Achim Truger is a professor of socioeconomics and a member of the German Council of Economic Experts. An alumnus of the Faculty of Management, Economics and Social Sciences, Truger argues for reducing the country’s export orientation and for massive public investments. Will future generations have to unfairly bear the costs of infrastructure renewal? A misconception, he says.

Interviewer: Eva Schissler

Professor Truger, you specialized in the area of public finances when you were studying economics in Cologne. Why did you choose that area specifically?

Professor Truger, you specialized in the area of public finances when you were studying economics in Cologne. Why did you choose that area specifically?
When I began studying in the winter semester of 88/89, there was a huge rush to join the Faculty of Management, Economics and Social Sciences. As a result, the basic lectures were huge events. I don’t come from an academic household, so that was quite intimidating for me. In the main study phase it became less overwhelming and we had more contact, also to our professors. I then took lots of courses with Klaus Mackscheidt, who held the chair for economic policy studies with a special focus on finance.  There were a few incredibly committed assistants in that area. And Professor Mackscheidt’s teaching was really interesting, so I ended up specializing in the area of finance myself. 

After completing my degree course, I gained my doctorate under Klaus Mackscheidt in the finance studies department and, at the same time, undertook several different projects at the Institute for Public Economics, an affiliated institute of the university, including one on ecological tax reform. 
 

Today you are a professor at the University of Duisburg-Essen and a member of the German Council of Economic Experts, referred to as the ‘Sages of Economy’. What kind of work does the council do?

We are an independent panel of experts advising the federal government, economic policy makers and the public. Four economic goals fall within our mandate: price stability, a high level of employment, steady and continual economic growth and external trade equilibrium. Whenever we identify problems in relation to these goals or potential paths for improvement, we communicate them.

Most importantly, we produce an annual report which is always greeted with great interest in the media. We submit it to the federal government in the first half of November and the government must then issue a response to it in January. The title of the last report sounds like a warning, an admonishment: ‘Address failures and commit to modernization’. 
 

Which failures are you referring to specifically?

It’s obvious that there’s been a real lack of future-oriented spending in many sectors, such as infrastructure, transport and defence, and that the country now needs to be modernized. Politicians need to take action in a number of areas. This includes reinforcing freight transport, decarbonizing and improving infrastructure in its entirety. But also things like school education or the lack of affordable housing especially in urban areas are closely linked to prosperity and growth. 
 

Germany’s last coalition government including the Social Democrats, the Free Democrats and the Green Party broke apart over the issue of financing these investments by releasing the ‘debt brake’. Is modernization possible without new debt?

Many things that the state undertakes should not be financed by way of loans. However, particularly where future-oriented spending is concerned, it makes sense to also have these generations participate in the financing. After all, these generations are set to benefit. The debt brake has been controversial ever since it was introduced, and I was one of its early critics. Though that doesn’t mean that it should just be done away with and that there should be no rules at all. However, it was introduced in too stringent a manner. It hasn’t allowed enough leeway for financing public or future investments. We need more room for cyclical stabilization during the recovery phase following the post-pandemic economic crisis. Financial policy should not put a foot straight on the brake again. Instead, we need to return gradually to more stringent financial control. 

Most recently, the Council of Experts has taken the stance that slightly higher debt for investment in the major areas of education, defence capability and infrastructure would be expedient. From my point of view, this would also include improving resilience to the adverse impacts of climate change.
 

Is the ‘special fund’ of 500 billion euros which the Bundestag decided on in March a step in the right direction?

It certainly is. Advocates of a strict observance of the debt brake are now finding themselves on the defensive. Within the political sphere, the Social Democrats and the Green Party have long been in favour of reform. The Christian Democrats have been more hesitant in the past, so it is a good thing that Friedrich Merz has now initiated a legal reform together with the other parties – not only in view of current world events. It’s simply not possible to make all the necessary public investments within the current regional and municipal budgets. 

