FDP: The Encroaching State in 7 Charts

Among the world's major market economies, the Federal Republic of Germany stands out as one of the most powerful states, with an unmatched appetite for its citizens' money. This past weekend, the Free Democratic Party (FDP) convened at its annual party conference to debate whether to continue supporting the expanding government infrastructure — or to instead streamline it. The discussion was grounded on five key points and seven informative graphics.

#1 The Citizen: High Taxes

In Germany, labor income is particularly heavily taxed and subjected to high social security contributions compared to other countries. Of 38 countries studied by the OECD, Germany ranks second—only Belgium takes more from its citizens.

Last year, a single individual earning an average income in Germany contributed 47.9 percent of their salary to the state in taxes and social insurance contributions. The OECD country average is 34.8 percent.

#2 The State: Hunger Grows

State spending on personnel and administration is on the rise. The federal administration had 256,000 employees in 2016; now, it has 298,000.

According to the Taxpayers' Association, the federal ministries have added over 1,400 positions and expanded the total number of civil servants by approximately 10,000 since the current government coalition came into power at the end of 2021.

Their calculations reveal that federal personnel expenditures are expected to amount to €45 billion in 2024, an increase of 59% compared to 2010.

At the same time, administrative expenditure will almost double from €12.9 billion to €24.3 billion between 2015 and 2024. The Taxpayers' Association has calculated that the administrative budget has grown faster than tax revenue in recent years.

#3 The Welfare State: Growing Despite Frugality

While the German economy is currently shrinking and the federal spending budget has been cut, the welfare state continues to grow.

For 2024, the federal budget foresees expenditures for the Ministry of Labor and Social Affairs at €175.7 billion, 36.84 percent of the total budget. In 2021, the share was still at 28.8 percent.

Social spending has increased by €32 billion since 2019 and by approximately €50 billion since 2012.

#4 The Expenditures: Lack of Discipline

Compared to 2019, federal tax revenues increased by €49 billion, or 15 percent, by 2024. However, expenditures shot up by €135 billion, or 39 percent, in the same period. Expenditure growth is three times higher than revenue growth.

#5 The Companies: Germany’s Location Disadvantage

Companies based in Germany face some of the highest taxation rates in the world. While the average among OECD countries is 23.6 percent, companies in Germany pay nearly 30 percent of their earnings to the state—a noticeable competitive disadvantage.

Conclusion: "Economic turnaround" was the theme of this weekend's FDP party conference. In reality, Germany has indeed experienced an "economic turnaround" over the past 15 years, but in the wrong direction. A debate on setting the right priorities to restore economic performance is not a matter of left or right — it’s just simply overdue.

• An analysis from members of the Alternative for Germany (AfD) suggests that support for the right-wing party is declining.

• Claudia Major speaks with Chelsea Spieker about the war in Ukraine for the Pioneer Podcast.

• US college students pitch their tents to protest.

The Free Democratic Party (FDP) convention has concluded. The Liberals want to see an "economic turnaround," and to do so, they have set up a plan: streamline the welfare state, lower taxes, eliminate the solidarity surcharge, maintain the debt brake, and welcome skilled foreign workers.

My colleague Christian Schlesiger attended the convention. His analysis: Christian Lindner is celebrating a win-win.

Win 1: The "economic turnaround." The FDP has finally latched onto a political issue that resonates with the majority of Germans, helping to maintain the party's relevance as election time approaches.

Win 2: The FDP seems unified — and pleased with their performance.

However, post-party convention, the challenge of the economic turnaround looms. The Liberals' stringent demands must soon be reflected in the federal government's reform package. Otherwise, Lindner could be in trouble, again. An amendment to increase the requirements for member surveys has failed. FDP rebels could make their voices heard again in the summer. The new, combative Christian Lindner has not pacified them, but rather ignited a fire within them.

The AfD's high polling numbers have hit a plateau. Initially triggered by the Correctiv investigation and now by the Russia and China-Gate scandal involving EU top candidates Petr Bystron and Maximilian Krah, the party is struggling to gain new supporters.

An analysis by AfD members anticipates a further decline in support: no blue majority in the European election, rather "13 to 15 percent." And: no East German AfD prime minister.

The party kicked off its European election campaign in Donaueschingen on Saturday without any leading candidates—apparently to prevent further damage. The widely shared internal AfD analysis - created by a Telegram channel that is critical of the Weidel camp - states soberly:

You can read about the reasons why AfD members are now engaging in sober self-criticism (in German) in today’s Hauptstadt - Das Briefing.

My colleague Chelsea Spieker spoke with Claudia Major in an interview for our Pioneer Podcast about the war in Ukraine, the urgency of aid and ceasefire concerns.

Claudia Major is a political scientist, Head of SWP International Security Berlin, and has been a member of the Federal Government's Advisory Board on Civilian Crisis Prevention and Peacebuilding since 2010.

