Economic advisers prod German government for more reforms

BERLIN – The German government’s panel of economic advisers pushed Wednesday for more reforms in Europe’s biggest economy, including a higher retirement age, and said Britain shouldn’t be given substantial concessions on immigration as it negotiates its exit from the European Union.

In an annual report, the independent German Council of Economic Experts predicted that the German economy will grow by 1.9 per cent this year and 1.3 per cent in 2017 — a slightly slower rate for next year than officials have forecast. However, it said the slowdown is primarily due to calendar effects and “growth momentum will remain essentially unchanged.”

The 19 eurozone countries “should now use the tailwinds of the economic upturn to carry out structural reforms,” panel chairman Christoph Schmidt said. “Even the German government did not sufficiently use the positive economic growth of the past few years for market-oriented reforms.”

The group argued that Germany’s financial leeway should be used to reduce debt and conduct tax reforms rather than increase spending. It urged the EU to conclude a trade deal with the U.S. as well as one with Canada. And it said “the statutory retirement age should be linked to longer life expectancy” starting in 2030.

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.

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

“For us, it is always time for reforms — there may be differences over whether they are always the way you see them being,” she said as she was presented with the report.

Merkel was wholeheartedly enthusiastic, however, about the economists’ call for the European Union’s “four freedoms” to be upheld — code for not allowing Britain to impose substantial restrictions on immigration from the EU while enjoying many benefits of membership.

Britain has yet to formally trigger formal exit negotiations following June’s referendum vote to leave the EU, but the government has signalled that it’s prepared to prioritize immigration restrictions.

Wednesday’s report predicted only “moderate” short-term economic fallout from the referendum result. Still, it called for “preventing an exit through constructive negotiations or at least concluding a successor agreement that limits the damage for both sides.”

The report said “administrative corrections” on freedom of labour movement might be possible, such as a very limited system to give domestic citizens priority in some situations — as Switzerland is proposing in its own negotiations with the EU. But it cautioned against setting wider precedents that would encourage others to follow.

Merkel stressed the need for a friendly future relationship with Britain that minimizes economic losses — “but on the other hand we must keep the (remaining) 27 together, and we must not set standards that ultimately allow everyone in Europe to pick the cherries they want.”


David Rising contributed to this story.