By the way, it’s not just the Council of Experts; there are also other institutions that have long argued that the debt brake needs to be reformed towards stability. The Bundesbank has gone significantly further than our recommendations. And international institutions such as the Organisation for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF) have also been in favour of reform. 

For many years, Germany’s economic success has been built on security assurances provided by the USA, cheap energy from Russia and export, above all to China. All three of these pillars are now shaking or have already collapsed. How can the country establish itself on a new basis?

The issue, in essence, is how things can proceed under this strongly industrial and export-oriented business model. It worked really well during a phase in which the world economy was in good health, and many developing countries were continuing to industrialize and acquiring new machinery. China in particular represented a huge export and growth engine for Germany. Today, China has caught up with us in the sectors in which we were strong. China is expanding in terms of its own market but also in third markets, where it is competing with Germany.

It’s always good to reduce bureaucracy and the shortage in skilled workers should be addressed. However, what we need most right now is expansive financial policy and improved infrastructure. The energy transition should also be seen as an integral element of infrastructure, so that renewable energies really do become cheaper. The industrial sector needs a clear perspective for the future. If these kinds of investments are made, and the public budget as a whole isn’t subjected to cuts, this would, at the same time, represent a shift towards greater internal economic orientation, which would also contain our extremely risky reliance on exports. 
 

Do the high non-wage labour costs in Germany also restrict growth?

First and foremost, non-wage labour costs finance things that are advantageous for many people – including our economic leaders. Germany can’t be pursuing a low-wage strategy, cuts inevitably lead to problems. We have to focus on high productivity in order to compete against China and other competitors in the global market. Deregulation and privatization, cuts in social benefits, rolling back the state – none of that will work in the current situation. What good will a general reduction in taxes do when in fact it’s clear that we need investment? The neoliberal approach has had its day and is no longer fit for purpose today. The burden on companies should therefore be relieved by way of specific investment incentives, so that their ongoing development moves in the right direction – for instance towards climate neutrality. 
 

Do you think that net-worth taxation would be a sensible way of generating funds for the necessary investment?

We’ve seen a lot of new research on the effects of an unbalanced distribution of income and wealth over the last few years. Looking at developments in the USA, we can see the risks that arise when a great deal of wealth, and with it political power, resides in the hands of a mere few. The introduction of a tax for billionaires or a very significant wealth tax would therefore really make sense, ideally coordinated at the international level. 

For Germany, I have proposed a reform of inheritance taxation. Significant privileges apply when people inherit company assets in this country. My suggestion would be to introduce a minimum inheritance tax of 15 percent on company assets – with generous deferment options so that businesses are not put under too much pressure. That alone could almost double the inheritance tax revenue. This money would flow directly into the budgets for the Länder and could, for instance, be invested in early childhood and school education. 
 

Currently the world economy is in turmoil due to the USA’s erratic tariff policies. Which repercussions do you expect for Germany and Europe? 

We’ve already addressed the risk that President Trump will increase tariffs in the economic forecast of our current report. If he really does levy the tariffs he has announced on products from the EU and further negotiations fail, Germany will enter a recession again. And here, once again, Germany will be paying the price for its extreme dependence on export. 

Regardless of what other countries do: In terms of both defence and environmental politics, the EU now needs to focus on its strengths and confidently bring the weight of its own internal market to bear. 

Achim Truger has been a member of the German Council of Economic Experts since 2019. He has been a professor of socioeconomics, with a focus on government activity and public finances at the University of Duisburg-Essen, also since 2019. 

After receiving his doctorate at the University of Cologne in 1997, he worked as head of the ‘Tax and Financial Policy’ department at the Hans Böckler Foundation in Düsseldorf. From 2012 to 2019 he was professor of economics, in particular macroeconomics and economic policy, at the Berlin School of Economics and Law (HWR).  From 2015 to 2017 he served as vice dean of the Department of Economics at the HWR.

Achim Truger has researched and published in numerous fields of macroeconomic policy and finance and is engaged in scientific policy consulting for governments, parliaments, trade unions and NGOs from the international to the local level.