Rich country, poor infrastructure | Eurasia Diary -

25 May, Saturday

Rich country, poor infrastructure

A curious backlog on investment is hampering Germany's efforts to fix its creaking infrastructure. Government money is plentiful, but there aren't enough projects to spend it on.

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When Angela Merkel’s jet broke down last week en route to the G20 summit in Argentina, the chancellor ended up having to take a commercial flight. Germany ended up with egg on its face.

The embarrassing incident served as a reminder of what international organizations have been telling Germany for years: Increase infrastructure spending, so as to reduce its surpluses and boost economic growth elsewhere.

German economists have long condemned an “investment backlog” which has given rise to creaky highway bridges, disintegrating waterways and shuttered swimming pools across the country. Statistics back up the criticism: Figures from the Ifo Institute for Economic Research suggest that over the last quarter of a century, the rate of public investment has steadily fallen below economic growth.

Public investment projects now make up just 2.12 percent of German GDP, well below the average for industrialized countries of about 3 percent. Just to get to the average international level, the Ifo researchers say, Germany needs to boost infrastructure spending by around 40 percentage points.

Money to burn

The German government boasts of “record levels of investment,” with its total infrastructure budget set to reach €37.9 billion this year ($43 billion). Finance Minister Olaf Scholz recently added €1 billion to that total.

The problem with German infrastructure, it turns out, is only partly about money. That €38.9 billion is all dressed up with nowhere to go: There are simply not enough available projects to spend it on. The last snapshot of government spending, issued halfway through the year, showed that Berlin had so far used just €10 billion of that budget.

The numbers make for interesting reading. By June, a special local government investment fund had disbursed just €870 million out of an annual budget of €3.5 billion. At least it managed to allocate most of the money. Another special fund, for investment in schools, also has €3.5 billion to spend, but halfway through the year had only allocated €427 million of the total, and had laid out precisely zero euros.

Plans without planners

The list goes on and on. The kindergarten expansion budget has €368 million in unused cash. The transport ministry has over €1 billion burning a hole in its pocket, money meant to be spent on roads, railways and broadband infrastructure.

There are a number of reasons for the backlog. A decade-long economic boom and high property prices mean the German construction industry is working at close to full capacity. And not every construction firm likes working for the government, which is slow-moving and comes with onerous rules and regulations.  

Planning is another problem – or planners, to be exact: They, too, are in short supply, just when government departments across the country need them. Some experts blame cuts made decades ago for the staff shortages today.  

To take a single example, the agency responsible for waterways and shipping is lacks no less than 500 engineers, who are urgently needed to patch up the country’s 7,300 kilometers (4,536 miles) of navigable waterways. And there are dozens of public bodies in the same boat.

Jan Hildebrand, Martin Greive


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