Economic Concerns Mount as Germany Faces Fiscal Risks and Eurozone Financial Burdens

Germany's economic outlook is shaped by both internal fiscal challenges and external burdens within the Eurozone. Prof. Monika Schnitzer, head of the German Council of Economic Experts, warns in a recent interview that Germany risks a federal budget collapse by 2029 if significant structural reforms are not implemented. While 2026 is expected to bring modest growth between 0.8% and 1.3%, driven by state investments, sustainable progress hinges on faster infrastructure planning, focused government investments, and reform of social security systems including pension adjustments.

Schnitzer emphasizes the need for a balanced approach that supports economic growth and business predictability, urging longer work periods and inflation-linked pension adjustments to ease social security pressures. She critiques recent government spending that might undermine the feasibility of proposed corporate tax reforms, highlighting risks of mounting deficits without disciplined fiscal management.

Externally, Germany shoulders a substantial financial burden within the Eurozone. It acts as the main financier through the Bundesbank's low-interest Target2 loans, the EU reconstruction fund, and aid to Ukraine. German taxpayers and savers are disproportionately affected by inflation losses compared to southern European countries where households benefit from higher property ownership and private wealth. This disparity fuels debate over the fairness and sustainability of Germany's financial commitments.

Overall, the combined pressures of managing growing fiscal deficits domestically and supporting the Eurozone's financial stability challenge Germany's economic future. Policymakers face urgent demands to accelerate infrastructure development, reform taxation and social welfare systems, and reassess Germany’s Eurozone financial role to preserve long-term economic sustainability and growth.