Guest article by Michael Breuer,
President of the Rheinischer Sparkassen und Giroverband,
Article in the Börsen-Zeitung from 27 September 2023
Taking on the challenges with confidence: Sustainability and digitalisation transformation
Our present is characterised by multiple crises and an ever-increasing density of events. We experience intense and controversial discussions and exchanges of opinion on a daily basis. And we keep reading and hearing negative predictions about the future that are characterised by doomsday scenarios and pessimism.
So isn't it time we got back to a well-founded and structured dialogue? Of course, a contest of arguments is always an imposition on a society geared towards consensus. But it would be much more worrying if we were to abandon constructive discourse.
The past four years in particular since the outbreak of the coronavirus pandemic have shown that people in Germany have the strength and creativity to grow in the face of challenges - despite all the obstacles and complexities. Of course, the coronavirus was a new experience for all of us; we didn't know how to deal with the pandemic. But solutions have been found together and the economy has recovered. We still need to overcome the globally tangible consequences of Russia's criminal war of aggression against Ukraine, which violates human rights.
The interest rate situation has changed fundamentally over the past 15 months. The savings banks have long called for an end to the zero and negative interest rate phase and had to wait many years for the turnaround. For many, the intensity of the change in interest rates came faster than expected, but the ECB had to react consistently to the record inflation. We are now back in a "regular" interest rate environment, which is helping to normalise the general conditions for the banking industry.
The business model of the savings banks was and is stable and efficiently geared towards the future. This is also necessary, as the focus must now be on supporting corporate customers with regard to necessary investments in order to manage the transformation in Germany with foresight and prudence.
The savings banks have supported their customers well and intensively over the last few years - especially against the backdrop of global political uncertainties and crises. They have been and continue to be valuable advisors and reliable partners in their region, which has been clearly demonstrated by their prudent actions in times of crisis.
Now is the time to face urgent challenges such as inflation, digitalisation, transformation and sustainability together and with confidence. The solidarity of the savings banks with the region means that support for SMEs is at the centre of their activities - especially in the transformation towards a sustainable orientation.
However, one region alone cannot bring about change or ensure that Germany retains its attractiveness as a business location. This can only be achieved with a great deal of commitment from all those involved and a return to Germany's traditional strengths.
As the German Savings Banks and Giro Association has shown in its latest publication of the S-Mittelstands-Fitnessindex, the vast majority of SMEs will be able to record significant increases in turnover and profits in 2022. Turnover rose by an average of 14% and profits by as much as 17% per cent. However, we must not close our eyes to the fact that there are also sectors - particularly the construction industry, catering and retail - that are not doing well economically and urgently need to be supported.
The chances of success and the attractiveness of Germany are massively influenced by economic conditions such as the price of energy, a modern digitalisation infrastructure and the availability of qualified, urgently needed skilled workers. The current discussions also show that there are no eternal certainties. Because one thing we have learnt in recent years is that difficult situations sometimes call for quick, courageous and sometimes unorthodox decisions that are not always found in the typical economics textbook. But here too, action is better than waiting.
An immediate energy package, as proposed by Prof Michael Hüther, Director of the German Economic Institute, currently seems to me to be a sensible package of measures to demonstrate the ability to act in the current situation. This should include a reduction in electricity tax as well as an investment premium to improve the general investment climate in Germany.
Industrial electricity price as an effective immediate measure to strengthen competitiveness
One key effective immediate measure is certainly the introduction of an industrial electricity price. An internationally competitive industrial electricity price not only creates the necessary planning and investment security for the German economy, but also ensures competitiveness in the current globalised competition. In order to keep Germany attractive as a business location for the primary industry and to prevent an increasing deindustrialisation of the German economy, the necessary decarbonisation of the economy must not make production more expensive due to excessively high electricity costs.
A regulated and temporary industrial electricity price can help to secure strategic investments in future-oriented and sustainable technologies - and keep successful companies on site. This will secure jobs in industrial companies, but also in the supply industry, and increase consumption capacity. After all, long-term production and energy cost prospects remain an important criterion for the location decisions of commercial enterprises.
However, one thing must also be clear: The industrial electricity price can only be a temporary incentive in the form of a so-called "bridging electricity price". It is intended to give companies temporary time until sufficiently favourable electricity from renewable energy sources is available for industry. There must be an exit scenario.
After all, a market economy must ultimately generate a competitive electricity price itself. For example, the accelerated expansion of renewable energy sources and electricity grids on the electricity exchange generally has a price-reducing effect. With regard to the specific design and clear exit criteria, the questions that remain unanswered must be answered. These need to be answered quickly and in a joint consensus and the right measures need to be taken.
What is important is that the framework conditions for the industrial electricity price must be set very transparently and it must also be possible to implement consequence management in the event of abuse. Of course, such a state measure will raise the question of fairness, as not everyone will benefit from potential relief. But we must keep an eye on the German economy as a whole. SMEs and tradespeople will not be helped if large industrial groups move abroad.
Because one thing is certain: competition for companies has reached a new dimension. Many countries offer subsidies and benefits to encourage companies to come to their country. And once a company has relocated, it is very unlikely that it will return to Germany due to the long investment horizon.
We need to make the business location competitive, attractive and innovative in the long term, not only to prevent industry from moving away, but also to attract new companies and sectors. It is only possible to develop the right ideas and strategies for a sustainable business location through joint co-operation between business, politics and society and with the backing of the people.
The Germany Pact now being called for by Chancellor Scholz is an opportunity, but it will only succeed if everyone gets stuck in. The savings banks will make their contribution. Not all risks will be calculable. However, we have already proven in the past that we are very good at assessing the lending business locally - because we know our customers better than others and can therefore promote and support the necessary and sustainable investments.
PDF-Download: Article in the Börsen-Zeitung (27/09/2023)
