Berlin The Chancellor will not be able to do much with the approximately 500 pages. On Wednesday morning Angela Merkel received the annual report of the “Expert Council for the Assessment of Overall Economic Development” for the last time. She could have left it on her desk in the Chancellery if her Vice Olaf Scholz (SPD) had not also been present at the handover. Your prospective successor has every reason to read the report carefully.
The explanations of the economic modes under the title “Shaping Transformation – Education, Digitization and Sustainability” read like a whole set of instruments for the desired coalition of SPD, Greens and FDP. It can be heard from those around the coalition negotiators that the proposals will play an important role in the traffic light talks.
The report comes at the right time, said Merkel: “The title is also the program for the government, both for the executive and the new.” It is about the most comprehensive transformation of the economy. The report is particularly informative because the positions of the scientists could hardly be predicted. This has to do with the fact that it will be the first annual report by only four sages.
Usually the council resides with five. But because the Union and the SPD did not come to an agreement last year, Council Chairman Lars Feld resigned from the committee. His position was not filled.
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So far, the council has been shaped by regulatory policy, which was mainly due to Feld and the monetary policy expert Volker Wieland. Achim Truger was mostly on his own, as was the tradition in the council for the member supported by the trade unions. Energy specialist Veronika Grimm and competition economist Monika Schnitzer cannot be clearly assigned to a school of thought.
And so it happened, as it had to happen: In several chapters the discoveries of the wise surprise – and for the first time in the almost 60-year history of the Advisory Council there was a stalemate.
Investment and debt policy: the wise men part ways
The need for investment in climate protection and digitization will be enormous. Nevertheless, the traffic light wants to keep the debt brake. The parties have already made this clear. How is that supposed to work? Not exclusively with conventional methods – that’s what at least two of the four wise men, Schnitzer and Truger say.
The two are open to “a loan financing of future-oriented public expenditure”. With Keynesian Truger, this position is hardly surprising. With Schnitzer all the more. The scientist from the LMU University in Munich was difficult to classify in the past, but in her position she was usually closer to the liberal-market Wieland than Truger.
The new tandem now speaks of the fact that “according to the prevailing legal opinion, public investment companies are not subject to the debt brake and could be used specifically for financing”.
Schnitzer and Truger are also open to other ways in addition to the debt brake: “In principle, reserves or special assets could make a significant contribution to the financing of a long-term public investment strategy.” These suggestions have been around for a long time around the traffic lights. In the past, a vote in favor of this would have been unthinkable in the Advisory Council.
The opposite position of this year’s report would have been more appropriate. Investment companies outside parliamentary control do not need it at all, argue Grimm and Wieland. Good supply policy, that is what is enough. You trust the economy. Private companies in Germany make eight times more investments than the state.
This potential only needs to be increased in order to be able to promote climate protection – for example through higher CO2 prices or lower taxes on electricity. In contrast, the state must invest more in infrastructure. But that is feasible with the resources available in the budget.
It is to be ensured “that the financing of public investments is not implemented outside the regulations of the debt brake,” write Grimm and Wieland. Outsourcing funds could “come into conflict with budget law”. You can only imagine that the existing program of the public KfW bank will be expanded.
The division of economic modes extends to the European level. The EU fiscal rules, which set a debt limit of 60 percent of the gross domestic product, are also being discussed intensively in Berlin. Grimm and Wieland advocate adhering to the normal limits again by 2023 at the latest. An abolition of the 60 percent limit is to be foreseen.
The regulations would contain “a high degree of flexibility” so that the economic upturn would not be stifled. If they want to raise the debt limit, they want to reduce the complexity of the regulatory system and improve transparency with regard to compliance and enforcement.
Instead, they are calling for a government spending rule to be introduced so that governments are not allowed to spend more than their economies are growing by comparison. In addition, the various exceptions to the rules would have to be abolished. “Within the framework of such a reformed set of rules, it would be conceivable to stretch the period to approach the 60 percent limit for highly indebted member states by more than 20 years,” explain Grimm and Wieland.
Schnitzer and Truger, on the other hand, consider it “very problematic” to force heavily indebted countries like Italy through the rules to reduce their debts to 60 percent of gross domestic product relatively soon. Rather, what is needed is “a cautious fiscal exit strategy that does not affect the upturn and growth prospects”.
If there were to be a switch to a restrictive fiscal policy again, Schnitzer and Truger fear that this could ultimately be counterproductive with a view to the national debt. The economist concludes: “Against this background, a reform of the fiscal rules suggests itself, which combines country-specific target values for the debt level or the speed of adjustment with a privilege of investment expenditures.
Climate policy: the answer is international
In climate policy, the wise focus on international climate policy. There is too little discussion about this in Germany. So that progress can be made in global cooperation, they call for the burden of climate protection to be distributed more strongly between advanced economies and developing and emerging countries. The transfers of the developed should specifically strengthen the local framework in order to reduce the political uncertainty for private investments.
Technology cooperations and the joint establishment of climate-friendly value chains should be the focus of international efforts. “If it is possible to open up sustainable growth prospects for developing and emerging countries through load balancing and technological cooperation, global climate protection could be accelerated and the costs of avoiding emissions reduced”, write the economic experts at this point in good unity.
In addition to cooperation under the umbrella of the United Nations, cooperation within smaller groups of states is an important option. For example, bilateral technology partnerships between countries can offer companies the opportunity to test and scale climate-friendly technologies at an early stage.
Investment protection agreements play an important role in mobilizing the necessary investments. Trade agreements should take into account the close links between trade and climate.
They also ask experts the question of social equilibrium. Many measures would have rather redistributed income from the bottom up, such as the promotion of solar systems, building renovation or electric vehicles. “Social balance must be taken more seriously,” it says in the report. This could be achieved, for example, if the CO2 pricing is sharpened and the income is returned by lowering electricity prices.
Education and Inequality: Urgent Politics
The reinvention of the Expert Council is also evident in socio-economic issues. Overall, the wise do not attest increased inequality during the crisis. But they write: “In the Corona crisis, the self-employed, low-skilled and marginally employed were particularly hard hit by the effects on the labor market.”
Skilled labor shortages in the transformation of the economy should therefore be curbed and the labor market opportunities improved, especially for the low-skilled. To this end, the incentives to work for second earners should be increased – to which a reform of the splitting of spouses and the improvement of childcare options can contribute.
In the field of education, too, politicians must start with this. “The German education system has not yet succeeded enough in compensating for the poor starting conditions of children from socially disadvantaged families,” the report criticizes. When it was handed over to the Chancellor, it was the first thing that Schnitzer upset: “We have to invest more in education, especially after the pandemic.”
The pandemic-related restrictions would have been particularly disadvantageous for these children. Therefore, more extensive measures than before are necessary to catch up with educational deficits. Funding should be aimed specifically at underperforming and disadvantaged children.
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