Germanys Economic Policy Role Modelor Threatforthe EuroArea European

Germany‘s. Economic. Policy: Role. Modelor Threatforthe Euro-Area ? European. Social. Conference : Balancingsocialand economicpolicyduringthe first. European Semester Workshop on National Reform Programs Brussels, 19 th of September 2011 Florian Moritz - Economic, Finance and Fiscal Policy Department - German Confederation of Trade Unions Brussels, September 19 th, 2011

Overview The National Reform Programof Germany: No (new) answers to our problems The reaction of the European Commission : Germany as a role model? The new economicgovernancein Europe: Very German What we need: There must also be a change in German economic policy (symmetricrebalancingof the Euro-Area ) DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Brussels, September 19 th, 2011

Germany‘s National Reform Program NRP 2011: • published by the german federal government April 6 th 2011 • structure closely follows that of the preliminary NRP (“Draft NRP”), which was submitted in November 2010 • DGB and other civil society organisations commented on the early „Draft NRP“ • DGB and employers‘ organisations were also invited by the Ministry of Economics and Technology to discuss the draft • Hardly any attention was paid to the objections that DGB raised DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Brussels, September 19 th, 2011

Germany‘s National Reform Program The NRP 2011 contains the following elements: • Medium-term scenario for the country’s economy • Translation of the five ‘headline targets’ agreed upon at the EU level into national targets: Promoting employment Improving the conditions for innovation, research, and development Achieving the (previously set) targets for climate protection Improving educational attainment Promoting social inclusion, in particular by reducing poverty • German Action Programme 2011 for the Euro Plus Pact • General overview of key political measures of the Federal Government and the Länder to strengthen growth and employment • Brief account of the use of EU structural funds DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Brussels, September 19 th, 2011

Germany‘s National Reform Program Reducing. Poverty? Government says: „European Council has identified three indicators for defining sections of the population affected by poverty or exclusion: 1) percentage at risk of poverty, 2) material deprivation and 3) percentage of the population living in jobless households. The choice of an appropriate indicator is left to the discretion of the member states. (…) In defining its quantitative target, the Federal Government takes the concept of individuals living in jobless households, and applies it to the specific German situation. “ We say: • Setting targets for „Persons in jobless households“ is to easy: By the time the NRP was submitted, the government was already certain to achieve a reduction in unemployment. • The indicator – especially when focussing on long term unemployed – is easy to manipulate: Unemployed that find a job for a short period of time are not long-term unemployed anymore, while their social situation is not changing. Many long term unemployed vanish from the empirical data, because they reach retirement age. • The focus on only one indicator gives the false impression that the percentage of persons at risk of poverty is no problem in Germany. DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Brussels, September 19 th, 2011

Germany‘s National Reform Program Reducing. Poverty? Poverty is a problem in Germany: Povertyrate &Ginicoefficient Data for 2008: Povertyrate(Persons with less then 60% of median income) rose from 10. 3% in 1999 to 14% East-Germany : poverty rate is as high as after the reunification Singlemotherswith up to 3 year old kids: more then 50% are poor 7 % of employed are „workingpoor“ DGB asked government (without effect) to include poverty risk into the NRP DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Brussels, September 19 th, 2011

Germany‘s National Reform Program Reducing. Poverty? Risein povertyis closelyconnectedto risein fuctionalincomeinequalitydue to growth of „bad jobs“. • While property and entreprenueral income grew 48% since 2000, the increase in income of employees was only 14% (not price adjusted). • 75% of the jobs created in the upswing of 2010 were „atypical“ (low pay) jobs. Today only 60 Percent of the people employed in Germany have a standard employment relationship. The others are forced to work part-time, have „minijobs“or are temporary workers DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Brussels, September 19 th, 2011

Germany‘s National Reform Program Strengthening growth andemployment ? Rising inequality, social cuts, irregular jobs and stagnation of employee-income are responsible for the biggesteconomicproblemin Germany: stagnation of domestic demand & unbalanced growth. Componentsof GDP growth (comparedto precedingyear) DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Brussels, September 19 th, 2011

