1. Brussels, September 19th, 2011 Germany‘s Economic Policy: Role Model or Threat for the Euro-Area? European Social Conference: Balancing social and economic policy during the first European Semester Workshop on National Reform Programs Brussels, 19th of September 2011 Florian Moritz - Economic, Finance and Fiscal Policy Department - German Confederation of Trade Unions

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

3. Brussels, September 19th, 2011DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Germany‘s National Reform Program NRP 2011: published by the german federal government April 6th 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

4. Brussels, September 19th, 2011DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik 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

5. Brussels, September 19th, 2011DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik 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. Germany‘s National Reform Program Reducing Poverty ?

6. Brussels, September 19th, 2011DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Poverty is a problem in Germany: Data for 2008: Poverty rate (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 Single mothers with up to 3 year old kids: more then 50% are poor 7 % of employed are „working poor“ DGB asked government (without effect) to include poverty risk into the NRP Germany‘s National Reform Program Reducing Poverty ? Poverty rate & Gini coefficient

7. Brussels, September 19th, 2011DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Germany‘s National Reform Program Reducing Poverty ? Rise in poverty is closely connected to rise in fuctional income inequality due 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

8. Brussels, September 19th, 2011DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Germany‘s National Reform Program Strengthening growth and employment? Rising inequality, social cuts, irregular jobs and stagnation of employee-income are responsible for the biggest economic problem in Germany: stagnation of domestic demand & unbalanced growth. Components of GDP growth (compared to preceding year)

9. Brussels, September 19th, 2011DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Germany‘s National Reform Program Strengthening growth and employment? Does the government tackle Germany‘s biggest economic problem? 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)

10. Brussels, September 19th, 2011DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Germany‘s National Reform Program Strengthening growth and employment? DGB: No! The government doesn‘t tackle Germany‘s biggest problem! 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

11. Brussels, September 19th, 2011DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Country-specific Recommendations The European Commission‘s view on Germany The Commission is happy with 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 a role model. Other countries are asked to:  reduce social welfare costs (as germany did),  extend the retirement age (as germany did),  boost competitiveness in general and put pressure on wages (as germany did),  cut government spending & public debt (as germany did and is doing).

12. Brussels, September 19th, 2011DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik Economic Governance Proposals „Euro Plus Pact“ & „Six Pack“: very German Beside consolidation of public households, especially: promoting competitiveness 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). -> All countries are forced on the german path

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

14. Brussels, September 19th, 2011DGB, Abteilung Wirtschafts-, Finanz- und Steuerpolitik German Economic Policy: No Role Model but Threat for the Euro- Area If all countries follow the german example: Wages fall & government cuts spending Demand goes down Exports of Germany (and other surplus countries) go down and GDP shrinks & employment falls Deflationary development

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

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