The head of the Council of Economic Advisers, Monika Schnitzer, has warned of significant growth losses and growing budget problems in Germany due to the era of Trump in the White House. “The German economy must prepare itself for very uncertain times” Schnitzer told the Rheinische Post (Wednesday edition).
“Not all of Trump’s announcements will be implemented, many are primarily intended as a starting point for negotiations in which he seeks to secure the best deal for himself. The problem is not just the height of his demands, but that they are so unpredictable” said the chair of the Economic Advisory Council to the German government, also known as the Council of Economic Experts. “One should always assume the worst without being intimidated” she advised.
“The tariffs announced during the election campaign have not yet been introduced on the first day of his presidency. It can be assumed that they will be used as a threat to force concessions from trade partners” she explained. If the new US president were to introduce tariffs on European goods, this would significantly complicate Germany’s export to the US, its most important trade partner, Schnitzer said. “Some companies could avoid this by producing more in the US, but this would of course put European jobs at risk. Initial estimates suggest that such tariffs could cost the economy one to two percent of its growth” said the top economist from Munich.
The increase in defense spending would also pose a great challenge for Germany. Even the increase to two percent of the country’s economic output by 2028 is not financially secured. “A further increase would put the budget policy in front of even greater problems” Schnitzer said.
Military spending of 120 billion euros would be a quarter of the current federal budget. “This is not to be financed through cuts in social benefits or the elimination of one or the other subsidy” she explained. “It should be clear that this is not the time to further expand social benefits, such as the mothers’ allowance, and that a reduction of inefficient and climate-damaging subsidies must be tackled” Schnitzer said.