Fuest: AfD, Left and BSW support puts eastern Germany at an economic disadvantage

Clemens Fuest, president of Germany’s Ifo economic institute, says the strength of populist parties could become a direct economic liability for eastern Germany. He told Capital that the AfD, the Left and the Sahra Wagenknecht Alliance, or BSW, currently hold majorities in eastern German states.

“Governments against them are no longer possible. That is a location disadvantage,” Fuest said. He argued that companies would invest less in regions where parties likely to create poor conditions for business could enter government.

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Governments against them are no longer possible. That is a location disadvantage.

Fuest linked the risk not only to areas where the Alternative for Germany records strong election results, but to every region with high support for radical parties. In his view, uncertainty over future economic policy can affect investment before any government takes office.

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In a democracy, voters also have the right to choose economic decline.

The economist also criticized the consequences of Germany’s state fiscal equalization system. If a state gets itself into economic difficulty, he said, a substantial share of the costs is passed on to the federal community. He described that as a long-standing problem, pointing to the heavily indebted western states of Bremen and Saarland as examples.

At the same time, Fuest acknowledged the democratic choice involved. “In a democracy, voters also have the right to choose economic decline,” he said.

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If the risk is high that parties may come to power in a region that create poor conditions for business activity, investments will fall.