In English there is the beautiful expression of the “elephant in the room”, which is very big, but seemingly not discovered by anyone. People talk about all kinds of things that are in the room, only the elephant does not appear. Even if in a china store with an elephant – to use a German elephant image – the cups just tumble off the walls, people tend to believe in an earthquake rather than in the role of the elephant.

Especially scientists tend to abstract very quickly from the elephant and to philosophize about the real, the “deeper” causes of the cup death. Even if the elephant is proud of its strength and admits that it has smashed the cups, people quickly appease it and say that it is mistaken, that the cups would have fallen down on their own.

Marcel Fratzscher, for example, is president of the German Institute for Economic Research, so he does nothing but look at the economy day in and day out, but with the best will in the world he can’t spot the elephant. In Focus, he writes about the loss of economic dynamism in Germany in an international comparison, and he finds plenty of reasons why investment is inadequate and exports, as he puts it, are “crumbling”.

Yes, that’s it! In a world economy where, as described here, policies in all major industrialized countries are explicitly geared to slowing down investment, the country that has relied more than any other on producing capital goods for export over the past two decades suffers most of all. With politicians also targeting investment activity in their own country, it is no wonder that, in addition to exports, entrepreneurial dynamism leaves much to be desired.

But this does not occur to Mr. Fratzscher. He lists all sorts of things, but he doesn’t mention the elephant, namely the powerful policy that is stifling investment activity in the midst of a global slowdown. Who wants to deal with the really big questions when there are also a lot of small ones that still need to be answered?

But how can it be, you will now ask, that in the middle of a downturn economic policy has nothing better to do than reduce investment? That is a good question. This kind of policy is called “fighting inflation”. Because central banks in major regions are convinced that last year’s commodity price increases can still turn into inflation today, in the middle of a recession, the European Central Bank, for example, has just raised interest rates again.

Interest rate hikes are aimed at investment, what else? After all, the ECB is downright proud of having significantly reduced economic momentum. So if economic momentum disappears and turns into recession in the country that is the world market leader in the production of many capital goods, it is no wonder, but the result of monetary policy restrictions.

Only, why don’t economists talk about it. Why do they overlook the huge elephant standing in the middle of the room? Probably, they themselves thought the policy adopted by the ECB was right, or they don’t want to mess with the ECB. For whatever reason, the advice of such advisors can be safely set aside. It is a grandiose illusion to believe that one can overcome the enormous obstacle that monetary policy has deliberately created with a hodgepodge of measures ranging from cutting red tape to improving the infrastructure.

Fratzscher believes that the past has shown that Germany can reinvent itself even under extremely unfavourable circumstances, such as after World War II. But he is wrong about that, too. As shown many times, it was primarily favourable monetary conditions, namely very low interest rates and an undervalued exchange rate, that made it possible for Germany to catch up after World War II. No one has ever been able to compete with high interest rates and the central bank’s declared intention to significantly slow down the economy.