Merkel Economists Say Coalition Talks Risk Reform Rollback

Chancellor Angela Merkel’s willingness to compromise with the Social Democrats to form a coalition risks rolling back steps taken by her predecessor that made Europe’s biggest economy stronger, her Council of Economic Experts said.

“The present economic situation and Germany’s healthy position compared to the euro area’s crisis countries seem to have obstructed many politicians’ view of the major future challenges,” the independent council said in its annual report published today in Berlin.

Demands by coalition negotiators to introduce pensions for mothers, raise some pensions, allow exemptions to the retirement age of 67 and set minimum wages will make it harder in the future to master challenges faced by Germany, the council said in the report titled “Against a Backward-Looking Economic Policy.” The report comes as the European Commission considers whether to open a probe into Germany over its trade surplus. A decision is due at 1 p.m. today in Brussels.

Merkel, speaking to journalists after receiving the report, said that while the government will take the panel’s advice “seriously” it “often doesn’t implement all that you recommend.”

The German economy, which helped to pull the 17-nation euro area out of recession in three months through June, probably expanded at a slower pace in the third quarter, the Bundesbank said on Oct. 21. Unemployment rose for a third month in October, adding to signs of a slowdown.

‘Unpopular Measures’

“Forward-looking economic policy is necessary to strengthen Germany’s economic growth and to ensure the viability of public finances and the social security systems,” the council said. “The German government shouldn’t give the impression that it expects -– or even demands -– painful adjustment processes from other countries, but shies away from unpopular measures for Germany.”

Proposals to introduce a blanket minimum wage and restrict temporary employment and limited employment contracts “serve to weaken the labor market,” the council said. The currently favorable fiscal situation should be used to consolidate public finances, it said.

Economic growth will accelerate to 1.6 percent next year from 0.4 percent in 2013, cutting the unemployment rate to 6.8 percent from 6.9 percent. Germany’s overall public-sector finances will be balanced next year after a surplus of 0.1 percent in 2013, the council said.

The council was set up by law in 1963 to assess the macroeconomic development of Germany and enjoys complete independence with respect to its advisory activities.

To contact the reporters on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net; Brian Parkin in Berlin at bparkin@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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