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German government spends billions of euros in subsidies

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Staff Writer | April 10, 2018
German government
Trade   Kiel Institute for the World Economy

The German government spends billions of euros in public subsidies to businesses and consumers each year, a study published by a German think tank Kiel Institute for the World Economy (IfW) finds.

The German federal government paid out financial assistance worth around 55 billion euros ($67.75 billion) in 2017 alone, claimed the study co-authored by Claus-Friedrich Laaser and Astrid Rosenschon.

The IfW warned that subsidies could distort market competition as in the area of high speed Internet. The authors expressed concerns that regional inequalities in the quality of Internet provision could be exacerbated because firms would retreat from rural areas with an expectation that the government would make up for the resulting gap.

The study also suggested the government focus on financing basic research because it can hardly foresee which technologies would be crucial to everyday life in the future.

"We would prefer subsidies to be technologically open-ended," said the study, specifically referring to an annual sum of 400 million euros (492.98 million dollars) spent on e-mobility development sales and development in 2017.

The institute particularly criticized the subsidies which it viewed as "contradictory," such as electricity bill rebates -- around 1.7 billion euros in 2017 (2.1 billion dollars) -- offered by the federal government to energy-intensive industries which contradicted an official desire made by German Chancellor Angela Merkel to transform the national economy into a greener one.

"These expenses make the entire energy and environmental policy pursued by the government self-defeating," said the study.

However, German magazine "SPIEGEL" pointed out that Berlin appeared to be intent on allowing the government to play a more assertive role in domestic resource distribution rather than adopting the IfW's libertarian views.

Peter Altmaier, Germany's federal minister for economic affairs and energy recently told press that the "long-term preservation of industry, above all, through innovation, is one of the questions which cannot be solved by the market alone."


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