He is one of the leading experts on the German economy. Stefan Kooths has headed business cycle and growth research at the Kiel Institute for the World Economy since 2014. On behalf of the German government, the Kiel Institute works together with four other leading German economic research institutes to produce the so-called Joint Economic Forecast, with projections for short- and medium-term overall economic development.

In addition to business cycle research, Kooths's areas of focus include stabilization policy, monetary and currency affairs, international economic relations, and the economics of order. The Professor of Economics teaches at BSP Business and Law School in Berlin/Hamburg and is also internationally connected. Kooths is Chairman of the Friedrich August v. Hayek Society, President of the International Economic Senate (IWS), and a member of the Mont Pèlerin Society. He is also on the Academic Advisory Board of the Liberales Institut in Zurich.

The Fear of a New Debt Crisis in the Euro Area

In September, he was in Zurich as a speaker at a conference organized by this institute. The conference focused on market and state failure as well as external effects. Kooths dealt with this topic in depth in his book "Marktwirtschaft – Wohlstand, Wachstum, Wettbewerb" among other things.

However, the interview with finews focused on the fear of a new euro debt crisis emanating from government bond markets, as well as the German economy and politics. Kooths took the opportunity to sharpen his answers on Germany so that they correspond to the current news situation.

Mr. Kooths, as someone born in 1969, you followed the debate some 35 years ago on the Maastricht Treaty for the creation of the European Monetary Union. Back then, economists were divided into two camps: the supporters, for whom the monetary union would bring convergence toward an economic and fiscal union and thus also toward a political union. And the skeptics, who said that a common currency without political union would lead to disaster. Which camp were you in at the time?

I was probably too optimistic back then, with regard to the members' adherence to the rules. For me, it was important that the monetary union did not bring about harmonization of fiscal policy. By leaving fiscal policy at the national level, the European Central Bank (ECB) could be endowed with strong independence for monetary policy at the community level. The idea was sensible in itself, but it presupposes that the players adhere to the rules of the game. National governments are responsible for their own financing. Any restriction of this full liability undermines the monetary union.

The Maastricht Treaty was signed in February 1992. This also laid the foundation for the European Monetary Union. (Image: ECB)

But?

Unfortunately, the guardrails for sound fiscal policy, first laid down in the Maastricht criteria and later in the Stability and Growth Pact, have been adjusted repeatedly. Today, the fiscal rules are so complex that they are hardly understood by the general public or by many political actors. In addition, a trend toward mutualizing debt has emerged in the EU, which is putting the entire monetary union on a slippery slope.

"The discipline enforced by capital providers is the most effective instrument for putting fiscal policy back on a sustainable footing."

Now the markets are pushing back and forcing significantly higher yields on French government bonds than on German Bunds. Is that a positive development?

Yes, the discipline enforced by capital providers is the most effective instrument for putting fiscal policy back on a sustainable footing. The rise in interest rates affects only new borrowing and thus only a small portion of total debt, so politicians have time to correct course.

It is not only the government bond market that is in motion in France. (Image: Shutterstock)

Government bond yields have risen sharply not only in France, but in many countries. Should this be interpreted as a return to a normal level after the exceptionally long period of low interest rates, or as a warning sign because of high debt?

Both are true. Expectations surrounding artificial intelligence are high, and the associated investment needs are enormous. This additional demand for capital raises the so-called natural interest rate, the equilibrium rate. But the fact that government debt relative to gross domestic product has never been as high in peacetime in the Western world as it is today is also cause for concern. In the euro area, there is also the fact that the ECB is winding down its bond-purchase programs. The ECB's withdrawal means that governments need even more private capital.

The ECB has an extensive crisis toolkit, including the Transmission Protection Instrument. Will the ECB act, for example, if a president from the political fringe is elected in France next spring?

That is difficult to assess. But I already view the mere existence of this toolkit critically. It means that private investors can count on an airbag in a crisis. The toolkit should be abolished; that is also the view of the other four major German research institutes. Abolition would signal to the capital markets that responsibility and liability go hand in hand. If you want tools to contain national budget crises, that should not be a matter for monetary policy. For example, the European Stability Mechanism provides an avenue for this. Unfortunately, the time since the financial crisis has not been used to relieve the ECB.

"The mere existence of the ECB crisis toolkit means that private investors can count on an airbag."

Interest rates in the major currency areas have risen in sync. Does this show that the forces of globalization are still at work despite the many headwinds?

I have never declared globalization dead, unlike others, for whom wishful thinking was sometimes probably also the father of the thought. Globalization has even weathered the tariff storm from the U.S. quite well. The economic benefits of international division of labor are so enormous that, in principle, all actors want to participate in them.

Germany, with its export-oriented economy, has long benefited especially from globalization as an export economy.

Not only from exports, but also from imports. We are not mercantilists. People often look only at exports, but a trade surplus as high as possible is not a sensible goal for economic policy. Rather, the aim is to exploit the advantages of division of labor as fully as possible through maximum openness.

In recent years, complaints about reform gridlock have multiplied in Germany. But now the economic picture is beginning to brighten. Is Germany's success model working again?

Indeed, we have been in an upswing since the end of 2025, and capacity utilization is increasing. However, only modest increases in production are needed for this, because capacities are hardly growing. Germany's problem is not the business cycle, but structural weakness in growth. The somewhat better figures now are not the result of better economic policy.

