Can Germany's rotten rail system be fixed?

Contrary to popular opinion, Germany's state rail service has never been very good at its job. Poor service is a feature rather than a bug of the country's state-managed train network.

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You wake up in the morning, turn on the news and find that all the trains in Germany have stopped running. Sounds familiar?

In January, the train drivers’ union, the GDL, called its members to the longest strike in their history as they hardball negotiations with the state rail company over a pay hike.

For six days, commuters had to squeeze into packed carriages on Deutsche Bahn’s skeleton timetable, or go by car. People travelling intercity had to fly or drive. Freight piled up at logistics centres, or moved to lorry.

The estimated costs ran up to close to a billion euros, economists say.

For anyone who has lived in Germany for a few years and commutes to work, this story is drearily familiar.

Rail strikes are so commonplace these days that January’s historic strike didn’t even lead the evening news when it started.

If it's not train drivers striking, it is the much larger EVG union that represents the rest of the 230,000 staff for Deutsche Bahn, the monolith that owns the country’s entire rail infrastructure and dominates rail services.

Rail is one of the few aspects of German public life where the state still has a monopoly on consumer choice. 

And the results are what you would expect for a system stuck in the 1970s. 

Even on the days where staff turn up for work, any talk of “normal service” should be put in inverted commas. The infrastructure is outdated and overstretched, meaning that a third of intercity trains arrived late last year. 

Missing onward connections is a hazard of everyday life.

Polling shows that 88 percent of Germans think of the word “unpunctual” when asked about Deutsche Bahn; 73 percent associate the company with high prices.

Thus, it is hardly surprising that rail accounts for just 11 percent of all journeys. Cars dominate.

That is a statistic politicians are desperate to change. In the name of tackling climate change, the Scholz government wants to double the number of rail passengers by the end of the decade.

But, the perverse outcome of such pledges is to reward failure. 

Deutsche Bahn’s management don’t need to worry about how poor their service is - they know the state will throw more money their way regardless.

Thus, when the rail provider’s debts soared by €10 billion during the pandemic, company CEO Richard Lutz brushed off the bad news with the smug retort that: “We are the vaccine against climate change.”

Since then, the company’s debts have risen further - they now stand at over €30 billion. On top of that, the government props them up with around €17 billion a year, a sum that outstrips Deutsche Bahn's entire income from tickets and infrastructure fees.

Yet, how did the company board reward itself last year when its punctuality figures slipped to an all-time low? With €5 million in bonus payments.

Almost everyone who doesn't work for the company agrees that something drastic needs to change. But what? Does German rail need a further injection of capitalism, or has the drive towards privatisation already gone too far?

What no one is talking about is a more radical proposition: that Germany would be better off cutting its losses and instead focusing on what it does best - cars.

More competition!

Germany’s Federal Audit Office isn’t known as a theatrical sort of place. But when it reviewed the way money was being thrown around at Deutsche Bahn last year it didn’t mince its words.

Pointing out that the company was accruing €5 million in new debts every single day as it invested in ventures such as drone landing stations, the audit office warned that “the crisis at Deutsche Bahn AG is becoming chronic… fundamental reforms are needed - without a decisive change of direction, the entire rail system will end up being sidelined.”

The solution, the audit office said, is to sell off parts of the enterprise and create an even playing field for private competition. "The state no longer needs to be active on the tracks with its own companies,” the report stated.

The Federal Cartel Office came to a similar conclusion recently. In November, it said that Deutsche Bahn's monopoly of infrastructure meant that "it has many subtle ways in which it can deter competition.”

Most obviously, the state company makes decisions on which infrastructure it will invest in. Is it going to prioritise areas where the competition is trying to gain a foothold, or where it dominates the market?

Flix, the one company that has dared to take on Deutsche Bahn’s dominance of long-distance services, has complained that the state firm wants to "destroy the competition.” Among the tricks Deutsche Bahn uses is refusing to show Flix services on its booking portal, the competitor says.

When not in government, political parties like to call for the company to be broken up. In practice though, no government has dared to undertake radical reform in decades. In the words of the Federal Audit Office the government is “way off getting a grip on the problem” and, since its last assessment, “four more years have been lost."

Bringing back the good old days

The push towards privatisation is by no means universally popular, though.

