A recent survey of German economics professors paints a concerning picture of the government’s handling of its newly authorized debt-financed special fund, intended for infrastructure and climate neutrality projects. Conducted by the Ifo Institute, the poll reveals a widespread skepticism regarding the actual allocation of funds, with an average estimate suggesting that only approximately 47% will be directed towards genuinely new investment initiatives. A significant proportion – a quarter of the surveyed economists – believe the figure will be even lower, falling below 20%.
The primary criticism centers on the practice of shifting pre-existing budgetary commitments from the federal budget into the special fund, effectively reclassifying planned expenditures rather than driving fresh investment. This practice obscures the true impact of the debt-financed program, raising questions about its effectiveness in achieving its stated goals.
Prioritization among economists, however, is clear. Investment in transportation and energy infrastructure is considered urgent, alongside critical areas such as digitalization, education and scientific infrastructure. There’s a general expectation – albeit perhaps optimistic – that public investment will stimulate private investment, creating a multiplier effect.
The ongoing debate surrounding a reform of Germany’s debt brake, or “Schuldenbremse”, sees most experts advocating for a balanced approach: a framework that remains strict but incorporates flexibility specifically for future-oriented investments. However, a substantial majority – 58% – express doubt about Germany’s ability to adhere to future European fiscal rules, a potential challenge given the current trajectory.
The Ifo Institute’s expert, Niklas Potrafke, highlighted the current situation as a stark reminder of the necessity of the “Schuldenbremse”. He argued that politicians demonstrate a persistent inclination towards funding consumption over investment, often resorting to debt to achieve it and that the “Schuldenbremse” serves as a vital constraint against such practices. Calls for loosening the restrictions are therefore viewed with considerable apprehension.
The survey, representing the 53rd iteration of the Ifo Institute and FAZ’s panel of economics professors, involved 179 VWL (economics) professors and was conducted between September 30th and October 7th, 2023. The findings underscore a growing disconnect between the government’s stated intentions and the practical reality of investment allocation, raising broader questions about fiscal responsibility and Germany’s commitment to long-term sustainable growth.