What is behind the weakness in growth?

On the one hand, demographics, i.e. aging and the decline in net immigration or a net outflow of the native population, are an important factor. High levies additionally dampen the incentive to work. On the other hand, other locational disadvantages - such as the density of regulation - mean productivity is barely growing anymore.

A year and a half ago, the coalition circumvented the debt brake enshrined in the constitution. You were skeptical at the time. Has this exercise paid off for the economy?

It brought what one had already feared back then. They quickly agreed on higher spending, but not on reforms that would enable stronger growth and increase debt sustainability. The debt ratio is already 65 percent today, and rising. We are still waiting for reforms. The pressure will probably only emerge once fiscal room for maneuver has been exhausted - but that is precisely what was significantly expanded through the constitutional amendment. That delays the consolidation process by several more years.

"Nonpartisanship is a prerequisite for scientific work and public-benefit activity."

In Germany, the AfD, a party founded by economists from the euroskeptic camp, is racking up electoral success. The other parties have erected a "Brandmauer" against the AfD. Since taking office as President of the Hayek Society in 2019, you have spoken out against an incompatibility clause for AfD members.

And for good reason. No scientific association knows such incompatibility clauses, because excluding certain party memberships would be completely alien to science. Nonpartisanship is rather a prerequisite for scientific work and public-benefit activity. Back then, some wanted to instrumentalize the Hayek Society for party-political maneuvers, but they ran into a brick wall both on the executive board and among the membership at large.

How do you assess the AfD's economic policy?

It is difficult to categorize, because it is unclear whether the more market-liberal wing or the more interventionist wing will set the tone in the future. The AfD has never had to implement its economic policy in practice because it has never been in a position of responsibility. This allows it to appeal to very different voter groups, which may explain part of its success. The real litmus test is therefore still ahead.

Representatives of German business and entrepreneurs repeatedly warn against the AfD. What in its party platform is particularly harmful to the economy?

An important point is concern about the climate for foreign skilled workers if the AfD were to participate in government. Germany must do everything it can to be attractive to qualified foreign skilled workers - which, unfortunately, it is already failing to do today. An exodus would be a major problem for the country as a business location. There is also the possibility of leaving the EU or the monetary union. As I understand it, however, this is about a last resort in case certain reform steps prove impossible to implement.

The headwinds for the ECB in Frankfurt are increasing. The party that has viewed German membership in the monetary union critically since its founding has gained strongly in recent state elections. (Image: ECB)

In the capital Berlin, the Left has become the strongest force with socialist ideas and is likely to lead the government. Is that a bad sign for the German economy?

First of all, it is a major problem for Berlin as a business location, and it also radiates out to the rest of the country. Already because of the decidedly anti-market policies, housing market regulation, and collectivization of private property with a confiscatory character. The antisemitism tolerated by the Left is already driving away highly qualified workers. For Jews, life in certain parts of the city is no longer bearable; for children, attending school becomes an ordeal. In this way, Berlin is sending a devastating signal to the world. All of this is poison for Germany as a business location.

"All of this is poison for Germany as a business location."

So this time antisemitism is coming from the left.

Anti-capitalism and antisemitism have also historically been closely linked; Karl Marx was a vile antisemite. The Left has deliberately won over voters from Islamist milieus by tolerating antisemitism. Unfortunately, that does not stop some other parties from extending a hand to the Left.

Unlike most other economists, you accept that your "side activities" - in the Hayek Society and as a co-founder of the Javier Milei Institute in 2024 - are polarizing. Doesn't that affect how your research is perceived?

For me, it is about insight, not about any image. Hayek is one of the most important economists and social philosophers of the 20th century. His work is still groundbreaking in many respects today. Of course, one first has to know it, which I doubt many critics do. Beyond that, the work of research institutes is financed by taxpayers, also in order to provide impartial information to policymakers and the public. I feel committed to that. Scientific independence is a privilege that creates an obligation to give back. This includes identifying misdevelopments and proposing therapies - regardless of whom it politically benefits or harms.

Argentine President Javier Milei was the star guest at the 2024 Hayek Days in Hamburg. (Screenshot: finews)

And why the Milei Institute?

Unlike other scientists, we cannot experiment in a laboratory, but we do have the opportunity to learn from developments in other countries, both positive and negative. That is why the case of Argentina is so interesting. The country was finished; Milei pushed through a radical policy shift. I actually wonder why other colleagues are not much more interested in it. The two "side activities" Milei and Hayek are therefore scientifically motivated; they are not hobbies for passing the time. And they do not cost taxpayers anything either.

"I am surprised that other colleagues are not much more interested in Argentina."

But you do have firm ordoliberal convictions?

Of course. I have never made a secret of the fact that, as a defender of individual freedom, I am a supporter of liberal social philosophy. In my view, the schools of thought built on that foundation provide the best explanations for socioeconomic reality, ranging from the basics of goods, value, and price theory to money, interest, and capital theory and the consequences of excessive regulation. It would be very problematic not to disclose one's personal paradigmatic foundation for scientific work. Incidentally, it is impossible not to follow any paradigm. Anyone who believes that one should simply "let the data speak" is overlooking the fact that even collecting them requires a theory.