Economic psychology: Fratzscher warns of pessimism and investment backlog!

In a recent statement, Marcel Fratzscher, President of the German Institute for Economic Research (DIW), was critical of the planned stock pensions of Federal Finance Minister Christian Lindner (FDP) and Federal Labor Minister Hubertus Heil (SPD). In an interview with Deutschlandfunk, which was broadcast on January 2, 2025, Fratzscher described the stock pension as “not a big hit”. He demands clarity, security and a long-term vision for the next five to six years from the new federal government.

Fratzscher emphasized the importance of psychological aspects for the economy, which, in his opinion, is influenced by 80 percent. He sees pessimism as the biggest shortcoming, especially in the industrial and export sectors. Nevertheless, he emphasizes that Germany has great growth opportunities. According to Fratzscher, companies should position themselves more broadly and become less dependent on China. He describes markets in India, Africa and South America as high-potential alternatives. However, he does not expect any noticeable economic recovery for 2025.

Fratzscher's proposal for a citizens' fund

In a broader context, Fratzscher has emphasized the need for the state to invest more in infrastructure, education and public services. However, this is made more difficult by the existing debt brake. A Focus article suggests that a citizen's fund could provide a possible solution to this dilemma by having citizens invest in government investment projects. According to the KfW municipal panel, the state's investment backlog amounts to 166 billion euros, which corresponds to over 4% of annual economic output.

In addition, almost 30% of municipalities are heavily indebted and can hardly make any investments for the future. There are major differences between municipalities, particularly a north-south divide in terms of investment ability. Although the federal government claims to be making record investments, real investments are shrinking when price increases are taken into account.

Fratzscher sees the political options for solving this problem in reforming the debt brake, tax reform or more efficient spending management. The idea of ​​a citizens' fund was proposed by a commission of experts in 2015, but has so far been ignored. Such a fund could be set up by KfW to mobilize private money for public investment projects. Fratzscher highlights that this fund would provide a government guarantee to minimize the risk of default and reduce financing costs. In addition, the citizens' fund could also help in the area of ​​retirement provision by offering higher returns than traditional forms of savings. The fund should concentrate on municipal projects and remain free of political manipulation.

In summary, Fratzscher demanded that Germany must address its investment deficit in order to strengthen the economic location and improve public services, which makes him a staunch critic of the stock pension approach, as he made clear in his interview on Deutschlandfunk and is also set out in the Focus article.