On 14 December, Volker Wieland, member of the German Council of Economic Experts, Endowed Professor of Monetary Economics and Director of the Institute for Monetary and Financial Stability (IMFS) at Goethe University Frankfurt, presented the Council’s latest annual economic report. The lecture was jointly organized by the IMFS and the SAFE Policy Center and moderated by Jan Pieter Krahnen, Program Director of the SAFE Policy Center.
The report 2015/16 of the German Council of Economic Experts, entitled "Focus on Future Viability", concentrates on three topics: the challenges posed by the huge number of refugee arrivals, the architecture of the euro area, and the conditions for stronger economic growth in Germany. In their report, the Council members come to the conclusion that Germany and the euro area continue to recover. However, the political debate needs to focus more on the efficiency and future viability of the German economy in order to successfully address current challenges such as the large number of refugee arrivals, Wieland said.
Currently, the gross domestic products of Germany and the euro area are developing positively. In Germany, this can mainly be attributed to domestic consumption which has recently increased because of the good situation on the German labor market. However, due to the large number of refugee arrivals, the Council expects unemployment to increase over the next years. In the euro area, demand is stimulated by several special factors such as low oil prices as well as the European Central Bank’s expansionary monetary policy.
The Council does not consider further monetary easing necessary but rather calls for increasing interest rates in the near future. Persistently low interest rates could have a negative effect on financial stability and endanger the business models of banks and insurance companies, Wieland said. Moreover, according to him, the devaluation of the euro and the low interest rates have reduced the consolidation pressure on some euro area countries. The urgently required structural reforms for a sustainable recovery have therefore not been implemented. However, he warned that the necessary consolidations will become even more difficult when interest rates rise again.
Against the background of a growing number of asylum seekers in Germany in 2015, the Council of Economic Experts also addresses the issue of how to deal with the challenges posed by refugee arrivals. In order to estimate the economic effects of refugee migration, the Council presents different scenarios for the integration of refugees in Germany. In the various scenarios, the expenses for the public budgets depend on the anticipated number of refugees coming to Germany, as well as on the duration of the asylum procedures and on how quickly the refugees can be integrated into the labor market. Wieland stressed that these scenarios should not be mistaken as forecasts because the key determinants are rather uncertain and the complex issue also depends on political decisions in different areas such as minimum wage policy or regulations in real estate rental markets. The Council calls on German policy makers to take the right steps for more growth and employment in Germany, especially in the context of the challenges posed by the integration of refugees.
