2024

IMFS Policy Lecture
Prof. Dr. Veronika Grimm, Technische Universität Nürnberg & Sachverständigenrat
“Versäumnisse angehen, entschlossen modernisieren”

Video (Youtube)

IMFS Policy Lecture
Wolf H. Reuter, Bundesministerium der Finanzen
"Wachstumsinitiative: Neue wirtschaftliche Dynamik für Deutschland"

Higher allowances for research in companies, changes to the citizen's allowance, tax breaks for immigrant skilled workers - these are just some of the measures designed to make Germany more competitive again. Dr. Wolf Heinrich Reuter, State Secretary at the Federal Ministry of Finance, explained the details of these measures at an IMFS Policy Lecture at the House of Finance. A few days earlier, Finance Minister Christian Lindner had presented a growth initiative consisting of 49 points together with Federal Chancellor Olaf Scholz and the Minister for Economic Affairs, Robert Habeck, at the presentation of the draft budget.

The initial situation is sobering. Due to demographic change, potential growth is much lower than in previous years, summarized Reuter. "Coming out of a phase of high price increases, we now need a signal that supports the upward trend," he continued. Improved depreciation conditions and an extension of the research allowance should offer companies better framework conditions, strengthen their competitiveness and thus provide an incentive for investment. Private investment accounts for around 90 percent of total investment, while government investment is only a smaller part. "This is often forgotten," warned Reuter.

Excessive bureaucracy is repeatedly cited as one of the biggest obstacles to investment or the expansion of production. The German government is planning an annual law to reduce bureaucracy and standardize data protection requirements at EU level. The controversial law on supply chain due diligence is to be implemented pragmatically.

The largest block of measures is dedicated to the labor market. On the one hand, overtime is to be tax-privileged. For older employees who work beyond retirement age, it is planned to abolish the employer's contribution to unemployment and pension insurance and pay it out instead. The federal government is planning to extend reasonable commuting times from jobs on offer when receiving the citizen's allowance and, on the other hand, is relying on tougher sanctions. Foreign skilled workers are to receive tax breaks for taking up employment. Refugees should generally be able to take up work more easily. "We want to tackle all areas where the volume of work can be increased," said Reuter.

The initiative is also intended to strengthen Germany as a financial center. Venture capital is used much less in Germany than in the United States. According to Reuter, the aim is to change this. The area of private pension provision will be made more attractive: In the fall, a retirement savings account is to replace the state-subsidized Riester pension. The fifth area is an efficient energy market to help strengthen the economy. To this end, the reduction in electricity tax is to be made permanent. Various technologies are to be used as part of the energy transition. Overall, the initiative should work through incentives - there is no one big reform planned. Reuter sent a warning straight away: "We will have to make sure that the many measures are implemented appropriately and that too much bureaucracy is not created again."

IMFS Policy Talk
Tobias Linzert, European Central Bank
“The New Operational Framework of the ECB”
Discussant: Jens Eisenschmidt, Morgan Stanley

Video (Youtube)

IMFS Policy Lecture
Prof. Dr. Veronika Grimm, Universität Erlangen-Nürnberg & Sachverständigenrat
“Wachstumsschwäche überwinden - In die Zukunft investieren”

Video (Youtube)
Slides (PDF)

The state of the German economy does not inspire hope. "It can be assumed that we will experience stagnation this year," said Prof. Veronika Grimm, member of the German Council of Economic Experts, at the IMFS Policy Lecture on February 20. However, there is also a threat of weak growth in Germany in the longer term. In her lecture, Grimm explained how this can be overcome and which factors play a role in this.

Potential growth is at a historic low, as Grimm explained. An increase in labor productivity is therefore necessary. "Demographic trends, namely the retirement of the baby boomer generations, are causing a significant drop in the volume of work, which is having a negative impact on the development of production potential." Investment and innovation are the starting points. "If nothing happens in terms of investment, we would grow by around 0.4 percent per year. That is of course little compared to the roughly threefold growth we achieved in the 2010s."

Migration could also support the volume of work. However, it is unrealistic to rely so heavily on migration that this alone could offset the decline."We need to improve integration into the labor market". In the report, the members of the Expert Council therefore also refer to increasing the participation of women in the workforce. This is because women are more likely to work part-time - regardless of whether they have children or not, according to Grimm. In her view, better childcare, an adjustment to the splitting income taxation for spouses and greater appreciation of mothers working full-time are decisive factors in making a higher number of working hours more attractive.

In addition, the Council of Experts advocates a reform of the basic income support system that creates greater incentives to work and reduces transfer withdrawal rates "The system is very difficult to understand". A reform is also necessary for old-age provision. According to the annual report of the German Council of Economic Experts, it would be appropriate to adjust the retirement age to reflect longer life expectancy, combined with the adjustment of the sustainability factor and the adjustment of existing pensions to the inflation level instead of the wage level. In normal times, existing pensions would then not rise as much as wages. However, Grimm opposed the Expert Council's proposal to redistribute within the statutory pension insurance scheme. As she pointed out, not all capable groups of people, such as the self-employed and civil servants, are integrated into the statutory pension insurance scheme.

Nevertheless, greater inclusion of women and immigration are not enough to remove obstacles to growth. Investments should support structural change.Some of this would happen by itself. "More and more companies will replace labor with capital goods." Microdata shows that automation is particularly well suited to the automotive, chemical and pharmaceutical industries. This would free up workers to work in other sectors. This is where Grimm sees a need for politicians to create new opportunities for employees through appropriate further training and retraining."Up to now, further training has tended to take place within companies."

With regard to technical progress, which goes hand in hand with investments, it is also important to focus on areas where productivity progress is higher when investments are made.On the other hand, it is very difficult to predict the growth potential of phenomena such as artificial intelligence. A look back shows "that digitalization has not brought that much growth."

Furthermore, Grimm called for a more global approach to the green transformation.Within the EU, the additional production of hydrogen could otherwise drive up the price of electricity. "There are many more countries around the world that can produce hydrogen at favorable conditions and then sell us derivatives than countries that sell fossil fuels." The German economy should take advantage of this competition together with its European partners on its way to the goal of replacing energy-intensive primary products.