The rise of the AfD poses a threat to the economy in Eastern Germany.
The IFO President, Clemens Fuest, foresees potential economic trouble for Eastern Germany stemming from the success of the AfD and BSW in the recent European elections. With these radical parties holding significant influence in the eastern German states, he suggests that major economic reforms for the area's growth are unlikely to be pursued.
Fuest cautioned that the rise of the AfD and BSW in the region casts a shadow over the economic future of these areas, even if their gains don't translate directly to state elections. He spoke during a visit to Dresden, commenting on the election outcome. He noted that the poor performances of the Greens and the shaky position of the SPD will make things more challenging for the traffic light coalition in Berlin.
Fuest expects the coalition partners to focus more on their upcoming federal election campaigns, indicating less focus on significant economic policy reforms for the region.
The economist also pointed out that the success of right-wing parties in the EU elections could create tensions around defense, migration, or trade policy. He believes that Europe can prosper only through willingness to compromise on national interests and work together harmoniously. However, he conceded that the EU has had limited success in this area thus far. Conflicts within the Eurozone could intensify regarding debt policies, especially in countries like France and Italy carrying hefty debts.
Investors have signaled their concerns by widening the spread between German interest rates and those in France and Italy. Fuest anticipates modifications to the European Green Deal, which aims to fuel the transition to a modern, sustainable economy, and suggests it may not continue in its current form. Possible benefits include streamlining some aspects of the plan, like rules for sustainable finance or reporting sustainability requirements. However, there could also be setbacks if efficient policies, like the CO2 price, get rolled back.
Image: Clemens Fuest, President of the IFO Institute.
Header: IFO Chief Warns of Economic Consequences from Rise of Radical Parties in Eastern Germany
List:- AfD becomes strongest force in eastern German states- BSW establishes itself- Losses for Greens, weakened SPD complicate traffic light coalition's work- IFO President predicts little likelihood of significant economic reforms for economic location- Europe's focus on cooperation vs. national interests- Franco-Italian debt and potential conflicts- Investors respond with widening interest rate differentials between Germany and other countries- Anticipated changes to Green Deal
Link: Clemens Fuest at IFO Institute
Highlight: "The very high debt in France and Italy carries conflict potential"
