Clemens Fuest, president of the Ifo Institute, stated that given Germany’s ongoing economic stagnation, establishing a clear upper limit for state spending is essential. On Monday, Fuest argued that the government lacks a definite guiding principle for its economic policy, suggesting that setting a medium-term target-for example, capping state expenditures at 49 percent-would provide a helpful framework.
The Ifo president emphasizes that implementing such a spending cap is vital for boosting confidence in the German economy. He views the current path, which sees the state spending ratio rising above 50 percent, as dangerous. According to Fuest, excessively high state expenditures relative to economic output inevitably lead to higher taxes and contributions in the long run. These growing tax burdens can cause people and businesses to react by reducing spending (leakage), ultimately hampering economic growth. Limiting state spending to 49 percent would improve planning certainty for investors and force policymakers to prioritize spending effectively.
Fuest also pointed to rising defense expenditures as an added source of pressure on the budget. He calculated that this means that the share of other expenditures relative to the size of the economy, including social spending, would have to decrease. This could necessitate discussions about reforming state health and pension care toward a basic provision supplemented by private savings.
Ultimately, Fuest stressed that having a mutually agreed-upon framework would compel both politicians and society to confront difficult debates about spending priorities now, rather than avoiding the inevitable conflicts through increased debt, deepening political divisions, and unfairly burdening future generations.