Germany is Europe’s model economy. It is a prosperous, well-governed, and efficient country. Or is it?

It is true that Germany’s economy has been less affected by the global financial crisis than those of most other European countries. This is largely due to the structural reforms imposed by the Social Democrats-Green government in the early 2000s.

There were grave concerns then about Germany’s competitiveness. The government’s reforms deregulated parts of the labour market and reshuffled social policy. At the same time, product markets such as telecommunications, electricity, and gas were liberalised.

Nobel Prize winner Paul Krugman back then had warned European governments against a “dangerous obsession” with competitiveness, calling it “a seductive idea”. Fortunately, the German government did not heed him and went ahead with its reforms, and the benefits are now being reaped.

However, opulence induces indolence. Since 2006, the previous government’s microeconomic reforms have been (partly) reversed. Even worse, government regulation and state ownership are once again creeping up.

The prosperous city of Hamburg is investing millions of euros of taxpayers’ money in international container shipping, while the federal government owns two of the world’s largest international logistics companies, active in about 150 countries. Many professions, from cab drivers to pharmacists and harbour pilots, are subject to regulations often dating back almost a century.

The worst results of such overregulation can be seen in electricity markets. The federal government is jeopardising energy security and market competition in its inexplicable attempts to promote renewable energies.

For example, consumers are forced to purchase renewable energies at prices guaranteed to energy producers for 20 years. However, as solar and wind energy tend to fluctuate with weather conditions, supply is much less stable – so more gas-fired power plants are needed to back up the unreliable renewable energies.

As market conditions and regulatory uncertainties do not attract sufficient investment into these sectors, even more subsidies are being proposed while utilities are forced to maintain some power plants running even if they would rather switch them off.

The tale of the German electricity market is a textbook example of the oil spill theory of regulation: If one issue is subject to (well-meaning) regulation, it is likely to spill over to more and more neighbouring issues. The end results, however, are absurd, with central planning and government commands replacing market mechanisms.