2025 German Federal Election: Economists See Positive Impetus and Great Need for Reform

Following the collapse of the traffic light coalition in November 2024, a new Bundestag was elected on February 23, 2025, before the end of the envisaged legislative term. The CDU/CSU emerged as the strongest force with 28.5% of the vote and is currently holding exploratory talks with the SPD (16.4%) about a possible Black/Red coalition. The next German government faces major challenges: changes in the geopolitical security situation, tensions in transatlantic relations, and continued weak growth in the German economy. Against this backdrop, the 50th ifo and FAZ Economists Panel focuses on the economic impact of the likely new coalition government and identifies reforms that should be tackled as a priority. 205 economists took part in the survey conducted from February 25 to March 4, 2025.

Positive Expectations of a Possible Black/Red Coalition

After three years of the traffic light coalition government, which were characterized by economic standstill, waning competitiveness, and growing political uncertainty, the economists surveyed are now more optimistic about the future. The majority of the participating economics professors expect positive effects for Germany under a possible Black/Red coalition.

For example, 58% believe that a Black/Red coalition will have a positive impact on political stability. 9% even expect very positive effects, while 16% expect no effect, and 14% and 1% respectively expect a negative or very negative effect on political stability. 2% say they “don’t know.”

The impact on strengthening Europe’s role in international relations is also viewed positively by the majority: 62% of participants expect positive effects and a further 15% very positive effects. Only 6% rate the impact as negative or very negative, while 15% expect no effect. 2% say they “don’t know”.

A similar mood can be seen with regard to Germany’s international competitiveness as a location: 57% of economists forecast positive or very positive effects of a Black/Red coalition. 31% expect a new German government to have no impact on competitiveness. 9% of participants see negative or very negative effects. 3% answer this question with “Don’t know.”

Assessments regarding economic growth are likewise positive: The majority of participants (63%) say that a Black/Red coalition will have a positive or very positive impact on economic growth. Only 7% and 1% respectively expect negative to very negative effects on growth, and 27% anticipate no effect. 2% say they “don’t know.”

Financing Models with Additional Debt to Bolster Security Meet with Approval

Security and defense policy is currently at the center of the public discourse, particularly in view of the tense situation in transatlantic relations. Various models to finance additional security and defense requirements are being discussed in public. The verdict of the participating economists is mixed.

One option under discussion is not to count defense spending as part of the debt brake. This proposal is similar to an initial consultation paper from the CDU/CSU and SPD, which envisages exempting defense spending above 1% of GDP from the debt brake. The general proposal to exempt military investments from the debt brake, which was evaluated before the consultation paper was published, is seen by 30% of the participating economists as very suitable and by a further 38% as suitable for financing additional requirements. A minority of 13% and 9% respectively rate this option as unsuitable or very unsuitable. In total, 9% of participants were neutral about its suitability and 1% answered “Don’t know.”

There is a similarly clear assessment of the proposal to finance the additional security requirements by setting up a new “Special Fund for the German Armed Forces.” A total of 71% of participants consider this financing option to be suitable (41%) or very suitable (30%). Only 10% rate the proposal as unsuitable, a further 7% regard it as very unsuitable, while 9% remain neutral. 3% say they “don’t know.”

Opinions on a possible increase in VAT to finance additional security spending diverge widely: While 23% of economics professors rate this proposal as very unsuitable and 31% as unsuitable, 17% consider it suitable and 8% as very suitable. 21% of participants have a neutral stance.

The possibility of making savings in other areas in order to finance the defense budget is widely supported: 36% of participants consider this proposal to be suitable, while 29% even regard it as very suitable. In contrast, a total of 26% reject the proposal and rate it as unsuitable or very unsuitable. 9% of the participating economists take a neutral stance.

The opinion on introducing a one-off wealth tax to finance the defense budget is predominantly negative: 26% of participants state that they rate this proposal as very unsuitable and 34% as unsuitable. At the same time, 14% of participants were neutral about this proposal, while 18% assess it as suitable and only 7% as very suitable. 1% say they “don’t know.”

Ökonomenpanel 2025_03

Urgent Need for Reform of Bureaucracy and Taxes

In the final part of the Economists Panel on the 2025 federal election, German economists are asked about three (further) reforms that a new federal government should tackle immediately. Reforms to “reduce bureaucracy and enable deregulation” were proposed most frequently, with 67 mentions. The general buzzword “reducing bureaucracy” was often mentioned here, as well as specific reform proposals such as the abolition of the “Supply Chain Act.” Reform proposals relating to pension policy (49 mentions) and energy and climate policy (48 mentions) follow in second place.

In the area of pension policy, the participants urge in particular an increase in the retirement age, but there are also calls for the subsidy from the federal budget to be limited. In the area of energy policy, there are demands for a stronger orientation of policy toward the CO2 price and a reduction in small-scale subsidies. Some participants are also in favor of reforming the financing of grid fees.

Other proposed reforms the economists believe should be tackled as a matter of urgency relate to social policy. The proposal to reform the citizen’s benefit and the proposal to better coordinate various social benefits in order to increase the incentive to work are prominent in this regard. There are also calls for reforms to tax policy, such as a reduction in corporate tax rates to a lower, internationally competitive level. Reforms in immigration policy also have a higher priority among the participating economics professors. This relates on the one hand to limiting irregular immigration and on the other to creating better conditions for attracting skilled workers to Germany.

Reform ideas in the areas of public investment, education, digitalization, healthcare, housing, and the federal budget are mentioned less frequently. The category “Other” includes more rarely mentioned reform proposals such as a reorganization of relations between the federal and state governments or a reform of public administration in order to increase efficiency.