end and enforce interests and to make Europe less susceptible to economic policy pressure.
Weaknesses in the domestic economy
Germany's economic development has been positive overall since 1999. Per-capita GDP growth compares favourably with the US. France and the UK lag behind Germany and the US; Italy has been stagnant for decades.
But closer analysis reveals clear structural weaknesses to which German economic and foreign policy must respond in the next decade:
- Germany and the EU have a relatively old corporate structure with few young and growing companies. Among the top 50 Fortune 500 Global Companies, 22 are from the US, 12 from China and only seven from the EU (three from Germany: Volkswagen, Daimler, Allianz). Among the top 500, China now has more companies than the US for the first time.
- The lack of qualified personnel, for example in the digital sector and especially in artificial intelligence, is making it difficult to introduce cutting-edge technologies. Germany risks losing its leadership position in key sectors where data-driven and AI-based solutions are becoming the industry standard.
- Germany's energy transition is incomplete. Comparatively high energy prices combine with insufficient decarbonisation. The share of renewable energies is increasing, but is below the EU average and far behind the frontrunners, the Nordic countries.
- There are also clear weaknesses in the efficiency of public administration. In the OECD Digital Government Index, which measures the openness, usefulness and reusability of government data, Germany is below average.
These weaknesses are the backdrop against which German foreign economic policy will be shaped in the coming years. Clearly, the new federal government must remedy the internal weaknesses to improve the competitiveness of the economy. This will also increase the foreign policy strength of the Federal Republic.
Recommendations for German foreign economic policy
- Increase the resilience of the EU and the euro area
The EU has made substantial progress in reinforcing the structure of the euro area but weaknesses remain. The next German government should develop a proactive strategy to reduce these by, for example, completing the banking union and deepening and integrating capital markets while increasing the supply of safe assets. It is also in Germany's interest to further strengthen the EU's internal market.
- Managing technological and geopolitical confrontation
Technology policy has become one of the central fields of action in foreign economic policy, because of the central role those digital technologies play for all economic sectors, and because competitors can exploit digital interdependencies for their geopolitical goals. The EU has focused more on this in recent years but does not have all the necessary instruments to respond effectively. While it can enforce standards through regulation, the EU lacks financial instruments to promote new technologies. Decisions on foreign investment in European companies that produce key technologies also remain largely at the member-state level.
A fundamental problem is the lack of investment in new technologies, networks and human capital. In AI, for example, there are far too few graduates in the EU. A training push, the strengthening of the digital single market, more investment and the improvement of venture capital funding are indispensable prerequisites to ensure Europe does not fall further behind in digital technology. This, in turn, is of central importance to better manage interdependencies and thus be less vulnerable.
When making decisions about the use of technologies, Europe's resilience must be taken into account. Overall, a defensive strategy will not be enough. Europe must invest more in digital technologies, not only to better manage geostrategic dependencies, but above all to be future-proof in these key technologies. In recent years, Germany has rightly started to invest more in digital technologies. However, current investments remain insufficient and should be stepped up.
- Not limiting climate polic