Wednesday, November 16, 2016

German Council of Economic Experts | Annual Report 2016/17


from the Eecutive Summary

Reforms for Europe
5. Given increasing centrifugal forces within the EU, the principle of subsidiarity
must be reinvigorated. Stronger integration is desirable in some areas such
as climate and asylum policy and internal security. Fiscal, labour market and social
policy, however, should remain the responsibility of the member states.
6. The internal market with the four fundamental freedoms – the free movement
of goods, services, capital and persons – represents a core element of the
EU. These should not be called into question. A delayed integration of EU migrants
into social security systems would, however, be appropriate. A strengthening
of the single market through improved market access in the services sector
is desirable. However, no comprehensive harmonisation and standardisation of
entire legal areas should be derived from internal market competence.
Executive Summary – Time for reforms
2 German Council of Economic Experts – Annual Report 2016/17
7. Trade policy clearly falls into the EU’s responsibility. Protectionist trends
should be staved off. They severely diminish prosperity. The EU should conclude
the Comprehensive Economic and Trade Agreement (CETA) with Canada
and the Transatlantic Trade and Investment Partnership (TTIP) with the USA.
8. Given the global effect of greenhouse gases, a global approach to climate policy
is needed, or at least an EU-wide approach. So far, Germany's energy transition
has delivered sobering results. The economic costs are high, yet its contribution
to reducing climate change is moderate. This experience reveals the drawbacks
of a purely national approach to climate policy.
9. As the euro area lacks nominal exchange rates as an adjustment mechanism
between member states, it is important to ensure that the necessary adjustments
are achieved through other mechanisms. For this reason, further structural reforms
are needed that facilitate more flexible wage and price formation
and increase labour mobility.
10. In light of the macroeconomic developments, the extent of the ECB’s quantitative
easing and the resulting low interest rates are neither appropriate for the
euro area nor Germany. In their monetary policy decisions, the ECB should take
greater account of less volatile price indices, such as the GDP deflator and core
inflation. Given the risks monetary policy poses to financial stability and member
states' willingness to pursue consolidation and reform, it would be better to
slow down bond purchases and end them earlier.
11. The repeated turbulence in the European financial sector shows that the sector is
still not sufficiently resilient to shocks. Many major euro area banks in particular
are still not adequately capitalised. The GCEE considers a leverage ratio
of at least 5% appropriate.
12. Preconditions for a common European deposit guarantee scheme are not
currently met. First of all, risks in the banking system need to be reduced, effective
European supervision and resolution need to be ensured, and regulatory
privileges of sovereign exposures in banking regulation need to be phased out. In
the medium term, an integrated financial supervisor should be established
outside of the ECB.
13. The European fiscal rules should finally be enforced. It remains important to
strengthen the crisis mechanism, as another flare-up of the euro area crisis cannot
be ruled out. This requires a mechanism for restructuring government
debt in the event of crisis. The GCEE has developed a detailed proposal.
It calls for private sector involvement in crisis resolution, which could help to restore
the credibility of the no-bailout clause.

No comments:

Post a Comment