Germany faces a deepening economic malaise, demanding a radical overhaul of government policy that transcends the current coalition agreement, according to a stark warning from Clemens Fuest, President of the Ifo Institute. A new Ifo study, reported by “Bild am Sonntag”, paints a concerning picture of diverging economic trends and a stagnating standard of living for many citizens.
The study details a significant expansion of state consumption, which has risen by approximately 25% since 2015. Simultaneously, private sector investment remains stubbornly flat, currently mirroring levels seen nearly a decade ago. This discrepancy, Fuest argues, represents a critical threat to Germany’s long-term prosperity. He cautions against a potential slide towards “Italian conditions” a veiled reference to Italy’s protracted economic struggles.
“Germany has been in a state of economic decline for years. The situation is now dramatic” stated Fuest. The core concern lies in the cyclical relationship between state expenditure and private investment. As government spending increases, the capacity for private sector growth diminishes, ultimately impacting tax revenues and jeopardizing the very social programs the spending intends to sustain.
The report’s findings corroborate growing anxieties about a widening gap in living standards. While some segments of the population may see modest gains, millions are experiencing a tangible reduction in their ability to maintain their lifestyle.
Fuest is now calling on the German government to present a “comprehensive reform package” within the next six months – a timeline he insists is non-negotiable. This reform must extend far beyond the provisions outlined in the current coalition agreement and should be finalized and presented by Spring 2026.
Specific proposals outlined by Fuest include significant social reforms, such as halting the expansion of parental benefits and prioritizing measures to contain rising contributions. He further advocates for a significant reduction in bureaucratic burdens on businesses, particularly regarding documentation related to carbon emissions, supply chains and minimum wage compliance. Eliminating these obligations, Fuest estimates, could potentially unlock up to €146 billion in additional welfare annually. The implicit critique underscores the current government’s perceived inadequate response to the escalating economic challenges and signals a call for bolder, more transformative action.