Economic woes

Listen to the Money Men, Ms. Merkel

economy_bloomberg-DISTORTED
Get it while you can:
  • Why it matters

    Why it matters

    Germany’s government has sacrificed a lot to be able to balance its budget next year, but also promised financial breaks to many groups. Economists say such policies will land it in hot water.

  • Facts

    Facts

    • The German Council of Economic Experts has criticised government policy in its annual report.
    • Growth in Germany is expected to be just 1 percent a year until 2019.
    • France’s economy has grown at a higher rate than Germany in the past 15 years.
    •  
  • Audio

    Audio

  • Pdf

The relationship between German chancellor Angela Merkel and economists has never been easy. Ever since the financial crisis broke out in 2007, the chancellor has distrusted these experts: They didn’t see the meltdown coming and offered no clear ideas on what to do about it. The chancellor was disappointed — and she has made little effort to conceal her displeasure.

Now, the German Council of Economic Experts, a panel of five “sages” appointed by the government to advise it, has presented its annual report – and it reads as if the economists are getting their own back. Current government policy is “a burden for economic development,” they write. In other words, the government itself is an obstacle to growth.

The economists address one painful point after another. They say lowering the retirement age to 63 for many people is a “backward” move and call it one of the most expensive plans in the history of old-age insurance. Public finances, in view of the country’s aging population, are “not sustainable in the long run,” they write. And the minimum wage is described as “a social-political experiment with an unknown outcome.”

Whether the economists’ criticism is justified on every point is debatable. For instance, they may have overestimated the effects of the minimum wage, which is due to be introduced next year. A clearly irritated chancellor said she doesn’t see how a decision that hasn’t yet been put into practice “can already conjure up an economic downturn.”

Her comments don’t exactly show profound economic knowledge, however. Political interventions of tomorrow have an impact on investment decisions today. It is part of the very nature of economic activity.

Want to keep reading?

Subscribe now or log in to read our coverage of Europe’s leading economy.