ensemble piece

Old Enemies Must Unite

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Shame our economies aren’t so close.
  • Why it matters

    Why it matters

    If Germany and France do not collaborate more on financial reforms, there is a risk they will destabilize the whole European economy.

  • Facts

    Facts

    • Germany’s growth potential will rise by only about 1.2 percent annually in the coming years, France’s by just 1.0 percent.
    • Two leading European economists have warned that urgent reforms are needed in both countries.
    • German’s dwindling population represents a major threat to its future economic performance.
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    Audio

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Germany has been enjoying a long period of complacency, but now it is being called to a halt.

The Organization for Economic Cooperation and Development, OECD, which promotes economic development policies among its 34 members and beyond, put it most undiplomatically: Germany and France are the nations that “have done the least for reform.”

And the leading European economists Henrik Enderlein and Jean Pisani-Ferry left no doubt last week when, at the request of the German and French economy ministers, they presented a call for a more modern, anti-stagnation economic policy. France, they warned, is not the only E.U. nation that needs to do a much better job of reform.

Many will say their assessment is just what’s needed, putting haughty Germans, famous for being eager-beaver reformers, in the same bag as the grubby urchins of France. Hasn’t Germany been praised worldwide for its Agenda 2010, a series of welfare and labor reforms? For our flexible labor market? For the changes in consensus that make our companies innovative and quick to react?

Yes, we have. But these reforms are now years old. We have flattened our laurels by sitting on them. The world hasn’t stood still since we granted ourselves a time out with Chancellor Angela Merkel nine years ago.

We have flattened our laurels by sitting on them.

There is no reason to proclaim the downfall of the German economy or belittle its people. Some of the OECD criticism is questionable, such as the naive hope that an even more expansive monetary policy will help. No crisis looms in the immediate future. German companies are, as always, well prepared. Yet it makes no difference. Politicians need to wake up.

Two things must be made clear: Germany has done too little over past few years to adjust to long-term growth problems. Nor do we have a tailwind anymore in the economic policy debates in Europe or even those worldwide. Instead, we’re facing frigid blasts of wind.

The claim that a balanced budget or, as German Finance Minister Wolfgang Schäuble describes it, a “black zero” guarantees enough of a sustainable economic policy convinces no one anymore.

Whoever leaves a worn-out house to his offspring is not meeting responsible provisions for the future, say Mr. Enderlein and Mr. Pisani-Ferry of the aging infrastructure in Germany.

Long-term, the country’s challenges primarily concern demographic issues. There has not been sufficient political impetus to prepare us for a shrinking population and how that will hit provision for the elderly; or lifelong learning; or promoting talent that lies fallow; or immigration; or better conditions for the employment of women.

In areas such as retirement, the government has even turned back the clock. Meanwhile, debates about creating quotas for women in supervisory boards, while important, pale in comparison to the need for concrete measures aimed at millions of working women.

If we don’t want our individual prosperity to diminish along with the population, Germany must stop continually patting itself on the back. Hard statistics no longer offer any reason for gloating.

 

If we don’t want our individual prosperity to diminish along with the population, Germany must stop continually patting itself on the back.

Our growth potential, meaning possible increases in economic performance, will rise by about 1.2 percent annually in the coming years, according to a calculations by the European Commission, the executive arm of the European Union. Germany’s lead over France, which Germans find so reassuring, is a mere 0.2 percent and, therefore, within the margin of error.

It would be welcome news if German Economics Minister Sigmar Gabriel and his French counterpart Emmanuel Macron  worked to bring the economic and financial policies of both countries into better alignment.

The natural reflex may still be to compete instead of to cooperate, but that no longer works with energy and climate policies. Neither nation alone has the critical weight in the digital economy.

And this is not about the type of deal where France cuts back and Germany, in turn, invests more. Both countries must tackle their domestic problems out of their own interests. Above all, France must do something about creating a more open labor market and a more efficient state, while Germany addresses its dwindling population.

Both nations must work together for stronger productivity growth. The two neighbors could achieve much more together, for example, in research and education. And together they could keep the euro zone on a sensible path that doesn’t give up on consolidation.

 

To contact the author: hanke@handelsblatt.com

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