Deutschland Update #16
This week’s topics:
Immigration reform
Welcoming skilled labor
Who gets to be “German”
Positive indicators on the economy
Rules for skilled immigration to be eased
Germany faces a major demographic challenge in the labor market in the coming decades. According to the Institute for Labor Market and Occupational Research, under the current conditions of labor market attrition and skilled immigration, the Germany economy will be missing up to 7 million skilled laborers by 2035.
In a press conference announcing the plan, Economics Minister Robert Habeck said that this demographic transformation poses a threat to the German economy that is comparable to the climate crisis or the challenges of digitization. The plan to expedite skilled immigration needs to be quickly and pragmatically implemented, according to Habeck.
The government’s plan is to introduce a point-based system that will allow skilled immigrants to obtain a visa to stay in the country in order to look for work. The current system only provides visas for those who have an existing work contract. The criteria for the point system will include aspects such as professional qualifications and experience, language skills, age, and whether they have an existing relationship to Germany.
Interior Minister Nancy Fraser has indicated that a draft legislation based on the position paper is forthcoming, and that it should be ready to be introduced into Parliament at the beginning of next year.
Details of citizenship reform coming into focus
An internal document from the Ministry of the Interior, which outlines the contours of the government’s planned reform to the allocation of citizenship in Germany, was leaked this week. The draft text (it most certainly will not be the final version that will first be debated within the cabinet and later introduced into the Parliament) outlines a set of reforms that will expand the pool of those eligible to gain German citizenship.
“The reform of our citizenship laws is long overdue and an enormous chance to strengthen our social cohesion. That is why we are tackling it now.” Interior Minister Nancy Fraser wrote in an editorial in the Tagesspiegel newspaper on Sunday. The plan to reform citizenship laws is part of the governing contract signed by the parties in the current governing coalition.
The proposed changes to the law included in the draft text are the following:
In order to qualify for German citizenship under the current regime, candidates must have been in Germany under a valid visa for eight years. This is to be reduced to five years, with the potential for further reduction in light of “extraordinary integration accomplishments”; what exactly this means is poorly defined.
Children born in Germany to parents holding foreign citizenship and permanent residency will receive German citizenship and be able to retain the citizenship of their parents’ home country as well.
Double citizenship will be allowed. Under the current regime, those who wish to take on German citizenship must relinquish the citizenship of their home country if that country is outside of the EU. Going forward this will no longer be necessary.
The language requirements for those older than 67 will be eased. Many of the people who came to Germany as guest workers in the 1960s and 1970s, from countries such as Italy, Greece, Turkey and the former Yugoslavia, were never offered any assistance in terms of integration. This means that many, despite having lived in Germany for decades, still struggle with the German language.
Context:
10.7 million people with foreign citizenship live in Germany. According to the Tagesschau, 5.7 million of those have lived in the country for more than 10 years. In a country of 83 million people, that is a significant portion of the population that live, work, and pay taxes in this country, but are denied their right to participate in the political process. For those of us directly affected by these policies (I personally have not taken German citizenship, despite long being qualified, as it would force me to relinquish up my American citizenship) these reforms do indeed feel long overdue.
Opposition to the plan was swiftly voiced by the opposition. “German citizenship is something of value,” CDU leader Friedrich Merz said in an interview on the ARD program Bericht aus Berlin. “What we need to avoid, is immigration into the social welfare system, and if that is the goal of the coalition, then we of course will not agree to it,” he said.
Criticism of the plan also came from within the coalition itself. FDP party secretary Bijan Djir-Sarai criticized the timing of the Interior Ministry, which is controlled by their coalition partner the SPD. “Now is not the time for a simplification of the citizenship law,” he said in an interview with the Rheinische Post. He argued that the allocation of German citizenship should be the end result of a successful process of integration. “A devaluing of German citizenship is not something that will happen with the FDP,” he said.
Besides this antiquated perspective on citizenship treating it as some sort of holy sacrament, it also misses the point on the relationship between “integration” (a solid definition of this term is exceedingly elusive) and naturalization. Germany is a nation of immigrants, and it has been for decades. Bringing the barriers to citizenship down to a reasonable level will create incentives for those who immigrate here to work towards meeting those criteria; the prospect itself will incentivize “integration”.
**If you are interested in an academic substantiation of this idea, check out this 2017 American Political Science Association paper on the topic: https://www.cambridge.org/core/journals/american-political-science-review/article/abs/catalyst-or-crown-does-naturalization-promote-the-longterm-social-integration-of-immigrants/F46D864B22AD8C71D5ED1B0DE2FFB4CA
The opposition to the plan also fails to acknowledge the significant skilled labor shortage that the country faces. Germany will be in competition with many other countries in the coming decades in trying to attract skilled labor (see above), and economists and industry organizations have been quick to voice their support for the planned reforms.
