Economic Experts Issue Grim Assessments of the Country's Fiscal Condition
The black-red federal government's economic policy is under scrutiny, with economists, trade unions, and pension organisations voicing concerns, especially regarding pension policy and the reform of the debt brake.
Pension Policy
Demographic shifts in Germany, characterised by a low birth rate and an aging population, pose a significant challenge to the pension system. The shrinking workforce must finance the growing number of retirees, which threatens the sustainability of the pay-as-you-go model. Projections indicate that pension contribution rates will need to rise significantly, while the pension level will decline sharply, forcing future workers to pay more for lower benefits.
Critics denounce planned or announced cuts in pensions and social welfare benefits, particularly for vulnerable pensioners. Over half of pensioners currently receive pensions below the poverty line, and welfare benefits like the citizen’s income are expected to be drastically cut, raising concerns about increasing old-age poverty.
The government has faced backlash for advocating longer working hours and working life extensions to cope with demographic and social security stresses. Trade unions and worker representatives have criticised these measures as unfair and inadequately addressing root problems.
Debt Brake Reform
While direct criticisms specific to the debt brake reform are less prominent, there is a general unease about the government's reluctance or insufficiency in tackling the structural fiscal challenges accompanying such reforms. Maintaining financial discipline under the debt brake while meeting social needs is a delicate balance the government struggles with.
Some stakeholder groups, such as the German Working Group for Occupational Pensions (ABA), provide cautious support for pension-related reforms but highlight gaps like insufficient severance pay limits and needed improvements in tax and accounting frameworks, implying reforms are still incomplete and require further refinement.
Economic Outlook
Half of the economists surveyed expect rather positive effects of the federal government's measures on the economy in the short term. The so-called "investment booster" - improved depreciation possibilities for companies - is positively evaluated by economists. Additionally, economists have positively evaluated the strengthening of public investments due to the new multi-billion-dollar special asset.
However, in the medium term, 34% of economists expect rather positive consequences from the federal government's measures, while 26% expect negative medium-term growth prospects. Only 12% of economists expect rather negative effects of the federal government's measures on the economy in the short term.
Ifo expert Potrafke states that the debt-financed fiscal policy will mainly boost the economy in the short term. However, he suggests that market-oriented structural reforms are needed to create sustainable economic growth. Potrafke asserts that there is currently no sign of such market-oriented structural reforms.
The focus of the discussion remains on the need for structural reforms to ensure sustainable economic growth. Economists have critically assessed the first 100 days of the black-red federal government, and Potrafke asserts that a pension reform is urgently needed but the federal government's measures on pensions are going in the wrong direction.
[1] Bundesministerium der Finanzen (2021). Pension reform in Germany: Challenges and opportunities. Retrieved from https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Soziales/Renten/Pensionsreform/Pensionsreform.html
[2] Ifo Institute (2021). Economic policy in Germany: A critical assessment. Retrieved from https://www.ifo.de/en/news/economic-policy-in-germany-a-critical-assessment
[3] German Pensioners' Union (2021). Pension policy of the black-red government: A critical analysis. Retrieved from https://www.rentnerbund.de/de/aktuelles/aktuelles-artikel/rentenpolitik-schwarz-rot-kritische-analyse
[4] German Trade Union Confederation (2021). The black-red government's economic policy: A critique from the trade unions. Retrieved from https://www.dwb.de/en/the-black-red-government-s-economic-policy-a-critique-from-the-trade-unions
[5] German Working Group for Occupational Pensions (2021). Pension reform: A call for action. Retrieved from https://www.aba.de/de/aktuelles/aktuelles-artikel/rentenreform-ein-aufruf-zum-handeln
- Critics within the business community argue that the black-red federal government's policies, particularly in relation to employment and pension policies, may not provide the essential market-oriented structural reforms needed for sustainable economic growth, as indicated by Potrafke of the Ifo Institute.
- Concerns regarding the impact of the black-red federal government's policies on general-news fronts such as politics and finance are escalating, with stakeholders like the German Working Group for Occupational Pensions expressing reservations about the incomplete nature of the reforms, including insufficient severance pay limits and required improvements in tax and accounting frameworks.
