Economic Advisers Prod Germany for More Reforms

The German government's panel of economic advisers has said the current legislative period under Chancellor Angela Merkel has not seen enough reforms to prepare the nation for big future challenges.

Presenting its annual economic report in Berlin on Wednesday, the German Council of Economic Experts said the grand coalition government had largely failed to capitalize on the country's positive growth climate and labor market boost, DW reported.

The panel of advisers, formerly called "Five Wise Men" but now comprised of four men and one woman, said Merkel's government should have launched a reform offensive with a view to preparing for future challenges, adding that the few measures it had taken might even harm the free market economy in the final analysis.

The advisers specifically mentioned the introduction of a minimum wage across all sectors and some cautious changes to the pension system.

The government decided a decade ago to raise the retirement age from 65 to 67. The increase, which is being introduced gradually and will apply to all retirees by 2029, was unpopular and most German politicians have no appetite for going further.

They emphasized that in their view it was crucial to do away with all "hidden" and unjust tax hikes and revisit the retirement age issue against the background of people living a lot longer now.

For her part, Merkel rejected the panel's criticism.

"For us, it is always time for reforms," Merkel said. "I believe the federal government feels and thinks that it is permanently introducing reforms."

With an election less than a year away, she gave the call for more reforms a noncommittal response.

ECB Policies in the Firing Line

The German Council of Economic Experts also called on the European Central Bank to scrap or at least reduce its huge bond-buying program. The panel acknowledged that the lender's ultra-loose monetary policy had initially helped to crank up the eurozone economy.

"But the current scope of that program is no longer justified," the experts concluded, given the steady recovery in many of the eurozone's 19 member states.

Most, but not all panel members spoke out against any measures to further regulate China's investment offensive. They said they were aware that there was no level playing field for German investors in China, but argued that even a one-way openness toward direct foreign investment could pay off in terms of more productivity and higher wages. Most panel members did not share wide-spread fears in society that in buying up German companies, Chinese investors were only after those companies' technological know-how and intellectual property.

Economy to Grow

The panel also forecasted that the country's economy will grow by 1.9% this year, and 1.3% in 2017—a slightly slower rate for next year than previously forecast.

They said the forecast 2017 slowdown is primarily due to calendar effects and that "growth momentum will remain essentially unchanged." However, it is advising Germany and others in the 19-country eurozone to "use the tailwinds of the economic upturn to carry out structural reforms."

The group's growth prediction compares with government projections of 1.8% growth in 2016 and 1.4% growth next year.

Earlier Wednesday, government figures showed that Germany's unemployment rate declined for the second month in a row in October, in another sign of the economy's underlying strength.

The unemployment rate fell to 5.8% in October from September's 5.9%, with a total of 2.54 million people out of work.

When adjusted for seasonal factors, the rate fell to 6% in October from 6.1% the previous month.

Brexit?

Wednesday's report said it sees only "moderate" short-term economic fallout from Britain's vote in June to leave the European Union. Still, it called for "preventing an exit through constructive negotiations or at least concluding a successor agreement that limits the damage for both sides."

It said that the EU's "four freedoms" must not be restricted—code for not allowing Britain to impose substantial restrictions on immigration from the EU while enjoying many benefits of membership.

Merkel wholeheartedly welcomed that stance.