Opponents point to the example of the UK, which sold off British Rail in the 1990s. Inhabitants of the rainy isle now have a privatised rail system, but few have a good word to say about it. British trains are just as unreliable as they always were, they just cost more.

Instead, many on the Left say that Germany should follow the example of Switzerland, which has a remarkably reliable rail system run by a single state-owned Goliath.

Switzerland’s SBB is set up much like Deutsche Bahn, but it manages to hit punctuality figures of over 90 percent. (They like to brag that it “runs like a Swiss watch”). The Swiss have become so frustrated with their German peers that they’ve banished connections from Germany from their timetable: the unreliable Teutonian locomotives were causing too much chaos in their timetable.

"Rail networks and rail transport are two parts of a closely linked, fragile system,” argues Carl Waßmuth, spokesperson for the pressure group Bahn für Alle. “Splitting them apart weakens the rail system… Switzerland shows that integrated rail systems are the most efficient."

What is indisputable is that mistakes have been made in Germany’s push towards privatisation.

Originally, Berlin wanted to float Deutsche Bahn on the stock exchange, much as it had done with Lufthansa and the postal service.

To try and make it an attractive proposition for investors, the management slashed jobs and closed whole stretches of unprofitable track. Meanwhile, they splurged billions on buying up transport companies across the world as they sought to make Deutsche Bahn a global player.

In the end though, no government ever dared to test the company’s stock value on the market.

Angela Merkel’s first government almost did so in 2008 but then got cold feet when it became clear that the markets would never meet their valuation.

The legacy of this botched attempt at privatisation is stretched resources on the home front and a complex web of hundreds of subsidiaries abroad. Some, such as Arriva in the UK, have been notoriously poor investments.

But, what proponents of the Swiss model tend to ignore though is that 1) the Swiss rail service is incredibly expensive and 2) Germany had little choice but to make its inefficient rail operators more capitalistic.

In the early 1990s, the government of reunified Germany was faced with the conundrum of what to do with the rail services on either side of the Iron Curtain, both of which were state-run, run down and indebted.

Modernisation of infrastructure inherited from the East German Reichsbahn, where steam trains were still a standard part of the schedule in the 1980s, was estimated at the equivalent of €100 billion.

The West German Bundesbahn wasn’t much better. Wages for its army of 350,000 state employees outstripped the company’s entire revenue. Despite this huge staff, rail had become an almost forgotten form of transport by the 1990s, making up just six percent of all journeys.

A report published at the time warned that, if the system wasn’t reformed, rail costs could eat up three quarters of the entire federal budget within a decade.

Thus, Deutsche Bahn AG was founded as a quasi-private company in an attempt to save a terminally ill sector. Decisions made by the company have been faulty, but at least the debt hasn't spiralled out of control.

A look at Switzerland shows just how much Germany would have to spend in order to turn things around. Per head, the Alpine nation spends quadruple what Germany does on its rail service - and the SBB still has debts of €12 billion and rising.

Switzerland is a rich country. Its per capita GDP is almost twice that of Germany’s. Whether Berlin, whose state finances are already stretched to breaking point, could afford such a vast rail budget is debatable.

Is there another way?

For me, the most damning fact in this whole story is that, despite painful cost-cutting measures and hundreds of billions in subsidies, no government has ever dared to test Deutsche Bahn’s value on the market.

Why? Because they know that it would be a flop. If it were a private company, Deutsche Bahn would have gone bust years ago.

Which leads to the inevitable question: why keep chucking good money after bad?

Granted, commuter trains are useful for taking the weight off roads during rush hour. Trains are also unquestionably safer, quieter and less polluting than cars.

At the same time, the evidence against investing in rail is hard to ignore. A study by the left-leaning German Institute for Economic Research from 2010 found that cars beat trains hands down in terms of economic efficiency.

Whereas it costs over €300,000 to maintain a kilometre of track, a kilometre of autobahn costs just €200,000, the report found. What’s more, lorries alone cover 210 percent of the costs for road infrastructure via fuel taxes and tolls. Cars cover 420 percent of the upkeep of roads.

Wouldn’t those levies be better spent on projects other than the bottomless pit of the rail system? What about better and more frequent bus connections in rural areas, electric charging infrastructure on autobahns, or car sharing in inner cities?

I don’t have an answer to that question. I know one thing though, it is almost certain to never happen. Rail is so embedded in the German psyche that even the country’s constitution orders governments to keep investing in it. 

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