Red Tape Bogs Down German Firms --- Entrepreneurs warn bureaucracy is so dense it could choke a big stimulus plan

"Six years ago, Marco Scheel bought a 200-year-old estate in the hamlet of Teplitz on Germany's Baltic Sea coast. After years of renovation that turned the stone-and-brick ruin into a tasteful company headquarters, Nordwolle, his organic outdoor-clothing business, moved in.

 

The problem: Scheel and his 40 staff are there illegally. The local authority initially deemed the metal roof fit to shelter horses, not people. Then the metal stairway serving as a makeshift fire exit rested on a granite slab -- a "natural building material" that needs a special building authorization. A noncompliant smoke-evacuation window is still holding up the construction permit.

 

"I'm breaking the law just sitting here," says Scheel. After years of negotiations and fines of 25,000 euros, more than $28,000, he said, "the risk is that they come one day and shut us out."

 

Germany's economy has barely grown for the past five years. The new government wants to change that by spending one trillion euros on defense and infrastructure in the next decade. But economists warn the stimulus could be wasted without a crucial step that costs nothing: Get rid of the red tape that is smothering growth and discouraging investment.

 

"We urgently need to decide where obstructive, paralyzing rules should be abolished and which need amending," said Veronika Grimm, one of five economists who advise the government. The group flagged bureaucracy as a key hindrance to growth in a May report. "That's a very labor-intensive task that I don't think the government has on its radar yet."

 

A well-run state can make life predictable and provide services to companies. Yet, too much state can gum up the system. Excessive bureaucracy exists everywhere, but Europe is particularly affected because governments tend to follow the precautionary principle.

 

This concept -- which emerged in Germany in the 1970s and 1980s -- dictates that, when in doubt, the state should try to prevent risks. Initially limited to environmental legislation, the principle is increasingly applied to other areas, which critics say has made policymaking risk-averse and suspicious of innovation.

 

Countries such as France and Denmark have made strides to cut red tape, largely by digitizing administrative procedures. Germany, however, stands out as a rare nation where the burden has increased -- despite parliament passing several anti-bureaucracy laws. Employees in Germany spent 1.02 billion work hours fulfilling state-mandated bureaucratic tasks last year, according to the Federal Statistics Office, a steady increase over the past decade.

 

A spokesman for the district of northwestern Mecklenburg, which is withholding Scheel's planning permission, said the Nordwolle estate was built in a rural area not zoned for general development and subject to strict rules. While the smoke-evacuation window and the fire-safety concept remain problematic, he said the authority approved modified versions of the roof and fire-exit stair, and that it wouldn't order Nordwolle to vacate the building.

 

Yet Scheel, who runs a YouTube channel that documents his bureaucratic battles, has other problems. He had a kitchen built to cook free lunches for his employees, but said he dropped the plan and began charging 3.50 euros for a meal. It turned out free food is a taxable benefit, whose value for each employee has to be itemized on their monthly pay slip -- a task he doesn't have the bandwidth for.

 

Bureaucracy costs German businesses 146 billion euros a year, according to an estimate by the Ifo Institute, with smaller companies bearing an overproportional share of the burden.

 

Using a commercial legal database, Stefan Wagner, professor of technology and innovation management at Vienna University, found that the volume of economic, financial and tax legislation roughly doubled in Germany since 2009. Laws also have become longer and more detailed. "On the one hand, we have a society that's decided to regulate certain things that may not actually need regulating," said Wagner. "On the other, these rules are being enforced by a bureaucracy that is neither fast nor particularly user-friendly."

 

A survey released in May showed nearly 90% of German executives thought that reducing bureaucracy was far more urgent than cutting taxes or energy prices. Only 10% said Germany was welcoming for business, far behind the U.S., China, France, India and Vietnam, according to the survey by the Forsa polling group.

 

Kristian Kirpal, chief executive of KET, an engineering company that designs and builds energy-supply systems, said he spends about 20% of his time on purely bureaucratic tasks. Several years ago, he began renting parking garages near the company to store excess paperwork, from human-resources files to invoices and assorted checklists. The ledgers now reach the ceiling. The only reason he has given up on building an extension, he said, is because of the bureaucracy that would require.

 

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Frankfurt Airport Construction Delays Were For the Birds

 

In Germany, red tape can hold up major projects.

 

When Frankfurt Airport applied to build a photovoltaic plant next to one of its landing strips, it got permission in just five months. But it had to build the plant in two stages between February 2024 and February 2025 with a six-month hiatus. The reason: Rules protecting some 500 ground-nestling Eurasian skylarks near the runways halted construction.

 

The government has pledged to cut the bureaucratic burden on German companies by 25%. In a somewhat ironic move, it created a ministry designed to fight bureaucracy. The bulk of its effort will focus on bringing more administrative services online.

 

Berlin also wants to streamline planning permissions, drawing on the experience of the country's reunification, when a special law expedited the construction of railroads across the former Communist East.” [1]

 

1. World News: Red Tape Bogs Down German Firms --- Entrepreneurs warn bureaucracy is so dense it could choke a big stimulus plan. Bertrand, Benoit.  Wall Street Journal, Eastern edition; New York, N.Y.. 31 May 2025: A9.