Stagnation as the New Normal
According to Der Spiegel, there are fewer and fewer signs that Germany’s prolonged stagnation will automatically give way to a phase of strong economic expansion. The head of the German Institute for Economic Research (DIW), Marcel Fratzscher, warns that without comprehensive reforms, the government will struggle to restore the country’s former growth momentum.
In remarks to newspapers belonging to the Redaktionsnetzwerk Deutschland (RND), he stated: “Germany’s growth engine will, because of demographics, never restart.” His central argument is the shortage of labor. Quite simply, there are no longer enough workers to replicate the growth rates of previous decades.
The Core Issue: An Aging Society
Fratzscher highlights a structural shift that will shape the German economy for years to come. The population is aging, the pool of potential workers is shrinking, and the number of retirees requiring support is set to rise.
Against this backdrop, expectations that the current stagnation will soon be replaced by a powerful economic upswing appear increasingly unrealistic. The issue is not merely political hesitation — it is the changing social foundation of the economy itself.
International forecasts reinforce this assessment. The International Monetary Fund (IMF) estimates Germany’s long-term potential growth at an average of just 0.7 percent per year. The German Council of Economic Experts arrives at a similar figure, projecting average annual growth of roughly 0.7 percent through 2070.
Fratzscher’s Prescription: Higher Taxes, Fewer Subsidies
From this diagnosis, the economist draws clear political conclusions. Germany, he argues, will have to choose between unpopular reforms and gradual economic decline. He calls for tax increases and a reduction in subsidies, including measures that have long been considered politically untouchable.
Among his proposals:
- Abolishing so-called mini-jobs to encourage full employment participation.
- Raising property taxes to incentivize the development and productive use of real estate.
- Cutting or eliminating environmentally harmful tax privileges, including the diesel tax advantage, the tax exemption for aviation kerosene, and commuting allowances — measures he estimates amount to roughly €60 billion annually.
- Ending Germany’s “spousal income splitting” system, which reportedly costs the state around €22 billion per year.
Why VAT May Be the “Easiest” Option
Despite advocating structural reforms, Fratzscher doubts the political willingness to implement them. Instead, he expects the ruling coalition to opt for what he describes as the most politically convenient solution: raising value-added tax (VAT).
“We must assume that in the end the coalition will take the easy route and increase VAT by two percentage points,” he said. A rise from 19 percent to 21 percent could generate approximately €30 billion in additional revenue.
However, he also warns that such a move would be socially damaging. While politically simpler than cutting subsidies or reforming tax structures, it would disproportionately burden consumers.
Fratzscher points to a political deadlock: conservatives resist tax hikes, Social Democrats oppose cuts to the welfare state, and neither side prioritizes subsidy reductions. As a result, policy options appear increasingly constrained.
The Broader Context
The debate is further complicated by recent tax adjustments. At the beginning of January, the government reduced VAT on food served in restaurants and fast-food establishments from 19 percent to 7 percent.
Against this backdrop, any renewed increase in VAT would likely be politically sensitive and controversial.
A Structural Ceiling on Growth
The essence of Fratzscher’s warning is that Germany is not merely experiencing a cyclical downturn. Instead, the country faces structural limits driven by demographic change, labor market constraints, and entrenched fiscal policies.
Even under favorable economic conditions, a return to the high-growth years of the past may no longer be achievable. And that, as Der Spiegel suggests, is what turns today’s stagnation into a potentially long-term reality rather than a temporary setback.
This article was prepared based on materials published by Der Spiegel. The author does not claim authorship of the original text but presents their interpretation of the content for informational purposes.
The original article can be found at the following link: Der Spiegel.
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