1. Germany's export-oriented growth model and the problems of the Eurozone Bologna, 21 st of October Klaus Busch

2. Content 1. The export-oriented German model is still very successful but in structural terms it is under pressure 2. Actual problems of the world economy 3. Structural imbalances of the world economy 4. Structural imbalances of the Eurozone 5. Weaknesses in the EU‘s economic order 6. Actual debate on the European Stability Pact 7. Urgent reforms on the international, European and national level

3. Germany‘s export-oriented model At the moment the German model is very successful again At the moment the German model is very successful again Nevertheless there are a lot of dangers for Germany Nevertheless there are a lot of dangers for Germany –Stagnation of the US Economy, –Bubble of the real estate sector in China, –Deflationary development in Europe, Beyond that structural problems of the world and European economy are jeopardizing the lop-sided German model

4. Structural Problems of the World Economy Current account imbalances between the USA on the one hand and China, Germany and Japan on the other hand are a key factor of the crisis of the international financial crisis Current account imbalances between the USA on the one hand and China, Germany and Japan on the other hand are a key factor of the crisis of the international financial crisis Problems of the International Monetary System Problems of the International Monetary System The danger of a new protectionism on behalf of a stagnating US economy and unsolved international exchange rate problems The danger of a new protectionism on behalf of a stagnating US economy and unsolved international exchange rate problems

5. Structural Problems of the Eurozone Uneven development of labour costs have caused distortions of competitiveness in the Eurozone Uneven development of labour costs have caused distortions of competitiveness in the Eurozone Decreasing unit labour costs in Germany and rising ULC in most other countries Decreasing unit labour costs in Germany and rising ULC in most other countries Growing current account surpluses in Germany and rising deficits in the South of Europe Growing current account surpluses in Germany and rising deficits in the South of Europe Need of coordination of wage policy at the European level and/or introduction of a current- account- oriented stability pact in the EU Need of coordination of wage policy at the European level and/or introduction of a current- account- oriented stability pact in the EU

7. European Economic and Monetary Union and the defects of European fiscal policy The EU has no decision-making centre for fiscal policy, which would be able to implement common countercyclical policies, e.g. to combat a fundamental economic crisis. The EU has no decision-making centre for fiscal policy, which would be able to implement common countercyclical policies, e.g. to combat a fundamental economic crisis. Because there is an asymmetry between monetary and fiscal policy in the EMU, the European Union is also unable to apply a flexible policy mix to coordinating monetary and budgetary policies. Because there is an asymmetry between monetary and fiscal policy in the EMU, the European Union is also unable to apply a flexible policy mix to coordinating monetary and budgetary policies. The control mechanism for the budgetary policy of member states (Stability and Growth Pact) cannot stop member states from operating an “as if” approach to compliance with the debt criteria by manipulating data and simply deceiving the Community. The control mechanism for the budgetary policy of member states (Stability and Growth Pact) cannot stop member states from operating an “as if” approach to compliance with the debt criteria by manipulating data and simply deceiving the Community.

8. Actual debate on the reform of the Stability Pact Weaknesses of the Growth and Stability Pact Weaknesses of the Growth and Stability Pact Reform proposals of the European Commission Reform proposals of the European Commission Lop-sided orientation on the reduction of deficits and the danger of a deflationary spiral Lop-sided orientation on the reduction of deficits and the danger of a deflationary spiral Rules as a substitute for economic policy Rules as a substitute for economic policy Proposal of an Excessive Imbalances Procedure and its possible problems Proposal of an Excessive Imbalances Procedure and its possible problems The European economic policy should be oriented to sustainable growth and employment which would in a mid term perspective consolidate public debt The European economic policy should be oriented to sustainable growth and employment which would in a mid term perspective consolidate public debt

9. Reforms to be tackled I Reforms on the international economic level Reforms on the international economic level - a new international monetary system - overcoming the global imbalances Reforms on the European level Reforms on the European level - European Economic Government, - European Economic Government, - Wage coordination/stability pact - Wage coordination/stability pact - European coordination of social and tax policies - European coordination of social and tax policies

10. Reforms to be tackled II More domestic growth in Germany The impact of wage policy The impact of wage policy Reforms to reduce the low-wage-sector Reforms to reduce the low-wage-sector The key role of tax policy The key role of tax policy Strengthening public investment in Strengthening public investment in – Education, – Health and Care and – Environment