PIIE Chart: Improving Germany’s Business Investment Climate
Germany's business environment has stalled and even deteriorated over the last year, according to the World Bank’s most recent Ease of Doing Business rankings. This may be a surprise to some given that Germany is viewed as one of the most attractive foreign direct investment destinations in Western Europe. Specific causes of the worsened environment include the Act on Modernization of Cost Rules, which increased the cost of starting a business in Germany, and an increase in the real estate transfer tax, which also made registering property more expensive. These changes made an already poor showing of these two indicators even worse: Germany's “starting a business” score fell from 103rd to 114th in the world, and its “registering property” score also fell from 80th to 89th in the world (see figure). Such low scores indicate that serious roadblocks still exist within the domestic economy in attracting private investment. Germany is currently facing a large investment gap, the majority of which needs to be accounted for by private investment. This shortfall cannot be alleviated by additional government spending alone because of the "debt brake" enshrined in Germany's Basic Law. Structural reforms that improve Germany's business climate would provide much-needed assistance in boosting private investment and maintaining the country’s long-term competitiveness.
Germany's Ease of Doing Business Rankings, 2014 and 2015
Source: World Bank, Ease of Doing Business Index 2015