Major makes it clear that despite the positive rhetoric from Western governments, the practical military support for Ukraine is insufficient to reclaim territories. However, she also emphasizes:

A ceasefire with Russia would not be reliable as long as Russia holds onto its war objectives, primarily because it could be used to allow Russian forces to regroup and recover:

Enough is enough: From New York to California, American students are advocating for peace between Israel and Hamas. They have set up tents on their university campuses to protest the war. In some places, police evictions occurred over the weekend. Since April 18th, over 700 students have been arrested at American universities. Several professors and lecturers have also been suspended.

The demand: Universities should sever their financial ties with Israel, end cooperation with institutions like Tel Aviv University, and disassociate from companies that are seen as promoting the conflict in Gaza, including Microsoft, Amazon and Google. At New York University (NYU), chants were heard:

Negotiations or handcuffs: At Columbia University in New York City, talks between students and the university have been ongoing since Saturday to end the protests. At Northwestern University in Boston, the situation was less peaceful. Riot-geared police cleared the students' camp on Saturday, arresting 102 people. The police had given them only 15 minutes to clear the area before moving in, protesters said.

The explanation: A spokesperson from Northeastern, Renata Nyul, said the demonstration had been "infiltrated by professional organizers" and that "the use of violent antisemitic slogans, including 'Kill the Jews,' crossed the line." Pro-Palestine demonstrators, including Jews, stated that these slogans were spread by counter-demonstrators and that no students "repeated the disgusting hate speech."

Students must comply: Numerous universities are now threatening action against students who participate in the protest camps. At Harvard, members of a pro-Palestinian student group, and at Cornell, four students who participated in the demonstrations, have been suspended.

Conclusion: Benjamin Netanyahu is unlikely to be swayed by students' wishes in the USA. However, Joe Biden must listen when the students of his nation address him. This protest movement at the universities may not be war-decisive, but it could be election-decisive.

Monday:

• Chancellor Scholz welcomes the Prime Minister of Montenegro, Milojko Spajić, for his inaugural visit to the Federal Chancellery. The two plan to discuss bilateral and international topics, mainly focusing on Montenegro's EU prospects.

• The Federal Statistical Office will release a preliminary estimate of the inflation rate for April 2024.

• Baerbock in Saudi Arabia: On the sidelines of an economic forum in Riyadh, Annalena Baerbock, along with the foreign ministers of the USA, the UK, France and several Arab countries, will meet to discuss the release of Israeli hostages and a ceasefire in Gaza.

• Quarterly earnings: Domino's Pizza, Paramount Global, Philips

Tuesday:

• The Federal Employment Agency will release the April unemployment figures, another key indicator of potential interest rate cuts.

• The European Statistical Office will announce the consumer prices for April. Another positive development could fuel hopes for soon-to-come interest rate cuts.

• Statisticians from Wiesbaden (Federal Statistical Office) and the European Commission will announce the GDP in Germany and the EU for the first quarter of the new year.

• Earnings marathon: 3M, Adidas, Air France-KLM, Amazon, AMD, Coca-Cola, Covestro, Eli Lilly, Logitech, Lufthansa, Mercedes-Benz, PayPal, Starbucks, Super Micro Computer, Volkswagen, Vonovia

Wednesday:

• German Labor Day!

• The US Federal Reserve (Fed) decides on future interest rate policies. Experts do not expect rate cuts but hope Fed Chairman Jerome Powell will provide insights into future policies during the subsequent press conference.

• Quarterly earnings: eBay, Estée Lauder, MasterCard, Pfizer

Thursday:

• A new mayor will be elected in London, and the English local elections will take place. Elections will be held across 107 municipalities.

• Quarterly earnings: Apple, Hugo Boss, Kellogg's, Moderna, Novo Nordisk

Friday:

• The German Film Award ceremony takes place in Berlin.

• Quarterly earnings: Daimler Truck

June 2, 1878 – Unter den Linden: Kaiser Wilhelm I was traveling in a carriage on the streets of Berlin when he was suddenly attacked by an assailant.

Assassination attempt on the Kaiser: Even though there were no social media, televisions or radios, the news of the Kaiser's assassination attempt spread quickly. Prussian Major General Karl von Rosenberg was to thank for this, as he rushed to the nearby studio of the artist Adolph von Menzel following the attack to spread the word. Von Menzel was one of the most significant German draftsmen and illustrators of his time – esteemed by the highest circles.

Menzel was about to portray a Moroccan envoy when the Major General delivered the news. Menzel captured this historic moment immediately on the sketch he had just completed. He wrote on the sheet:

And on the same page next to the portraits of the Moroccan envoy, he spontaneously sketched a drawing of the Kaiser – who narrowly survived the assassination.

Auction: The sheet, originating from a private collection, caused a sensation at the Lempertz auction house in Berlin. It was initially estimated to be worth up to €8,000. However, the experts were far off the mark.

Winning Bid: A lengthy competition among bidders in the room, on the phones and online drove the price up. Ultimately, the hammer didn't fall at 8,000 but at €160,000. The buyer – an international private collector – paid a significant premium of €201,600 for this historical document.

Wishing you a wonderful start to your week. Stay informed. Stay with me.

Best wishes,