Economists Divided on Coalition's Reform Package: Praise for Approach, Criticism of Depth

DIW President Marcel Fratzscher sees the package as a necessary first step, but calls for further-reaching reforms. "The difficult reforms, which involve cutting back on entrenched privileges, will now have to follow," Fratzscher told the Deutsche Presse-Agentur. Anyone who believes the federal government has now completed the hardest part of the reforms is mistaken. Fratzscher also emphasized the European dimension: "We still have not understood in Germany that a strong, united and integrated Europe is our only chance to protect ourselves globally against increasingly aggressive and nationalistic hegemons in the USA and China."

DIW Chief Fratzscher Calls for Further Tough Reforms

Economist Friedrich Heinemann, board member of the Working Group on European Integration and member of the academic directorate of the Berlin Institute for European Policy, also took a nuanced view. He praised the package as a political breakthrough. "It is basically a sensation that something like the pension package is now working, or that small and medium-sized enterprises can bury the office of data protection officer. Suddenly, things are happening that would have been unthinkable just recently," Heinemann said in conversation with ARD. The package sends "a signal from pensions to bureaucracy reduction to the tax system: Germany is capable of acting again."

At the same time, Heinemann formulated clear criticism of individual points. The higher social contributions for high earners just above the contribution assessment ceilings are counterproductive: "The higher social contributions for these groups will further fuel the flight of highly qualified individuals into part-time work and leisure." He also did not regard the planned requirement for a doctor's note from the first day of illness as a solution. The expansion of fixed-term employment contracts, however, is a long-overdue step: "With this, we are catching up to countries like Switzerland or Denmark, which have always been much more flexible in this regard and which are therefore doing much better."

Heinemann Praises the Signal, Criticizes Individual Points

The President of the Leibniz Centre for European Economic Research (ZEW) in Mannheim, Achim Wambach, underscored the great need for action. "But the economic pressure is enormous," Wambach said. "To bring Germany back to the top as an investment location, further steps will be necessary." High energy costs, excessive regulation, and a shortage of skilled workers are hampering companies' economic development. The reform package can certainly have positive effects, but these alone are not enough.

Wambach pointed to an imbalance in the tax concept: "The positive effects of relief for middle incomes are offset by higher burdens on medium-sized partnerships through the higher top tax rate, which now including the solidarity surcharge is just under 50 percent." The Ifo Institute also signaled fundamental approval, but expressed the need for revisions.

ZEW President Wambach Sees Enormous Economic Pressure

Ifo President Clemens Fuest described the reform package as an important contribution, but likewise called for further steps. "The biggest weakness of the reform package is that measures to consolidate government spending are missing," Fuest said. In the medium term, tax relief is impossible if the growth of government spending is not curbed. He also criticized the expropriation plans in Berlin: "The expropriation plans in Berlin deter private investors in housing construction and worsen the housing shortage." Fuest also considers the planned income tax reform to be in need of improvement.

In the political debate, DIW chief Fratzscher called for more confidence in the country's capacity for reform. "Trust is more important than any reform package to make a cyclical turnaround and a successful economic transformation possible," he said. The scholar accused German politics of lacking courage and foresight. "And this federal government also lacks a clear vision of where the country should stand in 10 and 20 years and how we want to get there."

Ifo President Fuest Misses Consolidation of Government Spending

Heinemann, who studied economics and history in Münster, at the London School of Economics, and in Mannheim, appealed to the economics profession not to downplay the political breakthrough. "I must also appeal to our economics profession not to downplay this breakthrough now, even if we can still imagine more." At the same time, he warned against excessive expectations of quick effects and called for a more thorough review of government spending and social benefits.

The DIW President also called for societal debates on distribution and entrenched privileges. The economic researchers see the reforms as the starting point of a longer debate in the course of which unpopular decisions will become necessary. Fratzscher summed this up with a view to upcoming conflicts: The federal government must prepare for tough distributional conflicts.

Heinemann also directed an appeal to voters: "We, as voters, must much more often ask whether a reform advances the country, and not always only whether we ourselves might have to pay a few euros more at the doctor's tomorrow." At the same time, he advocated less "politics-bashing": "Perhaps we should all together engage in a bit less politics-bashing, which really only benefits the radicals on the left and right fringes."

Appeal to Politics and Society

Reactions in the media were mixed. While some commentators saw an "overdue course change," others described the package as "catastrophic" and insufficient. The Deutsche Presse-Agentur and Deutschlandfunk reported on 3 July 2026 on the statements by the research institutes. The reform package had been presented by the coalition at the beginning of the week.

From the perspective of the economic researchers, the following can be noted after the statements: The 34-point package is recognized as a political signal of capacity for action, but in the assessment of all four institute directors interviewed, it does not solve the structural problems – high energy costs, excessive bureaucracy, a shortage of skilled workers, and unchecked growth in government spending. The coming months are therefore likely to be marked by further reform debates and the struggle to consolidate the federal budget.

Internationally, the debate gains additional weight through the reference to the geopolitical situation. Fratzscher's reference to the USA and China as "increasingly aggressive and nationalistic hegemons" underscores, in the DIW President's view, the urgency of a common European response. For German economic policy, this means, in the researchers' view, that national reforms must always be considered in the context of European competitiveness.