analysis
The economists warn in their annual report: There is a lack of investment in Germany, productivity is falling and the aging society is creating problems. They recommend long-term measures to politicians.
For months, the economic policy discussion has revolved almost exclusively around one topic: the possible subsidization of energy-intensive companies through an industrial or bridge electricity price. However, these words do not appear on any of the more than 400 pages of the economists’ new annual report. The five members of the “Council of Experts for the Assessment of Overall Economic Development” rather focus on medium and long-term problems of the German economy.
The title says it all: “Overcoming weak growth – investing in the future”. This should show that it is about more than just the question of whether the German economy will shrink by 0.4 percent this year or whether it will recover by 1.3 percent next year – according to the federal government’s forecast – or whether it will only grow by 0.7 percent, as economists expect.
Germany – the “sick man of Europe”?
However, according to the economists, this difference has to do with the aforementioned weak growth. Because while most other industrialized countries have recovered more quickly from the Corona crisis, Germany is still lagging behind. Some, like the British “Economist”, are again talking about the “sick man”.
Economists certainly wouldn’t go that far, but they are putting their finger on the wound: Because of the ongoing lack of investment, the capital stock is becoming obsolete. Despite higher employment, the real gross domestic product is not increasing – that means productivity is falling. And in the medium term there is a risk that the volume of work will decrease due to the aging of society.
Politics cannot avoid long-term problems
All of these obstacles, the economists write in the policy book, “have been apparent for many years and have not yet been adequately addressed.” Between the lines, the economists indicate the concern that politics is too often caught up in short-term thinking and prefers to avoid long-term problems.
Example: pension. Economists have been warning for years about increasing financing problems for statutory pension insurance. The Council of Experts has also pointed this out many times in different configurations. Now the economists are increasing their warning: under the current law, the statutory pension insurance is threatened with “a falling level of security with sharply rising contribution rates”.
Pension insurance is already supported with more than 100 billion euros annually from the state budget. But according to economists, simply hoping for the budget is not enough. They are calling for a whole package of measures. The retirement age should be linked to life expectancy. Over a period of 40 years, the pension at 67 (in 2031) could then become the pension at 69 (from 2078) – assuming life expectancy increases as expected.
Internally controversial: redistribution of pensions
But politicians should act beforehand, after all, the “baby boomers” will soon be retiring. The Council of Experts therefore believes that simply fixing the pension level, as the federal government is currently planning, is wrong. This is “not a sustainable solution, but rather increases the foreseeable increase in contribution rates.”
Interestingly, the majority of economists are proposing greater redistribution within pension insurance: as part of a larger reform package, the pensions of higher earners should be reduced. This means that for poorer households, social hardships resulting from a declining level of security could be cushioned. However, the members of the Advisory Council do not agree here; Nuremberg professor Veronika Grimm gave a minority vote on this.
The economists also bundle numerous other suggestions for politics in their thick annual report. The volume of work could not only be expanded through later retirement. Targeted immigration, increased employment among women and employment incentives for recipients of citizens’ benefit are also required. In some situations it could happen that work is not worth it if it means losing all state benefits. The economists therefore suggest that benefits should be reduced more slowly as income is generated – even if this ostensibly means higher expenditure for the state.
And what does politics say?
For the opposition it is clear: “The entire report is a big slap in the face,” said CDU parliamentary group vice-president Jens Spahn. Germany urgently needs a change in economic policy: “Electricity is far too expensive, which is why the electricity tax must be reduced. Work must become more worthwhile again, taxes and duties must also be reduced.”
In contrast, Chancellor Olaf Scholz (SPD) sees himself on the right path. The measures to speed up planning and approval processes are helping to overcome the weak growth: “We have to ensure that we get back on track,” said the Chancellor. However, the report makes it clear that long-term growth requires more than lower electricity prices or less bureaucracy.