Commentary by Michael Hüther (Director of the German Economic Institute)
The federal government is merely scrambling to keep up with the crises. My thoughts on a year of the Black-Red coalition: Rarely has a federal government taken office under more difficult conditions: Trump and his tariff policy, NATO under pressure, war in Ukraine and then also in Iran, a China that is increasingly unashamedly flexing its political and economic muscle. Add to that stagnation at home, paralysis in Europe, growing pressure from the political fringes – and all this amidst demographic change, climate-driven structural change, in a country that has long lived beyond its means.
Even in politically more stable times, this would be a major task. And yet, one year after taking office, the federal government must face the question of why it is approaching the necessary reforms so hesitantly in the face of a watershed of this magnitude. In fact, the weight of these historic problems should make political action easier. But this requires clear leadership and precise communication.
Yet the Black-Red coalition had set out with the ambition to do better – and had underpinning this resolve with the special fund and the exemption for defence spending. But the coalition soon became bogged down in minutiae and public disputes: contentious personnel issues, an announced ‘autumn of reforms’ that came to nothing. And where major reforms are actually needed, we get a two-month fuel rebate – political theatre that pretends to be capable of action. Or take the long-overdue reform of income tax to ease the burden on the middle class: here, the coalition partners are deadlocked over whether high earners should be taxed more heavily. Yet every additional percentage point in the wealth tax brings the state merely an extra billion euros in tax revenue.
This nit-picking doesn’t cut it; the CDU-SPD coalition is in a worse position than the ‘traffic light’ coalition was at the same stage. So what do the CDU and SPD have to lose? Or to put it another way: what else needs to happen for them to back up their reform rhetoric with action? The ideas circulating in political Berlin are not at all misguided. Everyone knows that the social security system needs a fundamental overhaul, that our tax system does too little to reward extra work and deters investment, that Germany is not the first choice for foreign skilled workers, and that the state is groaning under the weight of tasks and expenditure it can no longer afford.
The public knows this: in times of radical change, yesterday’s tools cannot solve today’s problems. It is high time the federal government took the lead and assumed responsibility – instead of chasing after crises with misguided, hasty measures such as the fuel rebate. And there is certainly no time left for ideological deadlocks.
