In a newspaper interview, economic researcher and Ifo boss Fuest accuses the coalition parties of disagreeing on economic policy issues. In doing so, they caused great uncertainty and were partly to blame for the economic situation.
For Ifo President Clemens Fuest, the disagreement in the federal government about the economic policy course is one of the reasons for the weak growth of the German economy. “The uncertainty in the economy must be attributed to the traffic lights,” said the economic researcher to the Augsburger Allgemeine according to the preliminary report.
Unsettled companies postponed investments
The measurable massive political uncertainty in the economy is as great in no industrialized country as it is here. “If companies don’t know exactly where politics is heading, they postpone large investments or invest abroad.” All of this contributes to the economy becoming trapped in stagnation.
German gross domestic product shrank by 0.3 percent in the fourth quarter of 2023. If it falls again in the current first quarter, economists will speak of a technical recession. It is not unlikely that this case will occur. The Bundesbank, for example, expects “at best” stagnation from January to March.
Fuest calls for a common course for the coalition
According to Fuest, the federal government certainly has the necessary instruments to solve the problems. “The main obstacle is that this coalition is finding it very, very difficult to agree on a common course,” said Fuest. If the coalition recognizes the seriousness of the situation and can agree on the right steps, there is no reason for pessimism.
According to the economic researcher, the German economy is suffering from a whole range of stress factors. “Each individual would be bearable, but the sheer amount of stress is becoming a big problem.” It starts with expensive energy prices, continues with high interest rates and hits an industry that is not doing well worldwide.
Fewer and fewer workers
But Fuest also identifies specific German problems: “The bureaucracy has increased significantly in recent years.” The tax burden is also very high by international standards and the supply of labor is becoming scarcer.
In conversation with tagesschau24 Fuest recently also explicitly pointed out structural problems such as demographic change: “We are heading towards a situation with a shrinking working population. And that worries many investors.”
Ifo boss for cutting social spending
But what solutions does the economic researcher suggest? In an interview with the Augsburger Allgemeine, Fuest spoke out against weakening the debt brake. “I don’t think it makes sense to finance tax cuts entirely on credit in the current situation,” he told the newspaper. At least part of it must be financed from current budget revenues. “Although it is unpopular, the state would have to save and reallocate consumption and social spending.”
The debt brake forces politicians to set priorities and gives the state enough scope for economically sensible debt. Otherwise distribution struggles would just be postponed into the future. For important investments that Germany needs, a special fund with a two-thirds majority in the Bundestag is also possible, said Fuest.
Subsidies are the wrong approach
However, the economist criticized subsidies for the establishment of the chip industry and battery factories as the wrong approach. “Wealth is created by companies that pay taxes, not companies that receive subsidies.” These industrial settlements are not sustainable; they will move away again if the subsidies are no longer effective.
The federal government wants to pay the US company Intel almost ten billion euros in state subsidies for the construction of a new chip factory in Magdeburg. This corresponds to around a third of the planned investment amount. The government is to support the construction of a semiconductor factory in Dresden by the Taiwanese world market leader TSMC with up to five billion euros.