–Commission Recommends Freeing Germany From Excessive Deficit Procedure
FRANKFURT (MNI) – Germany has made enough progress in curbing its
budget deficit and placing its public debt ratio on a downward
trajectory for the EU Commission Wednesday to recommend removing Germany
from the list of EMU member countries with excessive deficits.
But more reforms of its labour, financial and productivity sectors
are needed to boost longer-term growth potential, the Commission said in
its Economic Governance Package, which evaluates member country progress
on implementation of policy recommendations.
Following the report’s release earlier today, the Commission said
it had recommended that European Council abrogate the Excessive Deficit
Procedure for Germany under the Stability and Growth Pact. “The
Commission has concluded that the correction of the excessive deficit
for Germany … is ensured,” it said.
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 cut its budget deficit below 3% of GDP
two years before the European Council’s deadline, though there are still
risks from the Eurozone crisis and a possible need for extra measures to
stabilize the financial sector. The deficit was cut from 4.3% of GDP in
2010 to 1.0% in 2011, and it is seen at 0.9% in 2012 and 0.7% in 2013.
“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,
and 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 remains scope for improvement in
Germany’s tax code, education and health systems, as well as for
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
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