Against a Backward-Looking Economic Policy: A Discussion featuring the German Council of Economic Experts’ Annual Economic Report
On Friday, December 6, 2013, the German Marshall Fund of the United States (GMF) hosted a roundtable discussion with two representatives of the German Council of Economic Experts: Prof. Dr. Christoph M. Schmidt, chair of the Council, and Dr. Benjamin Weigert, secretary general of the scientific staff. The focus of the discussion was the presentation of the Council’s recent report on the state of the German economy for 2013-2014, titled, Against a Backward-Looking Economic Policy. Ivan Vejvoda, Vice President of Programs at GMF, moderated the event. The roundtable discussion was attended by more than 35 people, including representatives from government, embassies, think tanks, business groups, and academia.
Prof. Dr. Schmidt began the discussion by describing the purpose of the German Council of Economic Experts and its annual report on the German economy. He framed the newest report, Against a Backward-Looking Economic Policy, through the lens of the recent German election. Prof. Dr. Schmidt contended that while the German economy is healthy and stronger than most of its Euro neighbors, the current model for economic growth will not be sufficient to meet future economic challenges. He identified three major issues that need to be addressed in order for Germany to sustain its economic strength. First, he mentioned the need for continued labor market reforms. He noted that the German labor market has been very resilient throughout the economic crisis and that the unemployment rate has remained low. Yet he cautioned against the calls for a national minimum wage, arguing that labor market rigidity could hamper further growth. Secondly, he discussed the current discussion about fairer income distribution in Germany, attributing such demand to the public perception that income is increasingly less equally distributed and that the social fabric is disintegrating. He noted that the Council examined microeconomic data to evaluate the argument, but found no sign that income bracket movement is weakening. In fact, income inequality has not changed much since its peak in 2005. Lastly, Prof. Dr. Schmidt argued that many challenges persist regarding the government’s effort to transform Germany’s energy system in the direction of renewable energy by 2050 and warned against potentially serious constraints to the German economy in the short and medium term.
Following Prof. Dr. Schmidt’s presentation, Ivan Vejvoda moderated a dynamic question and answer session. Initially the questions were wide-ranging, touching on issues including the German current account surplus, European inflation rates, energy markets, and foreign direct investment. As the discussion progressed, however, the focus shifted toward the Council’s assessments on the labor market and income distribution, with several participants questioning the report’s conclusions. A lively and substantive conversation ensued. In addition, Germany’s role within the EU and the euro zone was a constant theme brought up by multiple participants. Prof. Dr. Schmidt concluded that the best way for Germany to encourage other member states to undertake necessary economic reforms is to follow its own advice and to lead by example.