Financial policy dominated by consolidation
Kristina vanDeuverden
Wirtschaft im Wandel,
No. 10,
2002
Abstract
Submitting the Stability and Growth Pact European member states committed themselves to reduce their budget deficits. In spring this year the German fiscal position worsened more and more and it became obvious that the deficit target would – again – be missed. Despite the worsened starting point Germany affirmed to follow its original stability programme and to attain a budget “close to balance” by the year 2004. Thus, consolidation will have to be strengthened and the scope for fiscal policy narrows down.
If current fiscal policy is not sustainable, the necessity of consolidation is obvious. However, the mode of consolidation is controversial. The Stability and Growth Pact focuses on converging budget deficits close to balance. For this, short-term oriented consolidation dominates the more medium and long-term oriented aspects of fiscal policy. Generating economic conditions by fiscal policy is at least restricted, maybe temporarily impossible – and shortening the consolidation period increases its costs.
A forecast of the government’s financial development in the years 2002 to 2006 shows clearly that the restructuring of revenues and expenditure will show no progress. In particular, the lack of structural reforms will burden Germany’s fiscal situation in the medium-term oriented consolidation period. However: the political self-commitment this spring leaves no scope for alternatives, but to enforce the consolidation. Despite some efforts, the projection concludes that by the year 2004 the budget will show a deficit.
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Chances and limits of economics in policy advising - Festival speech on the occasion of the 10 year anniversary of the IWH
Juergen B. Donges
Wirtschaft im Wandel,
No. 9,
2002
Abstract
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Was bringt die Wissenschaft für die Wirtschaft in einer Region?
Peter Franz, Martin T. W. Rosenfeld, Diana Roth
IWH Discussion Papers,
No. 163,
2002
Abstract
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Prospects for 2002: Waiting for the cyclical change
Wirtschaft im Wandel,
No. 1,
2002
Abstract
This article updates the complete analysis and forecast of the economic developments in the World and Germany in particular for 2002, as published in Summer. After six quarters of downturn, the beginning of 2002 does not show signs of a revival in economic activity. Neither internal nor external forces are currently strong enough to reverse the underlying downward trend. It is assumed that by spring time the recession in the USA will have faded. Resulting is a stimulus for the World Economy. This initiating impulse will revive production in Germany and the Euro Area, which by the second half of 2002 will gain pace. The increase in exports, as induced by the upturn in the US-Economy will positively affect domestic demand. With the usual time lag this development will also strengthen the job market. Monetary Policy will remain expansive and begins to show its full effect. Fiscal Policy, on the other hand, due to the need for consolidation, will remain restrictive.
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Risk Potential for Financial Crises for the Central and East European Transition Countries still high
Axel Brüggemann, Thomas Linne
Wirtschaft im Wandel,
No. 1,
2002
Abstract
Since the mid-nineties there have been several financial crises in Central and Eastern Europe. Among the countries affected are Bulgaria, the Czech Republic and Romania - all countries with which the European Union is in the midst of accession negotiations. The prevention of financial crises is also important due to the output losses which occurr in the affected countries. Additionally, contagion effects can influence the economic situation in third countries such as those of the EU. For this reason, the IWH analyses on a regular basis the risk potential of the EU-accession countries as well as for Turkey and Russia.
Since the beginning of 1999 at least two different phases in the development of the risk potential can be distinguished for the majority of the Central and Eastern European countries. The first phase is marked by an increase in the risk potential across all countries in the region because of the contagion and spill-over effects following the Russian financial crisis in August 1998. The risk potential was considerably reduced with the phasing out of these effects and a worldwide economic recovery. However, since mid-2000 a second phase has set in. The weaker international environment has again led to a sizable increase in the crisis vulnerability of several countries, where a host of signals indicate an urgent need for economic policy actions.
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On the Future EU Cohesion Policies in Association States: the
Johannes Stephan
Wirtschaft im Wandel,
No. 15,
2001
Abstract
Not only are levels of economic development in the association states in Central
East Europe lower than the average EU-15. They furthermore exhibit significantly
different sectoral structures. Does this suggest that a large fraction of the develop-
ment gap can be explained by those sectoral differences? In its latest report on
cohesion policy, the EU Commission accordingly placed particular emphasis on
sectoral structures when contemplating future intervention policy in newly acceeding
members.
Our analysis shows, however, that the patterns of sectoral structures play only a
minor role as determinants of the lower level of development, measured here as
productivity gap. The explanatory power of sectoral differennces is significant only
in Slovakia. The suggestions made in the EU-report is not supported by our
analysis. The existing programmes appear to be well equipped to account for the
particuliarities in transition economies.
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Germany: Cyclical Improvement not Until the End of the Year
Wirtschaft im Wandel,
No. 12,
2001
Abstract
During the second quarter of 2001 German overall production stagnated. Weak global development muddied the economic prospects of firms and prevented them from rising their output and their investment activities. In 2001 gross national product will only increase by 1%; the number of unemployed will be higher than expected. Nevertheless, we advise against an increase in public expenditure that aims at stimulating the economy. Anyhow, growing public deficits, caused by cyclical movements, should be accepted. In order to increase employment labour market reforms become more urgent.
In East Germany, currently even a decline in gross national product cannot be excluded. After the first period of restructuring, which has been accompanied by structural problems, cyclical movements become more important. In addition, economic stagnation burdens labour markets. Nonetheless trying to stimulate the East German economy by government spending programmes does not seem to be a viable strategy. From the cyclical point of view they are not very efficient and concerning structural problems they are no solution.
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Business cycle in Germany: Bottom phase almost completed
Wirtschaft im Wandel,
No. 10,
2001
Abstract
In the report, the economic situation in Germany and in the Eurozone in the current year 2001 and in the following year 2002 is analyzed and forecasted in detail. Due to the unfavorable global economic situation and the unexpectedly high inflation, GDP growth has been slowing down in Germany in the year 2001. In 2002, growth will regain momentum. In the remaining course of this year, inflation will abate, thus allowing the European Central Bank leeway for an ease in monetary policy, provided wage increases remain moderate. Due to the cyclically lower revenues and higher expenditures, the public deficit will be temporarily higher than projected in the Stability Program. This should not be counteracted so as not to further endanger economic growth. The main National Accounts data for Germany are summarized in a detailed table in the appendix.
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Does East Germany need a new technology policy? – Implications from the functioning of the R&D market after the transformation
Ralf Müller
IWH Discussion Papers,
No. 145,
2001
Abstract
Technology policy is a major part of government's efforts in contributing to East Ger-many's economic recovery. However, even a decade after unification East Germany does not produce sufficient technology goods. Thus, the question is whether technology policy is either not suitable or inefficient in tackling East Germany's deficits. A special technology policy for East Germany is justified by the lack of regional networks for technology firms; without a compensating policy East Germany would continue to lag behind West Germany also with respect to incomes. Yet only a few of the policy in-struments applied so far are efficiently dealing with these deficits. Thus, a future technology policy for East Germany should – mainly by the supply of R&D-infrastructure – support implementation of these kinds of networks.
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