What matters in 2006
By Prof. Roland Berger
In some respects, Angela Merkel will have to perform a balancing act in the new year. On the home front, protracted coalition negotiations have already focused on reaching a compromise to which both partners can agree, but that still makes economic sense. The chancellor must pursue this path further in 2006. Germany desperately needs more economic growth and a stronger competitive edge if it is to maintain its prosperity and reduce public debt.
Economic policy reforms are therefore needed. And Angela Merkel will be able to push these through only with the aid of the SPD. First, innovation and education must be improved. This can be done by raising public spending on research and development from 2.5 to 3.5% of GDP, and by boosting investment in education from 5.3 to 6.8%. Ms. Merkel must start the ball rolling. Second, it is essential to promote labor and employment. The labor market must become much more flexible. Merely extending probationary periods from 6 to 24 months will not generate sufficient stimulus for the job market. The CDU program launched in Leipzig in 2003 points in the right direction. Third, Germany's social security systems must be restructured in a form that demands a higher contribution on the part of individuals. Also, instead of postponing the healthcare reform, the government must establish sustainable financing structures. One example is risk-adjusted healthcare premiums paid for by citizens themselves, albeit linked to tax breaks to avoid undue social hardship. Fourth, the budget must be consolidated. The state must withdraw still further from economic activity, privatize existing infrastructure services and secure private funding for new ones. Fifth, the country's policy on women and families must be further modernized. This is necessary if we are to overcome our medium- to long-term demographic crisis and, in the shorter term, enable the labor market to exploit the potential of highly qualified women. The social standing of large families must be raised – especially in cases where the mother goes out to work. Again, child benefits and moves to provide more daycare facilities for small children are a step in the right direction. But time is running out!
In the foreign policy arena, Ms. Merkel must reposition Germany both within and outside the EU. Germany must position itself as an open, cosmopolitan country while striking the right balance between closer links to the US, its trusted NATO ally, and strategic partnership with Russia. The European Union, too, must be strengthened both politically and economically if it is to regain legitimacy and agility following France's and the Netherlands' "no" to its constitution. Angela Merkel's constructive role in hammering out a compromise on the EU budget has already been instrumental in this regard.
(This column was published in "Rheinischer Merkur" on January 5, 2006)
