The OECD gives a warning to Germany

By Julia Pastor, in Madrid | Every country in Europe is holding up against the neverending financial crisis as Germany does, but the country ‘cannot rest on its oars’ in order to keep its role as Europe’s biggest economy. This is the major conclusion from the latest Organisation for Economic Co-operation and Development’s economic survey of German, published in Berlin on Tuesday.

It is true that Germany’s strength and economic fortune depends on the strength and stability of its EU partners’ strength and stability. But the fact remains that the country also faces problems needing reforms. Ángel Gurría, the OECD’s general secretary, praised Germany’s growth capacity during the crisis as well as its well-grounded labour market, but also pointed out these weaknesses: the threat of stagnation and an ageing population.

Gurría said that

“Germany’s recent economic performance has been exceptional,” but he added, “more needs to be done to raise the medium- and long-term growth potential, notably through reforms that boost domestic demand, increase productivity growth and expand the labor force.”

According to the OECD’s report, the recipe for Germany’s success will include a policy shift to a knowledge economy and a bet on the green technologies potencial, by pushing innovation with fiscal support to companies. Furthermore, Germany should deregulate services as well as their professional sectors such as architects and lawyers.

In order to circumvent the problems presented by an ageing population and labour force scarcity, both considered to be linked problems, the goals would involve a boost in employment of women and older workers. Ángel Gurría advised that Germans should receive incentives to work during even a longer period (the law has already been changed to fix the retirement age at 67). He also mentioned that women in Germany work less time than in other developed countries, and which is more important, earn less money than their male colleagues. So the OECD recommends to reduce direct aids for families and single mothers, and increase instead the nurseries networks as well as make longer schools days.

Finally, the OECD’s report points out that increasing taxes to real state properties, rising the VAT (particularly, the reduced one, nowadays at a t rate of 7%), along with cutting taxes to the average salaries would rise the German domestic demand, consequently pushing all the euro zone to growth.

As estimated by the global institution, Germany will grow by a 0.5% this year, over the 0.3% foreseen by the the IMF. The European biggest economy’s GDP grew to 3% in 2011, even though it contracted by 0.25% in the 4Q.