Berlin For the employees at the German Institute for Economic Research (DIW), the news came out of nowhere in early April. Board member Stefan Liebig, one of the most important people at the institute, surprisingly announced his departure.
It was unclear why Liebig threw it down. Until now. In an internal five-page letter that is available to the Handelsblatt, Liebig describes the reasons for his decision in detail. The letter is a single settlement with the head of the DIW: Marcel Fratzscher, one of the best-known German economists.
Liebig’s allegations against Fratzscher weigh heavily: The working atmosphere at the DIW has been characterized for years by “a lack of trust, constant arguments, interventions in the scientific work and ultimately also a climate of intimidation,” writes Liebig. In individual cases, there was even “defamation of employees”.
The dispute between Liebig and Fratzscher is the next capital in the seemingly endless story of power, influence and money at Germany’s largest economic research institute.
The DIW has always been considered difficult to manage. But recently, the institute has made the headlines quite often, even by DIW standards. Despite the unrest, President Fratzscher’s contract was extended until 2028 a few months ago. But that didn’t bring peace to the institute, on the contrary. The atmosphere at the DIW Board of Trustees meeting this Monday, the institute’s supervisory body, is likely to be tense.
The recent dispute is also particularly piquant because it is about two of the most important areas at the DIW: the business cycle department and the “Socio-Economic Panel” (SOEP), which is docked to the institute and has been led by Liebig up to now.
The federal government wanted to work out a compromise
The controversy over the SOEP in particular has had an impact on the entire German science scene. Since 1984, the SOEP has surveyed the same thousands of households about income, habits and other living conditions. Entire generations of researchers work with the data in various scientific fields. It is a unique treasure trove of data.
The special scientific position of the SOEP is also reflected in the organization; it has a special status in the DIW compared to the other departments.
Recently, however, a power struggle broke out between Fratzscher and SOEP director Liebig over how independent the SOEP should be from the DIW. Fratzscher insisted on being given the right to veto SOEP decisions, but Liebig refused.
The DIW defends itself against the allegations: “The fact that one part of the institute causes financial problems that affect the entire institute and lead to savings, staff shortages and the associated tensions in the other parts, as has been the case in previous years, must not exist.”
(Photo: Imago Images)
The Federal Ministry of Economics, which is responsible for the DIW, and the Federal Ministry of Research, where the SOEP is located, searched intensively for a solution. In the end, a compromise is said to have been reached between the ministries and Fratzscher – but not with Liebig.
There is “a fundamental and seemingly unbridgeable difference between the President and me,” Liebig wrote in the letter. “Since the abolition of the President’s right of veto was presented as non-negotiable in the previous deliberations on the new rules of procedure, I made my decision accordingly.”
Fratzscher’s view of things is different. He is not concerned with power, but with stopping undesirable developments, he emphasizes again and again. That the SOEP is in financial difficulties is nothing new. Liebig also mentions in his letter that the SOEP is in a “precarious budgetary situation”, he writes.
SOEP is said to have gotten the institute into trouble
The department has around 18 million euros at its disposal each year, half of which comes from third-party funds, i.e. from external clients. The target of 20,000 people surveyed specified by the Science Council can hardly be achieved with the money.
According to Liebig, however, Fratzscher made the situation worse. The president is requesting funds from the SOEP for projects at the DIW that use data from the department. Fratzscher’s intervention “has led to massive impairments in ten projects, since personnel were not hired in good time and the project work could not therefore be started,” writes Liebig. Some employees see Fratzscher’s actions as a punitive action against the SOEP.
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Fratzscher contradicts this representation. The SOEP projects did not pay off. This is how he put it in internal e-mails. “The Board of Directors – and above it the President – is responsible for the entire institute and its overall strategic and organizational orientation,” Fratzscher said through a spokeswoman.
The DIW boss receives support from the Board of Trustees. It was said that they wanted to agree on granting both Liebig and Fratzscher a right of veto on decisions that also affect their area. Liebig refused.
“Disastrous Effects” and “Severe Consequences”
So was Liebig just upset because he couldn’t get everything he wanted? Some DIW employees describe it like this. However, others point to Fratzscher’s power, which he played off in the negotiations, and the plan to use the SOEP to his advantage.
In any case, Liebig is of the opinion that the crisis between DIW and SOEP is anything but over with his departure: “In the current personnel constellation, the conflicts between President and SOEP Director will continue in the future.”
The SOEP director raises serious allegations: For years, the working atmosphere at the DIW has been characterized by “a lack of trust, constant arguments, interventions in the scientific work and ultimately also a climate of intimidation”.
(Photo: DIW)
Fratzscher, on the other hand, sees Liebig going it alone as a threat to the entire DIW. “It must not happen that one part of the institute causes financial problems that affect the entire institute and lead to savings, staff shortages and the associated tensions in the other parts, as has been the case in previous years,” explains the Institute spokeswoman.
The renewed dispute has long since damaged the DIW: Various department heads have recently left the institute, including an increasing number of young economists.
Liebig’s letter also ends with the warning that “personal power issues and power struggles” at the DIW would have “disastrous effects”. The departures would have “serious consequences”, in addition to the SOEP also in doctoral programs – and in the economic department.
Bizarre argument with the competition from Kiel
The business cycle department is the heart of every economic research institute, but there is not much left of it at the DIW in terms of personnel. After the head of department, according to Handelsblatt information, her deputy also left at the end of April. In addition, several scientific employees have left the department.
The staff shortage was so severe that the DIW had to drop its winter economic forecast. On February 23 of this year, another economic forecast was published – albeit at the worst possible time. Only two days later did the Federal Statistical Office announce the relevant data for the forecast.
Fratzscher states that the publication of the forecast was only brought forward because an employee was due to take parental leave. Another version can be heard from the DIW staff: Fratzscher put pressure on him because he had previously tangled with the head of the Kiel Institute for the World Economy, Stefan Kooths, in December.
Fratzscher had claimed that the current economic reports were “rather wish-for-you-forecasts”. Kooths replied via Twitter that, in contrast to the DIW, a forecast had been made. “Fratzscher couldn’t let that sit,” says the DIW staff.
In the spring, the president pushed ahead with the publication of a forecast against the advice of his experts, although there was a lack of staff and the timing was unfavorable. “An organization straight out of hell,” is how one employee describes the DIW.
Business cycle department is being restructured
The business cycle department is also about money. Employees report that Fratzscher hardly wants to provide the department with basic funds, that they should rather raise third-party funds, i.e. money from external clients. But that doesn’t work at all for economic forecasts, according to the institute.
After all, improvement is in sight in the economic department. The DIW spokeswoman announced that the economic team would be strengthened financially. At the Board of Trustees meeting on Monday, decisions will also be made on personnel issues and organizational restructuring, according to the institute.
Time is of the essence: the business cycle department of the DIW is taking the lead in the joint diagnosis, the important economic forecast that all leading German institutes compile together on behalf of the Federal Ministry of Economics. The department must be up and running again by autumn at the latest.
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