FRANKFURT (MNI) – Germany has made significant progress in curbing
its budget deficit and placing its public debt ratio on a downward
trajectory, but not as much on labour, financial and productivity
reforms needed to boost longer-term growth potential, the EU Commission
said Wednesday.
In its “Economic Governance Package,” which evaluates member
country progress on its policy recommendations, the Commission lauded
Germany’s “significant achievements” in cutting the deficit and
reforming its energy system, but said the country had not followed
through with recommended reforms in other key sectors.
“Germany has made significant progress in implementing last year’s
recommendation which called for implementing the budgetary strategy and
bringing the high public debt ratio on a downward path in line with the
Council recommendations under the excessive deficit procedure and
ensuring an adequate structural adjustment effort towards the
medium-term budgetary objective thereafter,” the Commission said.
The Commission noted Germany had cut its budget deficit below 3% of
GDP two years before the European Council’s deadline, though risks to
the budget stemmed from the Eurozone crisis and a possible need for
extra measures to stabilize the financial sector.
“Notwithstanding these significant achievements, reform efforts in
other areas have been limited, in particular regarding the labour
market, the financial sector, the railway sector and other services
sectors. Therefore, the challenges identified (in 2011) remain valid,”
the Commission said.
While Germany’s financial market has been stabilized “as a whole”
since the 2008-09 crisis and the government has taken measures to
improve financial regulation, the Commission focused on ongoing problems
with regional Landesbanken and called the reform proposals in this
sector “relatively unambitious.”
“The structural problems of some Landesbanken, which were fully
exposed in the crisis, remain an issue,” the Commission said. So
although there has been progress in individual cases, Germany continues
to address the Landesbanken issue through a piecemeal approach that
lacks a comprehensive and long-term vision for the sector.”
The Commission said restructuring options include reducing the size
of individual Landesbanken, scaling them back to their core businesses,
as well as cutting the number of Landesbanken and reducing government
ownership.
In labour markets, the report focused on Germany’s need to expand
its workforce over the coming years to combat looming demographic
changes that will limit growth potential in the longer term. The
Commission said Germany continues to lack incentives for “second
earners” in households.
“Ensuring the availability of a qualified labour supply will be
crucial to mitigate the expected decline in potential growth,” the
Commission said.
It suggested that the German government tax household earners
individually. “A major concern is the low share of women working
full-time,” the Commission said. “Second earners face significant fiscal
disincentives in Germany due to the joint taxation of income for married
couples in the progressive tax system.”
The Commission also said there remained scope for improvement in
Germany’s tax code, education and health, as well as improving
competition to boost productivity, especially in the services and
transportation sectors.
Germany’s proposed reforms to open up its railway system “do not go
far enough to substantially increase competition in the transport
sector,” the Commission said.
— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com
[TOPICS: M$G$$$,M$X$$$,MGX$$$]