Germany‘s National Reform Program Strengthening growth andemployment ? Doesthe governmenttackle. Germany‘sbiggesteconomicproblem ? NRP 2011(German Action Programme for the Euro Plus Pact & key political measures to strengthen growth and employment): • Fostering competitiveness & employment by investing in education & Infrastructure • Reducing public debt (constitutional Debt Brake, deficit below 3%-limit already in 2011) • Reinforcing financial stability • Strengthening domestic demand (by more deregulation, liberalisation and competition and only by supply-sided measures) DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Brussels, September 19 th, 2011

Germany‘s National Reform Program Strengthening growth andemployment ? DGB: No!The governmentdoesn‘ttackle. Germany‘sbiggestproblem ! NRP 2011 contains nothing new: focusses on supply-sided measures to reduce companies‘ costs and on fiscal austerity; progressive measures receive inadequate attention: • Plans to invest in education & ecological modernisation (energy saving & -infrastructure) are a good idea but not ambitious enough. • Fiscal austerity and consilidation is not only anti-social, but economically counter-productive: spending cuts lower domestic demand & the growth potential (lack of public investment…). • Regulation of the financial sector is to weak, further plans are missing or not of big use. • Envisaged measures don‘t support domestic demand: Germany has no supply-side problem! Further deregulation & liberalisation puts more pressure on wages and working conditions (= reduces private demand); public investment is much to low DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Brussels, September 19 th, 2011

Country-specific Recommendations The European. Commission‘sviewon Germany The Commissionis happywith Germany‘s NRP: - praises German competitiveness, - only has 4 short recommondations, which support the existing German plans, - wants Germany to continue it‘s fiscal consolidation course, - wants Germany to liberalise („remove unjustified restrictions on certain professional services“) and strengthen competition in former public sectors (network industries…). Looking at the Commission‘s recommendations for other countries, it seems that the Commission is seeing Germany as arolemodel. Other countries are asked to: Øreduce social welfare costs (as germany did), Øextend the retirement age (as germany did), Øboost competitiveness in general and put pressure on wages (as germany did), Øcut government spending & public debt (as germany did and is doing). DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Brussels, September 19 th, 2011

Economic Governance Proposals „Euro Plus. Pact“ & „Six Pack“: very. German Beside consolidation of public households, especially: promotingcompetitiveness -> All countriesare forcedon the germanpath Euro Plus Pact: Pressure on wages by „decentralisation“ of the bargaining process, by „ensuring that wage settlements in the public sector support competitiveness“ etc. „Six Pack“: New mechanism against „macroeconomic imbalances“ is still asymmetric: Especially Countries with current account (trade balance) deficits are forced to adjustments (cutting costs). DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Brussels, September 19 th, 2011

Economic Governance Proposals „Euro Plus. Pact“ & „Six Pack“: very. German DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Brussels, September 19 th, 2011

German Economic Policy: No Role. Modelbut Threatforthe Euro-Area If all countries follow the german example: Wagesfall & governmentcuts spending Demandgoes down Deflationary development GDP shrinks& employmentfalls DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Exports of Germany (andothersurplus countries ) go down and Brussels, September 19 th, 2011

The Solution: Symmetricadjustmentof imbalances Instead of cutting wages in deficit countries -> we need higher wages in germany (by regulating labour markets, curbing the low-pay sector, establishing a minimum wage of 8, 50 € /hour etc. ). Instead of social cuts in deficit countries -> we need a revision of social cuts in germany (retirement age, unemployment benifits etc. ). If deficit countries are to boost exports -> Germany needs to strenghten domestic demand & imports (higher private income, but also higher public investment). „High Road“ to rebalancingthe Euro. Areain a sociallyjust way DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Brussels, September 19 th, 2011

Thank. You! Contact: florian. moritz@dgb. de DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Brussels, September 19 th, 2011