For many months, the German economy has been experiencing a slowdown, and the federal government's only response seems to be to debate its causes. Some see it as merely a temporary economic downturn. Chancellor Olaf Scholz says that the situation is being overly talked up. However, most people consider it a structural problem, resulting from high taxes, insufficient investment, and excessive government intervention and bureaucracy.

Even DIW (German Institute for Economic Research) President Marcel Fratzscher, who has previously supported the optimistic position, appears to be changing his stance. At least, that was the impression given by his appearance at the Coface Congress in Mainz. He was sharply critical of the obstacles to investment, as repeatedly highlighted by the FDP (Free Democratic Party) and business associations. These are high taxes, poor infrastructure, insufficient incentives for innovation, inadequate digitalisation, a lack of skilled workers, and a bureaucracy that delays, increases the cost of, and obstructs approval processes.

Fratzscher compares the situation to 1997 and the so called Ruck (Jolt) speech given by former Federal President Roman Herzog. Herzog spoke of an "incredible mental depression“, and emphasised that it would take not only a political shift, but also a fundamental change in attitude in politics, business, and among citizens, towards more entrepreneurial spirit, risk-taking, ambition, and personal responsibility, to spur growth and dynamism in the economy.

Such a tabula rasa, or starting with a clean slate, requires a reassessment of past thinking and actions. Politics must set an example by first clearing away its own shortcomings, which hinder and burden investment, innovation, and infrastructure. In the 1990s the German government dared to do so, with the Hartz reforms, which contradicted the SPD's (Social Democratic Party of Germany) previous political beliefs, and ignited a long lasting economic dynamism.

Large scale political change will be difficult at present, given the current tax revenue forecast, which predicts much lower government revenues than expected, making cash to lubricate the system scarce. But perhaps this is for the best. Ifo President Clemens Fuest suggests a blanket 15% cut in all subsidies, which would be appropriate given the current economic situation and the structural deadlock. The money should be exclusively used for increased investment. This is a clever move because, given the interest groups represented in the various political parties, it would be difficult to agree on individual cuts in the current coalition government. And even if they did, only peanuts would be saved.

That would indeed give Germany a jolt. It would show that Berlin is capable of taking unconventional paths to break a deadlock. Confidence from foreign investors in the business location would return. And perhaps many highly qualified individuals would regain confidence, and no longer seek their fortunes abroad. Maybe Germany would become the destination for many more skilled workers and specialists, to contribute to its modernisation. On the other hand, it would also have an internal effect, contributing to a change in mentality, especially among young people. Studies show that they are beset by fear of the future. Their confidence would be revived.

A business location does not become modern by wrapping citizens up in social care packages. Rather, a society must welcome change proactively. This is precisely what, according to Munich based sociologist Armin Nassehi at the Coface Congress, Germans have forgotten. They lack the desire for risk, the playful approach to the new. Or, as AI expert Feiyu Xu put it regarding Germany as an AI location – in addition to financial resources they lack dedication. German society has become too comfortable to be ready for completely new business models. A subsidy shock might wake them up.