Economists Critique Coalition Agreement: 'Ill-Advised Subsidies and Clientelism'

Economists have expressed strong skepticism regarding the coalition agreement reached between the Union and SPD, which includes significant proposals such as raising the minimum wage. Many experts argue that the agreement opens the door to questionable subsidies and clientelism, particularly with the planned easing of fiscal constraints.

Friedrich Heinemann from the Centre for European Economic Research (ZEW) has articulated concerns that the proposed measures would lead to imprudent financial practices, including the reintroduction of reduced VAT for the hospitality sector, which he describes as a benefit primarily for wealthier households. Furthermore, the return of subsidized agricultural diesel has been labeled an ecological concern, and the expansion of parental pensions for children is criticized for being an unfocused measure that will burden taxpayers.

Heinemann also points out that the coalition appears to be seeking to divert significant portions of debt intended for defense and infrastructure to serve influential groups instead. The agreement includes a substantial EUR500 billion special fund aimed at infrastructure, alongside a loosening of the debt brake for defense spending.

Criticism has also emerged from the Institute for the World Economy (IfW), where director Stefan Kooths remarked that ambitious measures to consolidate finances are notably absent from the agreement. He indicated that rather than focusing on fiscal discipline, the proposal introduces new spending initiatives. Kooths warned that the expanded debt allowances could dampen reform efforts, leading to a situation where deficits under the pretext of funding the military continue unchecked, exacerbating distribution conflicts in the long run.

Further evaluation of the proposed increase in the minimum wage to EUR15 per hour has drawn ire, particularly from the German Farmers' Association. Its president, Joachim Rukwied, argued that such a hike would render sectors like fruit and vegetable farming uncompetitive. However, he did welcome the planned return of diesel subsidies, a move that had previously sparked protests among farmers.

In contrast, representatives from the business sector have generally reacted positively to the swift conclusion of the coalition talks, viewing it as essential for establishing a functional government. Jörg Dittrich, president of the German Confederation of Skilled Crafts (ZDH), noted the importance of making the German economy more competitive and pursuing growth potential exceeding 1 percent. Nonetheless, he acknowledged that significant areas still require improvement, particularly in the realm of social security systems.

Employers' president Rainer Dulger commended the coalition for articulating clear objectives but cautioned that achieving these goals requires more than merely debt-financed programs. He also expressed reservations regarding the proposed minimum wage increase and the upcoming law on wage loyalty.

On the energy front, the Federal Association of Energy and Water Management praised the coalition's energy policies, stating that they have recognized and addressed urgent tasks. The planned reduction in electricity taxes and subsidies for network charges are seen as measures that will enhance Germany's competitive edge while making technologies like heat pumps and electric vehicles more appealing.

Following the agreement on a substantial financing package, the coalition partners have committed to formal negotiations to establish a government, setting the stage for what will be a pivotal phase in shaping Germany's economic and social policies moving forward.