The two experts had been commissioned by the German and the French governments to prepare proposals for economic reforms.
Berlin, 27 November 2014 – Henrik Enderlein and Jean Pisani-Ferry, both professors at Hertie School, submitted their report Reforms, Investment and Growth: An Agenda for France, Germany and Europe to Ministers Sigmar Gabriel and Emmanuel Macron. In mid-October, the two experts had been commissioned by the German and the French governments to prepare proposals for economic reforms.
„France and Germany need to act now. And they need to act together. The biggest danger we see right now is a period of window dressing where lip service is paid to grand projects and reforms, but no real steps are taken”, “ the authors write in the 50 page report, noting both countries face elections in 2017.
In essence, Enderlein and Pisani-Ferry propose:
- "Reforms in both France and Germany. They are not the same, because the two countries are not facing the same challenges. In France, short-term uncertainties reduce long-term trust, but the longer-term outlook looks better. In Germany, longer-term uncertainties reduce short-term trust, but the short-term situation looks relatively good. In France we fear lack of boldness for decisive reforms. In Germany we fear complacency.
- Reform clusters. Our reform proposals target priority areas where we see urgent need for action in each country. We propose to group actions serving the same aim into ‘clusters’ and to focus on a small number of such clusters. In France, these are (i) the transition to a new growth model, based on a system combining more flexibility with security for employees (“flexicurity”) and a reformed legal system, (ii) a broader basis for competitiveness and (iii) the building of a leaner, more effective state. In Germany, these are (i) the tackling of the demographic challenges, in particular by preparing German society for higher immigration and by increasing female participation in the labour market, (ii) the transition towards a more inclusive growth model based on improved demand and a better balance of savings and investments. Such reforms are not meant to please the respective neighbour, or anybody else, but to create better domestic conditions for jobs, long-term growth, and well-being in each country and in Europe.
- A European regulatory initiative. Private investment is a judgment about the future. Investments require trust. In many sectors, public regulation plays a major role in the shaping of expectations on the long-term. In energy, transport and the digital sector, to name just a few, regulators must set the parameters right and ensure predictability. Investors need to know with certainty that Europe is committed to accelerating its transition to a digital, low-carbon economy. To lift uncertainty about the future price of carbon or the future regime for data protection is a major responsibility of public authorities. This could significantly contribute to increased investments in Europe.
- Investment. The well-identified investment shortfall in Germany is largely private. Here again, regulatory clarity and a streamlined legal framework for settling disputes over infrastructure projects have a major role to play to unlock investment. But we also consider that Germany has given itself an incomplete public finances framework that rightly attributes constitutional status to keeping debt under control, but neglects promoting investments within the remaining fiscal space. German assets are not sufficiently renewed. Passing on a worn-down house to future generations is not a responsible way of managing wealth. We think the German government can and should increase public investment. In comparison to other European countries, France does not suffer from an acute aggregate investment shortfall. Business non-residential investment has remained at a relatively high level in comparison to other European countries. The allocation of investment efforts, however, is an area for improvement.
- European private and public investment boosters. We do not believe that lack of funding is the main obstacle to European investment, but we do consider that new European resources are necessary: in a context where authorities are asking banks to take less risk, it is their responsibility to avoid pervasive risk aversion in the financial system. Building on our regulatory initiative, we propose to inject new European public money into the development of risk-sharing instruments and of vehicles in support of equity investment. Public investment has also been severely reduced since 2007. We propose creating a European grant fund to support public investment in the euro area that would support common aims, strengthen solidarity and promote excellence.
- Borderless sectors. France and Germany should promote deepened integration in a few industries of strategic importance where regulatory borders severely constrain economic activities. Building “borderless sectors”, together with other partners, involves much more than just agreeing on coordination and joint initiatives: it implies going all the way to a common legislation, a common regulatory rulebook and even a common regulator. We think that energy and the digital economy are such sectors and we also propose a similar initiative to ensure the full portability of skills, social rights and social benefits.
- Rediscover our common social model. Europe is more than a market, a currency or a budget. It was built around a set of shared values. It is time for France and Germany to join forces to rediscover and reinvent the social model of core Europe, starting with concrete initiatives in the fields of minimum wage standards, labour market policies, retirement and education. In these fields, convergence on the basis of effective joint action is needed to transform the Franco-German space into a true union based on economic integration and shared social values.“
Henrik Enderlein is Associate Dean and Professor for Political Economy at the Hertie School. Since January 2014 he has also served as the Director of the Jacques Delors Institute – Berlin, a jointly founded think tank by the Hertie School and the Paris-based Jacques Delors Institut Notre Europe. After studying economics and political science at Sciences Po in Paris and Columbia University in New York, he completed a PhD at the Max Planck Institute for the Study of Societies in Cologne. From 2001 until 2003, he worked as an economist at the European Central Bank in Frankfurt, before taking up a Junior Professorship in Economics at the Free University Berlin in 2003. CV and portraits are available for download here: www.hertie-school.org/enderlein
Jean Pisani-Ferry is Commissioner-General for Policy Planning, reporting to the French Prime Minister and has been Professor of Economics and Public Management at the Hertie School since 2013. He contributed to founding the Brussels-based economic think tank Bruegel in 2005 and served as its Director. Pisani-Ferry previously held positions at the French institute for international economics, the Group of Economic Policy Analysis and the European Commission. He has taught at Université Paris-Dauphine, Ecole Polytechnique, and the Université libre de Bruxelles. His most recent book The Euro Crisis and its Aftermath (Oxford University Press) was published in 2014. www.hertie-school.org/pisani-ferry