New Government

An Economist's 10 Ideas for Reform

Bunter Herbst in Berlin – Reichstag
Hans-Werner knows what decisions he wants taken here. Source: DPA

No one needs to fear a Jamaica coalition government. Each of the four parties has its strengths, which, if skillfully used, could greatly benefit the country.

The new government, which is likely to consist of the Christian Democratic Union (CDU), the Christian Social Union (CSU), the Free Democratic Party (FDP) and the Greens, cannot continue with the old coalition’s performance-impeding reforms that just redistribute the problems. Nor can it be content with having Europe’s problems covered up by the printing presses of the European Central Bank. Citizens are no longer interested in smug slogans; they want dynamic reforms that move the country forward. They also no longer want to be lectured to by the media elite; they want to be heard instead.

The new coalition has the opportunity to deliver what Germany needs. Greens can be surprisingly pragmatic, and environmental policy is undeniably their strength. The liberals, the FDP, know a lot about the economy and have a young, modern image. The CSU is down-to-earth, business-friendly and interested in social issues. The disoriented CDU still has to find its bearings, but it should be flexible enough to bring together the members of the coalition. In short, no one needs to fear this coalition. In fact, we can expect a lot from it. These are my 10 reform proposals.


It’s time to abolish the solidarity tax, which was only meant for the transition period directly after German reunification. At the same time, the income tax rate should be reformed so that government revenue stops growing faster than private economic output as a result of progression.


Child poverty is Germany’s biggest problem. The government needs to actively combat it by ceasing to suppress the natural desire to have children with a pension system hostile to fertility. This is why we need a children’s pension to increase the statutory pension. Free childcare is the least that society should contribute to raising children. This is also essential for the integration of the children of immigrants.


The measures can be paid for with the government’s high tax revenues and by getting rid of all value-added tax exceptions. Christian Lindner can restore the honor of the FDP by abolishing the reduced tax rate for hotels.


Half of Germany’s net foreign assets consist of bank overdrafts (target loans), which the German central bank, the Bundesbank, has had to grant to the other central banks in the euro system, currently totaling about €850 billion ($1 trillion). In the United States, such loans among the district Federal Reserve Banks must be repaid once a year. Europe also needs a repayment system to put an end to the problem of self-service among its financially weaker countries. It should not be up to Germany to help feed southern Europe, which is already doing better.

Experten: Armut macht Kinder krank
This kid should already be collecting a pension. Source: DPA


Despite the wealth, many banks and individual countries in southern Europe are over-indebted, and because the ECB insures creditors, they are getting more and more into debt. The best way to stop this avalanche of debt is with debt haircuts and, to the extent that countries are involved, through withdrawal from the euro and currency devaluation, to restore the competitiveness of these countries. The German government must make it clear to its partners in southern Europe that the euro system is not a self-service shop that eliminates the need for proper taxation of its citizens.


Germany needs an energy union with the other EU member states. Otherwise, it will soon no longer be able to offset the uneven production of wind and solar power. Incentives to avoid CO2 emissions should also be harmonized.


The migration of needy EU citizens to the more developed social welfare states should be reduced by only granting social benefits to those who have already paid into the system. Inherited social benefits should be provided by native EU countries. This is the only way to deactivate the magnetic effect of the social welfare states. It would also create an opportunity to deter the British from leaving the European Union.


To ensure that asylum applications can only be made outside European territory, Europe needs a uniform asylum system and European border security, as proposed by French President Emmanuel Macron.


To counteract urbanization and rising rents in urban areas, Germany needs to expand broadband coverage across the country. Digital networks should be harmonized across Europe.


Europe needs a common army to support and strengthen its role within NATO. The French president’s proposals point us fundamentally in the right direction.


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