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German Finance Minister Urges Pension Funds to Fuel Domestic Growth

German Finance Minister urges pension funds to invest in domestic growth during a business leaders' meeting.

Germany’s finance minister Christian Lindner has called on pension funds to invest more in the country’s real economy, aiming to create a more robust platform for domestic growth. Speaking at the liberal party’s (FDP) conference in Berlin, Lindner emphasized the need for a new Future Financing Act to mobilize private capital.

Key Takeaways

The Call for Domestic Investment

Christian Lindner, Germany’s finance minister, has made a compelling case for pension funds to invest in the country’s real economy. At the FDP conference in Berlin, Lindner highlighted the need for a conducive environment that allows insurance companies and Pensionskassen to diversify their investments beyond government bonds and real estate. He suggested that these funds should also consider infrastructure and business ventures.

“What we have to create is an environment that allows insurance companies and Pensionskassen in Germany to no longer just invest in government bonds, or just in stones, for example real estate, [so] that they can also invest in infrastructure and business ventures,” Lindner stated.

Future Financing Act: A Pillar for Growth

Lindner believes that Germany needs another Future Financing Act (Zukunftsfinanzierungsgesetz) to mobilize private capital. The previous act, approved last year, lowered the market capitalisation threshold for an IPO to €1 million, encouraging the listing of start-ups and small and medium-sized enterprises (SMEs). This act is a cornerstone of the government’s start-up strategy.

Competitive Disadvantage

Germany faces a “competitive disadvantage” compared to the US due to a lack of capital markets for private investment, according to Lindner. He pointed out that in the US, there is a strong capital market culture where people across society invest in companies. The US retirement system is also based on the strength of its own economy, a model that Lindner believes Germany should emulate.

“In the US, there is a capital market culture. Across society, people invest in companies. [There] the retirement system is based on the strength of your own economy. We also have to go in this direction,” Lindner added.

FDP’s Economic Demands

The FDP is demanding significant changes to make Germany more competitive. According to decisions made at the conference, Germany is currently not competitive and its economy is stagnating like no other industrial country. The party’s demands align with similar initiatives in other countries, such as the UK’s plan to unlock up to £75 billion investment from defined contribution (DC) and Local Government Pension Schemes (LGPS) to support the economy.

European Context

The call for increased domestic investment is not unique to Germany. Former Italian prime minister Enrico Letta has suggested creating a Savings and Investments Union in Europe to unlock €33 trillion of private savings to fund the bloc’s strategic goals. This comes in light of private savings amounting to €300 billion landing in the US and in the hands of US asset managers every year.

Germany’s push for pension funds to invest in domestic growth is part of a broader strategy to make the country more competitive and economically robust. By creating a favorable environment for diverse investments, Germany aims to emulate successful models from other countries and stimulate its own economy.