OECD criticises German frugality, urges it to ‘clear the investment backlog’

Finance Minister Olaf Scholz during the budget debate in the Bundestag on Tuesday (8 December). [EPA-EFE | Hayoung Jeon]

Germany needs to invest more in infrastructure, digital policy, climate protection after years of government frugality, a study by the Organization for Economic Cooperation and Development (OECD) recommends. EURACTIV Germany reports.

“Twenty years of investment weakness have torn a gap here,” the OECD’s country report states.

Germany has come through the coronavirus crisis well so far, partly because of generous economic stimulus packages.

Finance Minister Olaf Scholz (SPD) is also proud of this. “This is the gold standard, this is what you have to do when you fight international crises,” he said in the Bundestag on Tuesday (8 December) about German economic aid.

The liberal FDP has attacked Scholz as the “debt king,” because no finance minister has ever run up as much new debt – an estimated €400 billion in the two pandemic years 2020 and 2021.

However, the OECD warns that the government should not step back on the debt brake too quickly now, “since a rapid withdrawal of impulses could jeopardise the recovery, especially in the event of weak growth momentum.”

Infrastructure spending in particular has been “insufficient” in recent years, although it is crucial for the “digital transformation and the reduction of CO2 emissions.

Policymakers must therefore become active in these areas, at all levels: federal, state and local governments. Spending in previously neglected areas could now become a “significant engine of recovery.”

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Engineers without Internet

The OECD still sees considerable potential in digitalisation. It summarises the situation as follows: “Germany is one of the world’s leading countries in the fields of technology and engineering, but is lagging behind in digitalisation.”

It recommends that the government keep its promise of ensuring accessto faster Internet for all.

In the 2018 coalition agreement, the parties wrote that all German households will have access to an Internet connection with gigabit speed (1000 Mbit/s) by 2025. This “ambitious goal” is “to be welcomed,” the OECD emphasises. But there is still room for improvement, especially in rural areas.

Moreover, too few German companies use modern technologies. This is due to obstacles for SMEs in accessing bank loans and a lack of venture capital to develop start-ups. To this end, such financing instruments must be made simpler, the report says.

Can EU economies grow enough to repay the increasing debt?

The COVID pandemic is putting pressure on the sustainability of some European economies, prompting some to argue that economic growth and monetary support from the European Central Bank will not be sufficient and that public debt should be renegotiated.

Emission target for transport “can hardly be achieved”

In the area of climate policy, the OECD believes Germany is currently on the wrong track and that further measures are needed to achieve the goal of reducing greenhouse gas emissions by 55% by 2030.

The report recommends an earlier reduction in coal-fired power generation than planned, for example through price signals. Germany’s final coal phase-out is scheduled for 2038 at the latest, as the government legally stipulated in July 2020.

The government should also expand the renovation of buildings by up to 50%. In the transport sector, the OECD sees no prospect of achieving the climate targets by 2030, which “can hardly be achieved.”

Here, too, price signals are needed, for example through more expensive cars in combination with the expansion of public transport.

More cooperation, greater inclusion key to preventing a ‘lockdown generation’

Already precarious in many regions of Europe, youth unemployment has spiked dramatically with the onset of COVID-19, sparking fears of another lost generation. At a recent StartNet Conference, policymakers, practitioners, and other stakeholders called for greater cooperation on facilitating young people’s transition to work.

Greater inequality in the labour market

The OECD sees a risk of increasing inequality in the labour market. School closures threaten the educational opportunities of disadvantaged students in particular, and job losses affect young people, women, and low-income earners in particular.

A possible solution would be a shift in the tax burden. The report recommends to lower consumption taxes while simultaneous increasing property, environmental and capital income taxes.

The current edition “Gute Arbeit” [Good Work] index from the German Trade Union Federation (DGB) recorded a further coronavirus-induced change in the labour market: a stark increase in mobile work.

The index shows a higher workload for mobile employees. Almost 40% of all employees working from home must be reachable outside working hours. In addition, over 20% of all mobile employees work over 48 hours per week. For employees in the office, the figure is only 6%.

[Edited by Benjamin Fox]

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