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6 May 2016
Germany: Something’s cooking – ING
Carsten Brzeski, Chief Economist at ING, suggests that while most commentators and politicians in Germany still focus on ECB bashing, the need for new structural reforms in the Eurozone’s largest economy is gradually receiving more attention.
Key Quotes
“Under the surface of this ECB bashing and the often-felt impression of German superiority when it comes to economic recipes against the euro crisis, however, homemade problems are arising. Homemade problems that currently are not widely discussed in the German media and the political arena: the lack of new structural reforms.
In fact, the German economy’s current strength is still mainly the result of economic reforms from more than ten years ago, combined with extremely favourable external circumstances like low interest rates, low inflation and a weak euro exchange rate. Therefore, it does not really come as a surprise that international institutions like the OECD have frequently called upon the German government to implement new reforms, particularly in the labour market, the tax system and the pension system.
Last week, ECB President Draghi also hinted at the lack of new reforms in Germany. Now, a new IMF Working Paper (WP/16/96 “Structural reform in Germany”) presents more evidence that delaying or even entirely missing out on new reforms would be a big missed opportunity.
All in all, even though the German economy looks extremely solid and strong from the outside and the government’s opposition to any new stimulus sounds convincing, close attention to what is happening beneath the surface shows that something is cooking.”
Key Quotes
“Under the surface of this ECB bashing and the often-felt impression of German superiority when it comes to economic recipes against the euro crisis, however, homemade problems are arising. Homemade problems that currently are not widely discussed in the German media and the political arena: the lack of new structural reforms.
In fact, the German economy’s current strength is still mainly the result of economic reforms from more than ten years ago, combined with extremely favourable external circumstances like low interest rates, low inflation and a weak euro exchange rate. Therefore, it does not really come as a surprise that international institutions like the OECD have frequently called upon the German government to implement new reforms, particularly in the labour market, the tax system and the pension system.
Last week, ECB President Draghi also hinted at the lack of new reforms in Germany. Now, a new IMF Working Paper (WP/16/96 “Structural reform in Germany”) presents more evidence that delaying or even entirely missing out on new reforms would be a big missed opportunity.
All in all, even though the German economy looks extremely solid and strong from the outside and the government’s opposition to any new stimulus sounds convincing, close attention to what is happening beneath the surface shows that something is cooking.”