Peter Bofinger delivers a scathing diagnosis of the German economy, identifying a „middle-technology trap“ where the nation is squeezed between Chinese state planning and American digital dominance. He argues that Berlin’s adherence to the „garage narrative“ – the belief that markets alone drive innovation – ignores the historical reality that US tech supremacy was forged through massive state-led defense spending. This ideological blindness has left Germany’s top firms (averaging 129 years old) vulnerable to disruption, evidenced by the automotive sector shedding 50,000 jobs in a single year and GDP remaining stagnant for six years.
Critically, Bofinger highlights a wasted opportunity in the recent debt brake reform: while €30 billion is being poured into energy subsidies to prop up legacy industries, only €4.5 billion is allocated to high-tech development. He suggests a pragmatic, if cynical, path forward: Germany must exploit the debt brake’s unlimited exemption for defense spending (above 1% of GDP) to implement a „hidden“ industrial policy. By channeling defense funds into dual-use technologies, Berlin could mimic the US Cold War model to finally catalyze the digital innovation it desperately lacks.
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