Will Reforms Succeed in Germany?

There were a lot of topics in the first half of the year: AI, oil prices, SpaceX. Public finances took a back seat. Wrongly: S&P Global estimates the outstanding sovereign debt of central governments with an S&P rating at 83 trillion USD: an astronomical figure. What's more: In just five years, the debt has risen by a third. Since the beginning of the year, government bond yields have risen significantly. This is particularly striking in Japan, a country with extreme levels of debt and decades of rock-bottom interest rates. In the U.S., there is speculation about a “Mar-A-Largo Accord.” So there is reason to be nervous. Long-term interest rates are likely to remain high. A reversal in fiscal policy is nowhere in sight.

Germany: What are the benefits of the reforms?

• Pension: Implement the “Pension Security Commission’s” proposals in the Bundestag by the end of 2026
• Taxes: Relief for middle-income earners; higher taxes for high-income earners; higher taxes for “mini” jobs
• Labor Market: More temporary contracts; less protection against dismissal for "high earners"; incentives to return to work after receiving a severance package; elimination of sick leave requests by phone
• Growth and Equity among other things: support measures for promising industries; accelerating grid expansion and grid digitization; promoting housing construction; a federal law prohibiting the expropriation of private rental housing through state law
• Reducing bureaucracy: Reviewing reporting requirements not mandated by EU or constitutional law; Expanding the presumption of approval; reducing data protection requirements where they are excessive or inappropriate

Conclusion

Some measures are appropriate; tax relief may not amount to much (rising burdens due to higher social security contributions are to be expected); pension reform is a major hurdle; in most other areas of reform, the direction is the right one—namely, increasing flexibility and reducing bureaucracy; more incentives to work. However, there are likely to be significant debates when lobbying groups step up their activities.