IFO chief Fuest: German companies are afraid to turn left | Markets | 09/25/2021

A red-green-red government after the general election will be the outcome German companies fear most. IFO chief Clemens Fest is convinced of this, he told Bloomberg-TV in an interview.

Fuest said in an interview on Friday that an alliance of the SPD, the Greens and the left could create international uncertainty about German foreign policy, increase the tax burden and lead to an interventionist climate policy.

The Ifo Business Climate Index hit a 5-month low today, weighed by ongoing delivery bottlenecks that have hampered production in Germany’s manufacturing sector.

One issue is important, and that is whether we have a left majority, a majority of the Social Democrats, the Greens and the far left. This will likely lead to a left-wing coalition, in which case there will be a noticeable shift to the left, which is a concern for the economy. If there is no such majority, the formation of the government may take some time, but no matter what government it will come out of, if it is a moderate government, there will be no great fluctuation in economic policy, i.e. the result does not play such a major role. “The real difference is between the coalition of the left, including the extreme left, and the rest,” said Ifo president, Clemens Fuest.

Neither the Social Democratic Party nor the Green Party has so far explicitly ruled out partnership with the left. According to an analysis by Bloomberg Economics, a left-wing coalition will increase tax revenue as everyone plans to raise taxes on high-income families and the big fortunes. At the same time, spending will also increase dramatically – and the debt brake will likely be history.

The introduction of a wealth tax “would put significant pressure on investments in Germany and lead to capital outflows,” Fuest said. It is not clear if it will happen, but there are concerns about taxes.” (kilobytes)