Excessive bureaucracy costs Germany up to 146 billion euros annually in lost economic output, according to a study by the Ifo Institute on Thursday, providing a bleak figure on the impact of this long-term issue on businesses.
Executives complain about the extent of bureaucracy – including lengthy approval processes for new companies and relatively slow progress toward digitalization – in Europe’s largest economy, which has underperformed compared to other eurozone countries since 2018.
“The large scale of costs caused by bureaucracy illustrates the urgent need for reforms,” stated Oliver Falck, director of the Ifo Center for Industrial Organization and New Technologies, in the report.
“The costs of inaction are enormous when measured against the untapped growth potential that would result from reducing bureaucracy,” he added.
Ifo reported identifying countries that implemented reforms to reduce bureaucracy, tracked their economic development over time, and used this to estimate what Germany missed out on by not making similar changes.
“If Germany caught up with Denmark in terms of digitalizing public administration, its economic output would be 96 billion euros higher each year,” said Falck.
In September, the German government enacted legislation intended to reduce bureaucracy as part of a growth package with 49 measures aimed at accelerating sluggish economic growth.
Business associations then stated that the initiative was a step in the right direction but insufficient to increase competitiveness.
In all surveys by the Chamber of Commerce in the past two years, bureaucracy has been cited as the biggest obstacle to business.
“All verification and documentation requirements, reporting obligations, statistical reports, constant legal changes, data protection requirements, and lengthy administrative procedures need to be thoroughly examined, significantly simplified, and in some cases completely abolished in Berlin and Brussels,” said Manfred Goessl, executive director of the Chamber of Industry and Commerce for Munich and Upper Bavaria, as quoted in the report.
