Economist Hans-Werner Sinn takes issue with traffic light policy

Following the AfD's electoral success in East Germany, top economist Hans-Werner Sinn is making a sweeping attack. His target: the traffic light coalition, its climate and financial policies – and the German zeitgeist.

Munich – Economist Hans-Werner Sinn rarely holds back when it comes to expressing a clear opinion. In recent years, the policies of the traffic light government made up of the SPD, Greens and FDP have repeatedly become the target of his devastating criticism of Germany's development.

After the shock of the state elections in Thuringia and Saxony, in which the AfD became the strongest and second strongest party, the former party leader of the ifo Institute now brought in an interview with New Zurich Newspaper (NZZ) to make another all-out attack. The original quote: The Greens' regulatory policy, the forced phase-out of combustion engines and “other energy policy sins” are leading to deindustrialization in Germany, according to the 76-year-old's theses.

Hans-Werner Sinn criticizes traffic light coalition: “No wonder that new parties have emerged on the left and right”

The economist sees the recent election results in East Germany as confirmation that the population is rightly no longer willing to support this development: “It is no wonder that new parties have emerged on the left and right that do not want to support this course.”

The “smug firewalls and insults” against these new parties are the biggest weakness of the old parties – and an explanation for the election defeat of the traffic light coalition. Sinn does not expect any negative effects if the AfD participates in the state governments in Thuringia or Saxony. Unlike many experts and East German business leaders, many companies will probably be relieved by the election results. However, in many places in East Germany the opposite is the case – the mood in the local economy is suppressed. “I make no secret of the fact that the results so far upset me very much,” explained Rico Chmelik, Managing Director of the Automotive Thuringia Association, to the Mirror.

Deindustrialization due to AfD’s electoral success? Sinn contradicts and expects “little impact”

Daniel Hannemann, founder of the electricity storage company Tesvolt from Wittenberg in Saxony-Anhalt, also expressed his concerns to the news magazine and even spoke of “dindustrialization” due to the election success of the AfD. Interestingly, Sinn’s successor at the ifo Institute, Clemens Füst, also warns of negative consequences for the economy in Thuringia and Saxony. New investors are more likely to consider companies from “other federal states” than those in eastern Germany, he explained to the New Osnabrück Newspaper.

The AfD’s success could also deter workers with a migrant background, Füst added in an interview with Rheinische PostThis would have an impact on the health sector, for example, where supply bottlenecks could be threatened in this scenario.

For Sinn, the political situation after the election reduces the risk of the countries becoming ungovernable: “On the whole, I expect the impact to be rather minor, similar to what happened in Italy after the victory of the Fratelli d'Italia.” Prime Minister Giorgia Meloni's post-fascist party won the election in Italy in October 2022 – and was subsequently courted by German politicians.

Sinn sees “economic nonsense” in Robert Habeck’s speech – energy transition destroyed Germany

Sinn identifies the entire German and European climate policy as the overarching problem. This is characterized by market failure. Germany is completely focused on “fluctuating” electricity supply from wind and solar energy and is driving up the price of electricity. In doing so, it is establishing its industrial base. At the same time, Sinn continues, other industries around the world continue to use oil, nuclear power and coal – and create a significant competitive advantage for themselves through cheap energy supplies.

Germany currently lacks the storage capacity to provide people with electricity from solar or wind energy in the event of weather-related floods. The current rule is: the higher the proportion of electricity from solar and wind sources, the higher the prices for private consumers and industry. When there is a lull, Germany has to import expensive electricity from abroad to fill gaps in the supply network. Forecasts assume that green electricity will only become cheaper from 2045 onwards, when appropriate storage solutions have been developed and a sophisticated infrastructure is in place. Until then, the promotion of solar power alone will cost billions.

Warning against “unbridled debt policy” – discipline from Germany as a counterweight

Sinn had already taken aim at Federal Minister of Economics Robert Habeck (The Greens) in the past. In an interview with The Pioneer In May, he described his view of the world as “economic nonsense”. In particular, Habeck's criticism of the debt brake and the demand for more investment by the state is, for Sinn, untenable then and now.

Compared to the NZZ warns against a “return to unrestrained debt policy” – especially with regard to the effects on the monetary union. If the debt brake were to be lifted in Germany, the EU's creditworthiness and debt discipline would be threatened. The consequences would be rising interest costs and risk premiums for countries, to which the European Central Bank (ECB) would respond by buying government bonds. Highly indebted countries like Italy could collapse under this burden – to the detriment of the entire EU.

Experts fear: If the ECB lowers the key interest rate, inflation will rise

This argument is also supported by Federal Finance Minister Christian Lindner (FDP): The head of the Liberals considers the comparatively low German debt ratio of 60 percent measured against gross domestic product (GDP) to be an essential counterweight to countries such as Italy (137.3 percent of GDP), France (110.6) or Spain (107.7).

And Sinn goes even further: new debt will cause a long-term increase in inflation in the eurozone due to the energy shortage and the shortage of workers. This scenario is also fueled by the reduction in the key interest rate announced by the ECB. “Strict budget restrictions” and personal liability of the states for their schools are the right solutions.

Critics about Hans-Werner Sinn: Top economist between reputation and populism

Sinn still enjoys a reputation in Germany as a top economist and expert on all kinds of economic issues. The 76-year-old built up this reputation during his time as President of the Leibniz Institute for Economic Research, or ifo, between 1999 and 2016. On the basis of this experience, he regularly assesses the economic policy situation in Germany. Critics accuse Sinn of crossing the threshold of populism in his statements. Something when he uses the right-wing populist medium Tichy's insight speaks of a “green extremism” that currently prevails at the political level in Germany.

Work-life balance replaces old work ethic – Sinn sees Germany on the wrong path

Compared to the NZZ In addition to criticizing climate and financial policy, Sinn also criticized the general zeitgeist in Germany. The level of education of students is “not at a good level,” young migrants lack interest in the German training systems, and the “pursuit of work-life balance” has replaced “the old work ethic.”

The top economist is therefore calling for a return to the “traditional work ethic”, a major education offensive and improvements in the natural sciences and digitalization in Germany. Instead of these developments, however, Germany is dominated by an increasing “dirigism” – unnecessary interference by the state through laws and regulations. This is reflected in the regulatory policy of the Greens and in the tendency for “unrealistic politicians” to decide which sectors money flows into.

Ramelow as an example of state control: “This shows the messed up way of thinking in this country”

As a further example, he cited a statement by the outgoing Thuringian Prime Minister, Bodo Ramelow (The Left). He praised “the fact that over a hundred new laws and regulations had been passed during his legislative period.” For Sinn, this is a clear sign. “It shows the messed up way of thinking in this country.”