On 22 May 2017, the European Commission published its country-specific recommendations for the European Semester 2017/2018. The main criteria for the recommendations were boosting investment, opening up product and service markets, and removing barriers to competition.
Germany’s consistently high current account surplus reflects excess savings and low investment in both the private and public sectors. In order to stimulate investment, it is necessary to employ further measures to reduce barriers. Planning and capacity bottlenecks at municipal level as well as the overly complicated German tax system are deterring investors from implementing projects.
Reduce barriers to digitisation
The Commission also criticised Germany with regard to digitisation. The economy and society are still facing obstacles which prevent digitisation from moving forward. Specifically, the report recommended an increase in education expenditure to combat the lack of broadband access in many schools.
In terms of digitisation and business, the Commission considers that there is a clear need for SMEs to catch up. Although previously introduced measures such as ‘Industrie 4.0’ have shown some success, this has mainly been attributable to large companies.
Further open up business services sector
According to the Commission’s report, competition in the business services sector has only been somewhat stimulated in the previous Semester and therefore is once again an important goal in the 2017/2018 recommendations. This is to be achieved by a further reduction in regulatory barriers and market restrictions.
Real wages should grow with the economy
“Productivity increases should be reflected by higher wages. Only this way can we deliver on our joint commitment to improve living standards for all.” These words from Commissioner Marianne Thyssen in the press release for the country-specific recommendations point to the fact that economic growth should be better reflected in the real wages of workers, particularly in Germany. The report recommends that Germany continue to remove disincentives to work for second earners and to reduce the high tax wedge for low-wage earners.
Although the Commission estimates that pension adequacy in Germany will continue to decline and not enough people will be enrolled in the second or third pillars of the pension system, there are no recommendations concerning this in the 2017/2018 report. It remains to be seen if recent measures are enough to improve incentives for later retirement as part of Germany’s flexi-pension scheme.
The 2017/2018 country-specific recommendations for Germany are available here.
The Commission’s press release on the European Semester 2017 Spring Package can be read here.