GERMANY: Germany's council of economic experts warns the government against generous coalition pledges like a national minimum wage, and says the country should do everything it can to prevent undoing successful reforms

Record ID: 820772

  • Title: GERMANY: Germany's council of economic experts warns the government against generous coalition pledges like a national minimum wage, and says the country should do everything it can to prevent undoing successful reforms
  • Date: 13th November 2013
  • Summary: BERLIN, GERMANY (NOVEMBER 13, 2013) (REUTERS) EXTERIOR OF CHANCELLOR'S OFFICE GERMAN CHANCELLOR ANGELA MERKEL ARRIVING WITH THE PRESIDENT OF THE RHINE-WESTPHALIA INSTITUTE FOR ECONOMIC RESEARCH, CHRISTOPH SCHMIDT CAMERAMAN MERKEL BEING HANDED ECONOMIC REPORT CAMERAMAN (SOUNDBITE) (German) GERMAN CHANCELLOR, ANGELA MERKEL, SAYING: "This report comes at a good time because
  • Embargoed: 28th November 2013 12:00
  • Keywords:
  • Location: Germany
  • Country: Germany
  • Topics: Economic News,Politics
  • Reuters ID: LVAB27YPRMIYLE072FV5AXL1XYI6
  • Story Text: Germany's council of economic advisers warned on Wednesday (November 13) that the introduction of a minimum wage and more generous pensions by a new government could put at risk economic gains achieved through far-reaching reform of the welfare state a decade ago.
    The independent five-person council, also known as the "wise men" although it includes one woman, said future generations of Germans would bear the brunt of policies being proposed by Chancellor Angela Merkel's conservatives and the Social Democrats (SPD) in coalition talks.
    Among their planned measures are a nationwide minimum wage, a hike in pensions for mothers with children born before 1992 and steps that would make it more attractive for people to stop working before they reach the statutory retirement age of 67.
    The council noted that the German government needed to avoid diluting at home the very reforms it has trumpeted abroad.

    "We warn in our report against diluting or partly undoing the reforms which have made us successful, which took us successfully through the crisis. Instead we would promote a politics which looks to the future and which is threefold: to retain that which made us successful, to avoid anything which would turn back the wheel and instead to aspire to further developments which would make us more secure for the future. That's the three points," Christoph Schmidt, the President of the Rhine-Westphalia Institute for Economic Research told journalists in Berlin after presenting the report to Chancellor Angela Merkel.
    The SPD has said it will refuse to form a "grand coalition" with Merkel's conservatives unless a minimum wage of 8.50 euros per hour is introduced.
    The centre-left party also wants to change rules they say allow companies to underpay and jettison workers on temporary contracts.
    German industry is also worried about a government splurge. Media have reported that Berlin would need about 50 billion euros per year in added revenues if all of the plans proposed by the conservatives and SPD were to be implemented.

    "We don't see the socio-political need, and we don't see that it would be a well thought-through act to introduce such a high nationwide minimum wage as is currently being discussed especially because we don't have a precedent and because international examples are not so easily transferable and because we can learn so little from the studies for national minimum wage, it seems relatively frivolous to introduce a very high minimum wage and therefore to endanger a large number of jobs," the economist said, pointing to a looming demographic challenge in Germany, which has one of the lowest birthrates in Europe.
    Elsewhere in Europe however, plans that are likely to push up labour costs and put more money in the hands of ordinary citizens are seen as welcome steps for addressing Germany's anaemic domestic demand.
    The United States and European Commission have criticised Germany in recent weeks for keeping wages low at home in order to sell goods at competitive prices abroad.
    They say Germany must take steps to reduce its substantial current account surplus, which stood at 6.9 percent of gross domestic product (GDP) last year, in order to restore economic balance to the euro area.
    The panel of economic advisers forecast modest growth of 0.4 percent this year for Europe's largest economy and 1.6 percent next year. That is slightly weaker than government estimates, which foresee a 0.5 percent expansion in 2013 and 1.7 percent growth in 2014.
    Mekel said now was the time to look at such an economic report as her conservative party continues coalition talks with the Social Democrats.

    "This report comes at a good time because we can use is as a basis for issues like how can we continue to have good politics concerning labour market, how can we continue to create jobs, how can we increase growth? Because looking at the challenges of the demographic change and we also agree with this, and especially also the increased demand for competition in the world, it is of course important that we are in a good place not only today but that this is also the case tomorrow and the day after," she said.
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