The Council of Economic Experts rebukes international criticism on Germany’s mainstream economic thinking and calls on the ECB to start tapering.
In a very distant past, “Ordnungspolitik” simply used to be the German word for economics. In recent years, “Ordnungspolitik” has characterized the typical German economic dogma of fiscal austerity, balanced budget and structural reforms as preferred economic instruments. While at first glance attractive due to its straight-forwardness and simplicity, this crisis recipe has failed to capture the complexity of the ongoing debt-euro-growth crisis in the Eurozone. This is why Germany’s economic elite has frequently received quite some criticism. Yesterday, Germany’s Council of Economic Experts stroke back in its annual report. Remarkably, however, the Council’s response was not only addressed to the international community but also to the German government.
In short, the main messages from the Council of Economic Experts were that the recovery in the Eurozone was not yet self-sustained and required further structural reforms and austerity. The ECB’s ultra-loose monetary policy was hampering structural reforms and was too accommodative. According to the Council, the ECB should start tapering immediately. In addition, the Council also had a strong rebuke for the German government, which was missing the opportunity to implement new reforms. Further reforms in the labour market, tax efficiency, deregulation of the service sector and a retirement age linked to life expectancy were the main recommendations of the Council. Finally, fiscal surpluses should be used to lower government debt, not to finance public investments.
Most of the Council’s recommendations were not new. Maybe the most remarkable aspect of the Council’s report was the timing and prominence of ECB criticism. While the ECB criticism received disproportionately high prominence in the official communication, it only accounted for a very small part of the entire report. An unintended side-effect of this razzle-dazzle could be a further fueling of the ongoing ECB bashing in German politics and the broader public. In our view, this is a dangerous game as it not only distracts from Germany’s own economic problems but can also undermine German support for Europe and the Eurozone.