GERMANY: "The Significance of US-German Economic Relations"
Michael Glos

Excerpts of a speech on April 5, 2006 at a luncheon hosted by the Hanns Seidel Foundation in cooperation with the Institute for International Economics and with support from the German American Business Council

The new Federal Government in Berlin is rather special, simply because it is based on a grand coalition of parties which together represent about 70% of the German electorate.

This has only happened once before in our country’s post-War history: from 1966 to 1969. The times today are fundamentally different from then. But the objectives – peace and prosperity – remain the same. The new Federal Government has set itself three priority goals in economic policy:

First: We want to create a sense of a fresh start amongst our people.

Second: We want to promote growth and employment by means of more investment and innovation.

And third: Our country must become more competitive both inwardly and outwardly.

At times in recent years, there has been the image of a Germany characterized by structural deficiencies and immobility. It is true that we did see a drop-off in performance in some areas. And we had a substantial amount of pent-up need for reforms.

German business confidence

But Germany is now on the right track: a sense of optimism, which has been missing for so long, is returning to our business community. The companies assess their business situation better than at any time over the last five years. On balance, corporate investment plans are at their highest level for 11 years.

German and foreign investors are again looking increasingly to invest in Germany. We estimate that GDP will increase by about 1.5% in 2006.

Some of the forecasts by the research institutes go further than we do. The Kiel Institute for the World Economy predicts growth of 2.1 %.

But one good year alone is not enough.

The three pillars: consolidate / reform / invest

In order to resolve our problems, we need a powerful and lasting push for growth from more investment and innovation. The Federal Government attaches priority to any economic policy which serves this goal. And so we are consolidating the public-sector budgets:

We firmly intend to get back below the 3% deficit criterion of the European Stability and Growth Pact in 2007.

We are reforming the labor market and the social security systems.

For this reason, the new Federal Government has decided to let pensions for employees begin at the age of 67 in future.

We want to cut welfare insurance contributions permanently to below 40% of gross wages and salaries.

The labor market in Germany needs once again to create an opportunity for everyone to provide for themselves and their families.

And finally, we are investing a substantial sum in the future of our country: roughly €25 billion. For example, in research and development, in transport infrastructure and in business and small and midsize firms.

Germany – a competitive place to do business

We want to safeguard and expand the international competitiveness of Germany as a base for business activity. Today, some 2,000 companies with American capital have already opted for Germany. This has resulted in investment totaling some $110 billion and the creation of more than 800,000 jobs. Germany cannot survive on trade and services alone. We continue to need a strong industrial base.

So I am working hard to ensure that companies producing goods in Germany will have a better business environment again. Pruning red-tape – both in Germany and in Brussels – is therefore at the top of our agenda. It is also important that our companies have internationally favorable competitive conditions in the field of taxes and welfare charges. To this end, we shall be designing a comprehensive corporation tax reform by 2008.

And the reduction in bureaucracy and the establishment of an attractive tax environment are also key elements of our policy for small and mid-size firms. With their flexibility, their love of innovation and their dynamism, SMBs have traditionally played a major role in Germany.

After all, SMBs in Germany provide
- 70% of all jobs,
- 80% of all training places,
- and roughly 50% of gross investment.

Energy policy

We wish to orient our energy policy more towards economic policy goals. This issue is also of outstanding importance in your country – not least since January’s State of the Union Address by President Bush. The global energy scenario has become far more difficult in the last few years.

New, major consumers have emerged. China and India, for example. The general run on scarce energy resources is exacerbating the situation for countries like Germany which lack raw materials. The trouble over natural gas between Russia and Ukraine and the rise in energy prices in recent months have shown us clearly that the issues of energy security and competitive energy prices belong on the political agenda.

We also need to discuss the necessary energy mix. Nuclear must not be a taboo subject. The day before yesterday, I participated in a national energy summit with the business community, chaired by Chancellor Merkel. This summit marks the launch of work on drafting a new overall concept for energy policy.

Transatlantic relations

The economic success of the European process of integration has enabled the EU to emerge as a leading player on the global markets alongside the USA. Germany has always assumed a leading role here.

A stable and prosperous European Union founded on liberty and democracy, with a strong Germany, is the best possible basis for the further development of our transatlantic relations. In our globalized world, close and well-functioning partnerships are becoming increasingly significant. Europe and the USA must work together and strategically in order to ensure that other players adhere to the rules of world trade, for example in terms of intellectual property rights in China, or in terms of a successful conclusion to the WTO round.

We have always called for the EU to pursue a constructive and compromise-oriented approach to the WTO negotiations. But it cannot be right for the EU alone to keep the negotiations going by making more and more fresh concessions. We now need specific commitments, particularly from the advanced developing and emerging economies – especially in terms of market access for industrial goods and for services.

By July, there must be a balanced package in the fields of market access, agriculture and services. These are major tasks and challenges. Mastering them requires strength, self-confidence and reliable partners.

I assure you that you can rely on Germany as a global partner. Let us join forces to assume our shared responsibility for peace and stability in the world.

Michael Glos is Germany`s Federal Minister of Economics and Technology