they are most needed. Besides, Germany is the natural centre for euro-based business. Insolvent companies have learnt by their mistakes and could get things moving again. German culture sees failure as something to be ashamed of.

I have written about this in German (, search Koark) to try to encourage entrepreneurs to get up and fight back. Germany still has a lot to offer foreign investors, and with the right reforms and good publicity, plus increased support for small businesses, Germany will bounce back. I, for one, intend to get into business again with a project to help insolvent entrepreneurs find their way back into business too.

—Anne Koark, Germany,

©OECD Observer No 238, July 2003

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