Merkel Budget Zeal Erodes Byways as Infrastructure Rusts

Photographer: Krisztian Bocsi/Bloomberg

Chancellor Angela Merkel’s campaign to balance the budget is impeding maintenance of the roads, railways and bridges that are key for its export economy. Close

Chancellor Angela Merkel’s campaign to balance the budget is impeding maintenance of... Read More

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Photographer: Krisztian Bocsi/Bloomberg

Chancellor Angela Merkel’s campaign to balance the budget is impeding maintenance of the roads, railways and bridges that are key for its export economy.

Wolfgang Gau has a truckload of Italian car parts and ice-cream machines bound for Denmark, and he’s running late.

Having started in Milan, the bearded trucker with 40 years of experience at the wheel says the reason he’s behind schedule on his 1,500-kilometer (932-mile) journey is the same reason as usual: German roads.

“On some stretches of highway, the cracks in the road surface in the slow lane are so big that if you don’t reduce your speed they’ll rip the steering wheel from your hands,” he says, parked up for the night at a truck-stop in Burgholzhausen, 33 kilometers north of Frankfurt on the A5 motorway. “I don’t get the feeling that everything that needs to be done is being done.”

Chancellor Angela Merkel’s campaign to balance the budget is impeding maintenance of the roads, railways and bridges that are key for its export economy. If she wins a third term in Sept. 22 elections, she’ll need to spend as much as 6.5 billion euros ($8.7 billion) a year more than she does now to keep the rails of the economy greased, according to a study by the German Institute for Economic Research, or DIW, in Berlin.

“Underinvestment runs the risk of wearing Germany down,” said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington, D.C. “Modern manufacturing, just-in-time production, extended supply chains all demand very high standards of infrastructure to work properly. These are short term budget-cost savings that could easily cost Germany Inc. much more in the future.”

Photographer: Krisztian Bocsi/Bloomberg

Trains operated by Deutsche Bahn AG are seen on the tracks leading to and from the central railway station in Frankfurt. Close

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Photographer: Krisztian Bocsi/Bloomberg

Trains operated by Deutsche Bahn AG are seen on the tracks leading to and from the central railway station in Frankfurt.

Fraying Road

Over the past two decades, money spent by the government on roads, bridges, railways and public transport infrastructure has fallen in real terms or stagnated, while in the period 1991 to 2010, the usage of the roads for passenger journeys increased by about 27 percent and freight by 75 percent, statistics published by the Environment Ministry and DIW show. As a result, the spending shortfall on upkeep of the transport network is running at about 4 billion euros as year, the DIW says.

That’s causing fraying throughout. According to a report prepared for the German parliament in January, 14 percent of the country’s 39,000 highway bridges are in a condition that could compromise traffic safety.

Gau, the trucker headed for Denmark from Italy, also had to detour around the most direct route to Scandinavia over the Rader High Bridge, a 1.5-kilometer artery extending the A7 Autobahn across the Kiel Canal near Rendsburg.

Photographer: Krisztian Bocsi/Bloomberg

Angela Merkel, Germany's chancellor and party leader of the Christian Democratic Union (CDU), gestures as she speaks during an election rally in Potsdam, Germany on Sept. 16, 2013. Close

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Photographer: Krisztian Bocsi/Bloomberg

Angela Merkel, Germany's chancellor and party leader of the Christian Democratic Union (CDU), gestures as she speaks during an election rally in Potsdam, Germany on Sept. 16, 2013.

Swallowing Losses

After renovation work revealed structural flaws, authorities closed two of the bridge’s four lanes in July and barred it completely to heavy trucks. Traffic jams leading to the Rader High Bridge can now stretch for 25 kilometers. Gau will need an extra two hours for the diversion.

“The haulage company has to simply swallow that loss,” he says.

Deutsche Bahn AG, Germany’s state-owned rail company, had to reduce commuter services to and from the city of Mainz, 45 kilometers southwest of Frankfurt, because too few signalmen were available -- due to summer holidays or illness. Some switches have been in place for more than 100 years.

Such failings have become a campaign issue.

“What is going on with our infrastructure, is it actually falling apart?” Peer Steinbrueck, Merkel’s Social Democratic challenger, asked in a Sept. 2 televised debate. “These are duties that have been neglected in the past four years.”

Alarm Bells

Germany’s leading industry groups sounded the alarm last year, when 12 federations joined to urge Merkel to bump up spending in infrastructure.

Investment as a portion of the federal budget shrank to 9.6 percent last year compared with 13 percent in 1998, said the group in its October 2012 declaration. It’s set to dwindle further since the EU’s fiscal pact came into force this year, obliging Germany to prevent its annual budget deficit exceeding 0.5 percent of gross domestic product.

In a 2012 revision of its 2011-2015 transport-spending plan, the government cut planned total outlays to 41.5 billion euros from 57 billion euros. The plan’s preamble called the figure “more honest.”

“If the cumulative result of years of neglect is also taken into account, the additional annual investment requirement should be at least 6.5 billion euros,” the DIW report said. “A quantitatively and qualitatively efficient transport infrastructure is a fundamental requirement for the success and prosperity of the German economy.”

Merkel’s Pledge

At an election campaign stop on Aug. 27 in Rendsburg, the site of the weakened bridge over the Kiel Canal, Merkel promised to add 1 billion euros to infrastructure spending next year “so that the traffic continues to flow.” Overall, federal spending is slated to decline to 309 billion euros in 2016 from 312 billion euros last year as Merkel reins in the deficit.

“It’s not necessary to give up fiscal targets,” Priska Hinz, the budget spokeswoman in parliament for the opposition Greens, said in a Sept. 17 telephone interview. “Just get wise to how important it is to not to crimp at cost to infrastructure -- and the economy.”

Merkel is facing pressure to find alternative means to pay for it. Bavarian Prime Minister Horst Seehofer, who led the CDU’s sister party, the Christian Social Union, to an absolute majority in state elections on Sept. 15, made a motorway toll for car drivers a focus of the campaign. ‘We won’t give up on the toll,” Seehofer said after his victory. “We will get it through.” Germany already operates a truck toll yet ploughs most of the revenue into the federal budget.

Renovation Backlog

Even Federal Transport Minister Peter Ramsauer, a member of Seehofer’s party, said that Germany is suffering “from a massive renovation backlog” and has been running its “infrastructure into the ground for too long,” according to an interview with the Osnabruecker Zeitung newspaper on July 5.

If the backlog isn’t eventually cleared, growth may suffer. Europe’s largest economy is also highly dependent on its neighbors, with about 40 percent of exports going to the euro area. Neighboring France, the euro’s second-largest economy, took 129 billion euros of German goods in 2012. German carmakers like Volkswagen AG (VOW) and Daimler AG, who make up the largest portion of export goods, operate supply chains that extend deep into Eastern Europe and rely on the road and rail network.

“If you can’t guarantee the transport infrastructure, then that endangers Germany as a location for production,” said Karlheinz Schmidt, managing director of the Federal Freight Transport Association. “If you can’t guarantee the transport network, you may as well go back to growing potatoes.”

To contact the reporters on this story: Jeff Black in Frankfurt at jblack25@bloomberg.net; Brian Parkin in Berlin at bparkin@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; James Hertling at jhertling@bloomberg.net

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