More spending than strategy
— At first glance Europe looks like the big winner in the coalition agreement.
The coalition commits to a more proactive policy course alongside France
including the transformation of the ESM and preparedness to spend more
money on Europe. However, in large parts, the chapter on Europe allows for
different interpretations and the red lines of the coalition – internally, i.e.
Among the coalition partners, and externally, i.e. Vis-à-vis the EU partners –
will likely emerge only over time when negotiating concrete designs.
— The pro-cyclical fiscal policy lacks focus. To accommodate all their pet
projects, the three parties have produced a potpourri of measures which do
not add up to a consistent future oriented policy in our view. Instead, the
likely coalition risks to overstretch the fiscal leeway of some EUR 46 bn.
The current goldilocks situation with low interest and high growth rates does not
allow for longer-term spending obligations in social and pension policy.
Demographic trends and the structural changes related to digitalisation and
global competition do instead require careful resource management to
strengthen Germany’s economic and fiscal sustainability.