The head of the ifo Institute has publicly criticized the German government, accusing it of a hesitant approach to critical economic challenges. “Unfortunately, everything that is difficult is put off for the long finger,” ifo-Chef Clemens Fuest told the Süddeutsche Zeitung, adding, “That won’t work in the long run.” He warned of a “dauerstagnation,” or prolonged stagnation.
Fuest stated that Chancellor Friedrich Merz, of the CDU, has “so far shied away from the major challenges in economic policy.” According to Fuest, the government is attempting to solve many issues with financial resources. “Throwing everything at it with money doesn’t take much courage,” he said, arguing that such policies do not solve problems for the private sector, but rather exacerbate them. He cited pension policy and potential future tax increases as examples.
ifo-Chef Sees “Realitätsverweigerung” (Denial of Reality) in Politics
In light of a possible war, Fuest said the German government must quickly reconsider its approach. “We need something like a war economy in Germany.” He explained that items “long considered undesirable” would now need to be produced. Fuest noted that Germany, due to historical reasons, has traditionally maintained a distance from such topics, stating, “But pacifism can only be afforded if you are not attacked.”
Fuest also criticized what he called a “denial of reality” within the government. He said citizens were promised “many goodies” during the election campaign – support for the hospitality industry, increases to mothers’ pensions, and maintaining current pension levels – but these promises are no longer feasible given the need for increased investment in defense.
Germany’s export-dependent economy has been stagnating for some time and continues to struggle. In the third quarter, it narrowly avoided a technical recession, defined as a decline in Gross Domestic Product (GDP) for two consecutive quarters, according to initial estimates from the Federal Statistical Office. The Federation of German Industries (BDI) recently warned of the “deepest crisis since the founding of the Federal Republic.”
A shift toward a “war economy” could involve prioritizing production of goods previously deemed undesirable, a significant departure from Germany’s traditionally pacifist stance.
Frequently Asked Questions
What is “dauerstagnation”?
According to the source, “dauerstagnation” refers to a prolonged period of economic stagnation.
What did Fuest say about Chancellor Merz?
Fuest stated that Chancellor Friedrich Merz has “so far shied away from the major challenges in economic policy.”
What is a “technical recession”?
A technical recession, as defined by the source, occurs when a country’s Gross Domestic Product (BIP) shrinks for two consecutive quarters.
Given these criticisms and warnings, what steps do you believe the German government might take to address these economic concerns?
