Leading economists are questioning the readiness of the Black-Red coalition to implement necessary reforms. Marcel Fratzscher, President of the DIW, told the “Welt am Sonntag” that, as a realist, he lacks the optimism that the coalition will pass major reforms. Furthermore, he doubts Chancellor Friedrich Merz (CDU) in his ability to shepherd sweeping changes regarding subsidies, taxes, and retirement. Fratzscher pointed to the CDU, CSU, and SPD as the most significant political obstacles.
Oliver Holtemöller, Vice President of the Leibniz Institute for Economic Research Halle, attributes the political hesitancy to the persistently robust job market. He noted that the pressure required for change is evidently not high enough. Unlike the situation during the Agenda 2010 era in the early 2000s, mass unemployment is not currently an issue.
The economists were particularly vocal about pension policy. Fratzscher considers an increasingly high retirement age inevitable. “The pension at 70 is coming” he stated, citing countries like Denmark as examples. He added that cases such as Japan demonstrated that working longer does not have to lead to poor health or unhappiness, even beyond 67 or 70. Holtemöller also views changes as imperative, suggesting that consolidating the federal budget without cuts to the pension, the single largest expenditure, would be extremely difficult.
Both experts identify a need for substantial budget consolidation. Holtemöller proposed a paradigm shift: moving away from blanket subsidies for entire industries toward targeted support for individuals in need, arguing that goals could thus be achieved more cost-effectively. For instance, he suggested that instead of subsidizing opera houses, the focus should be on people who cannot afford tickets.
Regarding infrastructure, Holtemöller advocated for user-funded models, such as those used for highways. Today, digital toll systems make this possible. Fratzscher also urged cutting subsidies, listing the diesel privilege, the company car privilege, and commuter allowances as examples of billions of euros that unfairly favor certain groups-a practice he deemed neither efficient nor fair.
Fratzscher concluded by emphasizing that a comprehensive package is vital. This package must involve reducing subsidies, reforming the pension system, and increasing taxes on wealth, all while offering necessary relief. He stressed that contributions must be reciprocal; otherwise, the public perception will be that some are paying while others are benefiting.
When asked if he doubted Chancellor Friedrich Merz’s ability to gather the various interests within the Black-Red coalition into one reform package, Fratzscher replied that he personally did not doubt him, but he remained convinced that the parties were not ready to support such an effort.
As for social contributions, Fratzscher stated that it is difficult to imagine a scenario where their share of gross income will decline; minimizing an increase should be viewed as a positive development. He warned that without reform, social contributions could reach 50 percent in the 2030s, compared to the current 42 percent, a higher rate he predicted would be a deterrent to economic location.
Addressing the “pension at 70” again, Fratzscher reiterated its inevitability, citing Denmark and Japan. He stressed that the focus must be on enabling people to work longer voluntarily, rather than restricting them through rigid regulations.
When considering differentiated models, such as pensions adjusted based on job stress, Fratzscher suggested that while this sounds fair, it often fails in practice. He noted that studies showed such systems primarily benefited high-earning men with stable working histories, leaving women, people with interrupted careers, and those with health challenges disadvantaged. He argued that this would ultimately amount to a transfer of wealth from the poor to the rich, making a unified retirement age the correct approach.
The “Welt am Sonntag” asked why the political establishment was struggling with these reforms. Fratzscher replied that the primary reason was that it is unpopular in the short term because retirees constitute a large voting bloc. However, according to him, this problem only grows with time; delaying reforms simply makes them more painful later.