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Investment pot overflows as Germany’s infrastructure crumbles

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Via Financial Times

The Fritz Karsen school in Berlin is in dire need of a makeover. A year-and-a-half ago, its wood and metal workshops were flooded with sewage when an underground pipe burst. Christian Glaubitz, workshop manager, has been waiting ever since for someone to fix the mess. “I just hope it’s dealt with before I retire,” he said. 

That should happen: he is only 43. But there are so many big repair jobs pending at Fritz Karsen that his pessimism is understandable. The 1,250-pupil school, founded in 1948, is plagued by crumbling plaster, defective showers and toilets so smelly they sting the eyes. It will cost €18m to put everything right.

Berlin’s municipal government has promised to help and has set up a €5.5bn fund to repair the capital’s ageing schools and build new ones. But in today’s Germany it is one thing to allocate money and another to spend it: persistent bottlenecks in the system have led to a massive investment backlog that is proving almost impossible to clear. 

“The problem is no longer a lack of funds,” said Regina Kittler, education spokeswoman for Die Linke, the leftwing party that is part of the city’s coalition government. “The problem is implementation.”

Germany is in the midst of a fierce debate about investment. Economists, business leaders and international organisations including the IMF are urging the government to abandon its mantra of balanced budgets and loosen the purse strings. By taking advantage of historically low borrowing costs, they argue, Germany could launch a state-driven investment drive that would fix its crumbling infrastructure and at the same time cushion the impact of a looming recession.

In fact, the money set aside by the federal government for investment has been rising steadily for years: in 2020 it will hit a high of €40bn.But more often than not projects fail to make it off the drawing board. 

Olaf Scholz, the finance minister, highlighted the issue last month in an interview with the Rheinische Post newspaper headlined “Please take the money”. The government was mobilising billions of euros to renovate schools and build roads and social housing, he said: “At the end of the year we keep finding that much of the money has not been tapped.” Unused funds were rising from year to year and now stood at €15bn, or roughly 4 per cent of the overall federal budget, he added.

Wolfgang Schäuble, the former finance minister who is now speaker of parliament, recently spelt out the problem in a speech to business leaders. A special development fund for municipal investments contained €7bn but as of mid-2019 only €1.7bn had been drawn down, he said, while a €9bn fund for improving Germany’s digital infrastructure remained untapped.

For that reason, he said, “anyone who thinks we can achieve more growth through state fiscal programmes or by taking on new debt will ultimately fail”.

The problem is particularly glaring at local level. A recent survey by KfW, Germany’s state investment bank, found that the country’s municipalities had planned investment expenditure of nearly €35bn in 2018 but actually spent around €23bn. They have calculated that they need to spend €138.4bn to clear the backlog of urgent investment tasks.

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Johannes Steinbrecher, an economist at KfW, said capacity constraints in the German construction industry — which has been enjoying a long boom. — were a key factor. Private companies saw little upside in small jobs for municipalities, especially given Germany’s complex and often onerous public procurement rules. 

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“It’s often not attractive for [them] to renovate a school in comparison to, say, building a block of flats for a private client, where the volume of investment is much greater and you don’t have to put yourself through what can often be a very lengthy tendering process,” he said. Rules for public tenders were sometimes so hard to navigate that for some “we have no bidders at all”, said Regina Kittler. 

The Fritz Karsen school typifies the problem. The money to excavate the sagging floor of the workshops, contaminated by the leaked wastewater, was earmarked long ago, but no one will come and do the work.

£50 Fee Guy Chazan school piece Lehrerstreik - Schulleiter Robert Giese - Fritz-Karsen-Schule Onkel-Bräsig-Str. 76/78 12359 Berlin Neukülln (Photo by Lengemann/WELT/ullstein bild via Getty Images)
Robert Giese, Fritz Karsen’s headmaster, says construction companies are too busy elsewhere to come and do repairs at the school © Ullstein/Getty

“All the companies that can do it say their order books are full,” said Robert Giese, Fritz Karsen’s headmaster. 

Some also blame years of spending cuts that have eviscerated staffing levels at local councils. Ms Kittler said they now had “way too few technical staff in their planning and construction departments” — the engineers and architects who issue building permits and manage projects. Without them, investment can slow to a snail’s pace.

Mr Giese said the rot first set in at Fritz Karsen 30 years ago with German reunification, when funds for modernisation were diverted to schools in the former communist east. Investment only began to flow again just over a decade ago: over the past 13 years, some €13m has been spent, including on rebuilding the schoolyard.

But some parts of the school, are in an advanced state of neglect. “It’s all a bit decrepit,” said Sabrina Eiternick, who teaches years one to four at Fritz Karsen, pointing at cracks in the ceiling. “Not exactly a nice learning environment.”

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The school relies heavily on help from parents, who recently paid for the paint to refresh the classroom walls.

“Really this building should just be torn down,” she said. “Instead we’re constantly having to patch things up.”

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