Fuest warns: Coalition is threatened with collapse due to debt trap!

Fuest warns: Coalition is threatened with collapse due to debt trap!

The new budget is currently being worked on in Berlin, while Clemens Fuest, President of the Munich Ifo Institute, expresses alarming concerns about the federal government's plans. Fuest criticizes the financial planning for the years 2025 to 2029 as “highly problematic” and warns of a possible threat to the coalition if the government relies on expanded debt leeway without carrying out the necessary structural reforms. He demands that reforms must be initiated in order to actually achieve the desired spending reductions. In his analysis, he highlights that the government is ignoring possible problems with the new public debt, which was intended for infrastructure and defense but could now be used for other projects.

The opposition had already pointed out the risks before the debt package was passed. There are fears that the government could break its debt promise and instead of focusing on necessary reforms, will continue to focus on debt-financed investments. Fuest notes that capital spending is being cut from the core budget and replaced with new debt, which is aimed solely at a short-term solution and could be damaging in the long term.

Demands for structural reforms

Another central concern of Futest is the modernization of pension insurance. He warns that without appropriate reforms, subsidies from the federal budget will continue to rise. “There are no visible political measures to implement planned spending reductions,” he criticizes. This skepticism is underpinned by concerns that high military spending is restricting the government's financial scope for action. This could significantly limit the scope for investment in infrastructure and education.

Fuest also points to the federal government's increase in interest expenditure, which is expected to grow from currently around 30 billion euros to over 60 billion euros by 2029. This development could have a negative impact on the overall budget situation. He also sees a problem in dealing with the 100 billion euros that are supposed to flow to the municipalities from a special fund. Critics demand that this money must be used exclusively for additional investments and not disappear into the general budgets of the states and municipalities, which would mean that the intended effect would be lost.

Debt-financed special fund

The CDU/CSU and the SPD have created a debt-financed special fund for infrastructure and climate protection, which has a total volume of 500 billion euros and has already been approved by the Bundestag and Bundesrat. The legal requirements for making their shares in the special infrastructure fund available to the states and municipalities have also been created. However, it remains unclear how and whether this money will actually be used for the targeted investments.

Clemens Fuest's warning words are a clear signal to politicians that a fundamental review of the budget strategy is necessary in order to address Germany's economic challenges without jeopardizing the stability of the coalition. The coming months will be crucial in determining whether the federal government can actually undertake the necessary reforms.