Economic Advisor Warns of Urgent Reforms for Germany’s Future
The chair of the Economic Advisory Council, Monika Schnitzer, has called for drastic reforms from the future government coalition to curb the rising costs in social insurance and ensure the country’s economic stability. She urged the next Chancellor to introduce a pension reform, including a rise in the retirement age, a cap on pension growth and a supplementary capital-backed old-age provision. Schnitzer also emphasized the need for a stability-oriented reform of the debt brake, accompanied by a binding extension of future-oriented expenditures, particularly in infrastructure, defense and education.
Additionally, Schnitzer suggested the creation of a special fund for defense, “already for the sake of a swift signal effect.” However, it seems unlikely that a two-thirds majority can be achieved for a change to the debt brake or the creation of a special fund for defense, which would further limit the new government’s room for maneuver, according to Schnitzer.
The Economic Advisory Council, as the most important economic policy advisory body to the German government, has been warning of the need for reforms due to the country’s economic model being fundamentally challenged. Schnitzer attributed this to Germany and Europe being overwhelmed by a historical shift in the US’s foreign and economic policy.
Meanwhile, Clemens Fuest, president of the Munich Ifo Institute, sees the potential for a coalition of the Christian Democratic Union (CDU) and the Social Democratic Party (SPD) to pass and implement urgently needed reforms to boost growth. However, he believes that unrealistic promises made during the election campaign could hinder the necessary compromises for more work and investment.
Fuest also stated that the parties lack convincing concepts for reforming the social security systems and that additional challenges, such as migration, defense capability, decarbonization and adapting to climate protection, will require prioritization. “Without prioritization of the political themes, the already high uncertainty for companies and private households will continue to increase” Fuest said.