The German Economic Institute (GEI) has posited that pension funds could be persuaded to use their considerable assets to fuel domestic economic growth by investing in venture capital.

That is one of the thoughts in one of the GEI’s latest reports, Agenda für mehr private Investitionen (An Agenda for More Private Investment), which was released this week. These ideas are coming to light as the German economy continues to shudder, with GDP having failed to grow for the second year in a row.

In its conclusions, the authors write: “The task of the new German government is to mobilise more domestic capital without restricting access to foreign markets and capital. Based on the political initiatives to date, this requires further adjustments to the fundamental framework conditions in order to strengthen the global competitiveness of the German venture capital market.”

They added: “For example, investments in venture capital funds should be made easier for insurance companies and pension funds. At the same time, IPOs should be facilitated in Germany, also in order to offer venture capital funds liquid exit opportunities from their investments.

"Strengthening tax incentives for venture capital investments can also help to steer private investments into particularly capital- and knowledge-intensive, complex technologies with long, high-risk development times - and thus exploit the potential of innovative start-ups.”

In an accompanying note, the GEI said that the country has a ‘massive lack’ of investment, dampening productivity and reducing economic growth. Part of this, the GEI says, comes not only from a lack of government investment in recent years, but from a parallel recalcitrance from companies. It is an urgent task, the GEI says, that should be tackled immediately. Modernisation of German infrastructure, it says, is ‘absolutely necessary’.

These thoughts come as Germany is set to head into federal elections in about three weeks, with incumbent Chancellor, Olaf Scholz widely predicted to be ruled and replaced by the more conservative, Friedrich Merz, leader of the CDU/CSU.

Germany’s governments have been coalitions for much of the past 75 years, but recent events in Berlin have seen those tenuous relationships fray. Many question whether parties will see fit to work in concert again—if only to maintain the ‘firewall’ of working together against the far-right AfD Party, which is currently polling in the low 20s.

Germany’s economy is also dragging and a major influence on the ongoing election campaign. A week ago, it was reported widely that the economy here has shrunk for the second year in a row, and many feel that the country has become complacent in its position as Europe’s biggest economy and subsequently missed out on a decade of modernisation.

At present, the country’s pension system is also widely acknowledged to be dysfunctional and unsustainable. Just this week, ING global head of macro, Carsten Brzeski, said that the economic problems are ‘not cyclical’.

Brzeski wrote: “The country is still one of the richest economies in the world, but it needs an overhaul to stop its gradual deterioration. Just addressing the main issues of energy, China and competitiveness will be a challenge. Add to this unfavourable demographics and the impact on healthcare and pension systems and it’s clear that there is no easy way out of the current situation.”

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