German ‘wise men’ warn Merkel

Social policy measures, which are currently being discussed in coalition negotiations between Merkel's CDU/CSU alliance and their likely junior partner from the Social Democrats (SPD), threatened to undo years of gains from painful labor market and social reforms, the so-called ‘wise men' panel of German economic advisers warned Wednesday.

In their annual State of the Economy report, which was titled "Against backward-looking policies" this year, the economists described plans to introduce a national minimum wage, caps on rent increases and higher pensions as a burden on future generations and hostile to growth.

Reforms to the German labor market and social system unveiled by former Social Democrat Chancellor Gerhard Schröder in 2003 and known as "Agenda 2010," have been widely credited with boosting German competitiveness and paving the way for the country's recent economic success.

"Future challenges will be far more difficult to overcome if the Agenda 2010 reforms become diluted or reversed in some cases," the advisers said in the report.

Speaking ahead of a fifth round of coalition talks on Wednesday, Chancellor Angela Merkel said she would take the warning seriously, although she might not be able to heed all of the demands raised by the experts.

In their report, the panel of economic advisers also revised up its estimate for growth in Europe's largest economy. In 2013, Germany was expected to grow 0.4 percent, up from its March estimate of 0.3 percent, while in 2014 the rate of expansion would be 1.6 percent. The German government has recently predicted the growth rate in 2014 to reach 1.7 percent.

uhe/rg (Reuters, dpa, AFP)