Asked for wider liberalization, many Germans don’t see more room for it

In the United States 79.4 % of GDP is dedicated to services. In France, 79.4 % and the UK 78.9 %. However, in Germany share of services sector has remained over the past 15 years in 69% of the GDP, the lowest among the 10 largest countries in the Euro area. Despite its sound manufacturing sector represents 30.1% of the German economy, these data suggests that a significant potential remains untapped in services sector.

Indeed, the IMF has declared that “there is scope for deepening competition in several areas of the services sector. In professional services (accountants, architects, engineers, lawyers, tax consultants, etc…), greater flexibility could be introduced in the areas of exclusive rights, compulsory chamber membership, and regulation on prices and fees.”

But not only the IMF or the European Commission continue demanding a wider and deeper liberalisation in services sector. The Paris-based OECD has also given a whole list of recommendations to Germany. Besides applauding the German performance during the crisis and its strong manufacturing sector, the OECD has also advised Germany to “improve the competitiveness of the services sector and release its full growth potential.”

Nevertheless, Dr. Ferdinand Fichtner, head of department of forecasting and economic policy at the German Institute of Economic Research (DIW) is not sure about the need of reforms in this direction.

“I always find difficult to find examples where the German services sector is actually inefficient, everybody is always talking about unjustified protections for specific services, but there’s not too much. We have architects who have very specific protections and we have certain type of lawyers who have specific protections but apart from that I always don’t really see that there are so much room for improvements. The only thing that I can accept and I would agree a little more dynamism in the banking industry would be necessary because we certainly have a problem with financing innovative forms like financing start-ups, for example. This could make German economy more innovative.”

With reforms or not, the recovery in the Eurozone is not strong enough, as the IMF said last week. Concerted policy efforts are needed to strengthen the recovery and the ball is again on the court of the country with the best economic outlook and the one that is even financing itself with negative interest rates: Germany. The German competitiveness in the export industry as well as in the services are assets both for itself and for the EU’s economy as a whole, so anything that Germany can do to increase its potential growth, it is for the common good.

 

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