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Majority of German Economists Take Sceptical View of Grand Coalition

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Germany’s economics professors are not very enthusiastic about a potential grand coalition, according to the latest Economists Panel jointly conducted by the ifo Institute and the Frankfurter Allgemeine Zeitung. They criticise the coalition’s lack of ambition in terms of both taxation policy and the expansion of high-speed internet. Restrictions in asylum policy meet with widespread approval, but many of the economists surveyed would favour even heavier restrictions. “The grand coalition’s plans are far from a great success. German economists see highlights and lowlights in the coalition’s policies,” notes Niklas Potrafke, Director of the ifo Center for Public Finance and Political Economy. Only 31 percent of survey participants favour a grand

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Germany’s economics professors are not very enthusiastic about a potential grand coalition, according to the latest Economists Panel jointly conducted by the ifo Institute and the Frankfurter Allgemeine Zeitung. They criticise the coalition’s lack of ambition in terms of both taxation policy and the expansion of high-speed internet. Restrictions in asylum policy meet with widespread approval, but many of the economists surveyed would favour even heavier restrictions. “The grand coalition’s plans are far from a great success. German economists see highlights and lowlights in the coalition’s policies,” notes Niklas Potrafke, Director of the ifo Center for Public Finance and Political Economy.

Only 31 percent of survey participants favour a grand coalition, but 40 percent support a minority government under the leadership of a union party, while 25 percent want new elections. German economists are critical of the coalition’s plan to reduce the solidarity surcharge by a mere 10 billion euros in this legislative period. 61 percent of the 131 economists surveyed described these cuts as “not ambitious enough.” 26 percent, by contrast, find the plans “just right.” A clear majority of 47 percent of economists find it wrong that future interest income is to be subjected to regular income tax instead of withholding tax, which the Union and the SPD agreed to in their consultation paper, versus 35 percent in favour of this decision. By contrast, a majority of 48 percent consider improved tax incentives for research and development as the right step, versus 23 percent who consider it wrong.

When it comes to pension policy, economists are divided. The pension threshold of at least 48 percent of average earnings demanded by the SPD, which entails higher state spending, is seen by 31 percent of survey participants as just right and by the same figure as too high, while 28 percent were undecided and 10 percent found the threshold too low. The majority of economists surveyed, however, think that it is a good idea to award pension points for time spent caring for children or relatives. A higher pension for mothers of those children born before 1992, however, is opposed by 52 percent of survey participants, versus 32 percent in favour. The new basic pension, on the other hand, meets with the approval of 48 percent of survey participants, versus 32 percent who oppose it. As far as obligatory pension insurance for freelancers is concerned, 64 percent support this proposal, while only 21 percent oppose the idea. The return to equal financing of state health insurance is supported by 36 percent, and opposed by 34 percent of survey participants, with 27 percent remaining undecided.

A relative majority of economists also finds the pace of broadband network expansion too slow. “Too modest” was the verdict given by 42 percent of economists, versus 29 percent who found the plans sufficiently ambitious. According to Stefan Homburg, Gottfried Wilhelm Leibniz University of Hannover: “The expansion of fibre glass networks should not be financed by taxpayers, but by those companies operating the networks.”

41 percent of survey participants also criticised Germany for pledging in advance to increase its contribution to the EU’s budget. The economist Friedrich Heinemann described this as a “fatal signal” that weakens the chances of any real reform of the EU budget by making an unnecessarily premature commitment. 34 percent of survey participants, by contrast, supported the pledge.
The majority of professors call for greater restrictions on immigration. 52 percent of the economists see a restriction as the right step, 33 percent believe it to be wrong and 11 percent is undecided. Out of the 52 percent that supports a restriction, 50 percent sees the agreed threshold as “too high”, compared to 32 percent who describe it as “just right.”

The economists surveyed were sceptical about the question of whether a grand coalition will prepare the country for the future. According to Gerhard Wegner, University of Erfurt: “A CDU that has lost the core of its programme and a re-ideologised SPD are not able to secure Germany’s future.” Thomas Apolte, University of Munster, warned that: “It will be expensive and ineffective, and nobody is interested in generational fairness any longer.” Ulrich van Suntum, also from the University of Munster, explains: “It could have been worse, but this ultimately only means business as usual. Money is being thrown at conflicts at the taxpayers’ expense, the plans for Europe amount to a further socialisation of debt. At least there is no citizens’ insurance and no tax increases (given the government’s brimming coffers).” For Gert Wagner, TU Berlin, by contrast, the red-black coalition plans: “Go further and are better than expected.” The scepticism expressed by the majority of survey participants is reflected in the comments by Andreas Freytag, an economist from Jena: “Overall, the grand coalition is dispirited and regressive. It will not be able to ease social tensions.” Ulrich Blum, Martin Luther University of Halle-Wittenberg complained that: “Any rejuvenation of the political leading class (in terms of intellect and age) has once again been postponed!”  

Clemens Fuest
Clemens Fuest took over from Hans Werner Sinn as chairman of the IFO Institute in April 2016. He is professor at the Faculty of Economics of the University of Munich.

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