Encouraging noises on economic policy from the German SPD and Greens

SONY DSCGerman economic policy doesn’t exactly have a glowing reputation on the European Centre-Left. Deservedly so. Obsession with micromanaging inflation. Stupid fiscal rules. A belief that everything will be fine as long as everyone runs export surpluses. All these are often portrayed,with some justification, as products with Made in Germany stamped on them. Particularly in recent years, this has been associated with another important fact, which is that the German Social Democratic party has largely bought into a market-friendly, anti-tax and regulation and pre-Keynesian macroeconomic policy agenda.

So recent news is doubly welcome that the Greens and the SPD have come together to present a new, alternative economic policy concept, which has caused quite a stir in the country’s media. (Readers of German see here, here and here).  It was presented by Denkwerk Demokratie , a ‘think net’ bringing together the two parties, trade unions and NGOs. The idea is to replace the old policy framework that went back to the Stability and Growth Law* of 1967 with a modern, forward-looking one. The old approach was based on four main policy goals – a so-called “magic square” – that were seen as partly reinforcing each other but also as goals between which there are tensions. They were: adequate, steady economic growth, price stability, a high level of employment, and foreign trade balance.

Under the new concept – which draws on a study by Till van Treeck, a colleague at the IMK, and Sebastian Dullien, HTW Berlin – the four overarching policy goals are to be economic sustainability, fiscal sustainability, ecological sustainability and social sustainability. As is evident from these terms, the shift in focus is towards a more forward-looking, but also a broader concept of well-being. It is interesting to compare this approach with the more internationally oriented, but substantively similar vision of a “new growth model” described here.

I cannot go into the details of the “new magic square” here; I hope an English translation will be available shortly. Very briefly, for each of these four goals the authors propose between one and four quantitative indicators. The authors suggest some – actually rather modest – institutional changes that would ensure that government policies and social outcomes were measured against the new goals. They take care to incorporate European targets, such as those under the Europe 2020 Strategy.

Beyond the substantive issues, it is welcome to see the two main German opposition parties presenting a common programmatic front in these important areas. It is regrettable that this is only happening now, less than a year before the general election. But presenting voters with a credible and innovative alternative to existing policies is the first and necessary step. With Merkel – perversely given her policy failures – satisfying German voters’ overwhelming desire for predictability and stability, this may by a hard sell. But it is a lot better than having nothing original to sell at all, which has too often been the case in past years. And distant as the prospect might seem, a red-green replacement of the current coalition is the only hope that German policy influence on European economic might become more positive.

* At least at its inception, the law was actually about pomoting stability and growth, unlike the similarly named European Stability and Growth Pact, which from the outset promoted instability and stagnation.