“An easing of the path to citizenship will strengthen the integration of foreigners living and working in Germany,” Monika Schnitzer, head of the German Council of Economic Advisers, said in an interview with the Funke Media Group. “It is to be welcomed in light of the demographic transformation and a growing skilled labor shortage,” she said.
However, the plan is far from becoming a reality. The text being discussed is still only a draft being circulated within the Interior Ministry. A final draft would first need to be debated and approved within the cabinet, and then sent to the Lower House (Bundestag). It also must pass the Upper House (Bundesrat), where the opposition has the ability to block the legislation and force a re-negotiation. There is still a long way to go. As this story may presumably be of personal interest to many readers of this newsletter, I’ll make sure to keep you posted.
A collection of good economic news
Any systematic review of German economic news in the last nine months would inevitably find a consistently negative trend. We find ourselves in the midst of a period of historic inflation, driven by the post-pandemic distortions of supply and demand that reverberated through global supply chains, and an energy crisis precipitated by Russia’s war of aggression in Ukraine. That crisis has forced a hurried reorganization of Germany’s energy supply chain. Fundamental input costs for producers and the cost of living have increased at their highest rate since the end of WWII. Respected economists and politicians have been warning for months of a looming recession.
However, the news of the last week on a number of leading economic indicators would seem to indicate that the negative trend line may be flattening out. Maybe. They do not collectively signal with any certainty that the various crises the German economy faces have been overcome. But, after many months of dire headlines on the economic front, it is important to be reminded that good news is also newsworthy.
I’ve outlined below the positive economic indicators that have been released this week.
Third quarter Gross Domestic Product (GDP - the market value of all finished goods and services produced within a country’s borders) statistics released this week by the Federal Statistical Service (DESTATIS) showed that the German economy grew by 0.4 percent between July and September this year. Many economic observers predicted that the German economy had already begun to contract in the late summer (meaning that a recession had already begun). According to DESTATIS this positive growth was primarily driven by a surprisingly stable level of private consumption. The report indicates that private consumption was up 1 percent from the second quarter of the year.
Another factor to be taken into consideration here is that energy price increases have yet to hit many households that retain long-term contracts concluded before the current energy crisis. As more of these contracts inevitably expire these higher costs could dampen private consumption.
However, the Handelsblatt Research Institute publishes a monthly Consumption Barometer, which measures consumer sentiment in Germany. It was up by 1.07 points compared to October, the first time it has risen since the beginning of the war in Ukraine.
A study released this week by the Leibnitz Institute for Economic Research in Halle (IWH) shows that German heavy industry can reduce its natural gas consumption by 26 percent while only incurring a 3 percent drop in revenue. The study found that the production of 300 individual products accounts for 90 percent of industrial natural gas consumption in Germany. The majority can be sourced abroad at lower cost. For months the fear has been that if natural gas intensive industry is no longer competitive on account of drastically higher energy costs, its downfall would pull the rest of the economy with it. The study shows that this can be avoided. “German industry can save a lot of gas without a significant forfeit of profit if gas-intensive products are imported as opposed to producing them domestically,” said Steffen Müller, leader of the IWH Department of Structural Change and Productivity and co-author of the study.
On a related note, the business climate index published monthly by the Leibnitz Institute for Economic Research at the University of Munich (IFO) also saw a nominal positive increase between October and November. The report states that, while the surveyed businesses expressed dissatisfaction with the current business environment, pessimism regarding the outlook for the coming months had decreased.
A shortage of natural gas over the coming winter is becoming increasingly less likely. The natural gas storage facilities are essentially full, and a steady stream of ships carrying liquified natural gas have been landing in European ports. Germany’s first re-gasification terminal was recently completed at Wilhelmshaven. And both German industry and private households have shown that they can reduce their natural gas consumption. According to the Federal Network Agency, industrial and household consumption were down 25 and 17 percent, respectively between the 14th and 20th of November. If this 20 percent savings average can be maintained, then a shortage in the coming months will remain very unlikely.
- As reported last week in DU#15, the producer price index (PPI), which measures the price level experienced by producers, fell in October for the first time since May 2020. Data released by DESTATIS this week indicates that the consumer price index (CPI), which measures the price level experienced by consumers, also fell by o.5 percent compared to October, making the current inflation rate 10 percent. While 10 percent is obviously extremely difficult for everyone, it is possible that we are seeing the beginning of a downward trend.