[Editorial] Clement on Reform

The German economy is turning around. In late January, the German government adjusted its economic growth forecast from 1.2 percent to 1.4 percent, and economic research institutes expect Germany’s economy to grow up to 2.0 percent, which would be a record high for Germany since 2001.

The reason why Germany was suffering from chronic economic recession and high unemployment was that it focused more on equity, distribution, welfare and labor rights protection rather than competition and growth.

Belatedly judging that the “Germany disease” could not be cured with such policies, the Gerhard Schroeder administration of the leftist Social Democratic Party (SDP) embarked on its “Agenda 2010” economic reform plan in 2003 to revive the economy.

Angela Merkel, the leader of the Christian Democratic Union (CDU), a rightist party that respects market principles and is business-friendly, became chancellor of a left-right grand coalition in November 2005, and the German economy has shown clear signs of recovery since.

Wolfgang Clement, who aggressively pushed for Agenda 2010 as the German federal minister of economics and labor (October 2002-November 2005) under the Schroeder administration, visited Korea and gave a lecture at a seminar held by the Korea Employers’ Federation (KEF) two days ago. “The outline of the economic reform that Germany has sought for the last three years is to create a favorable environment for business activities by relieving rigidity in the labor market and boldly lifting regulations that strangle businesses. As a result, Germany has again been established as a competitive nation,” he proudly said.

Through Agenda 2010-mandated economic reforms, the German government reduced excessive welfare spending, lessening the tax burden on people and enterprises. “Germany now has one of the lowest tax rates in the European Union (EU),” said the former minister. “The new government, led by Chancellor Merkel, will carry out a massive taxation reform that will benefit businesses, and privatization of the public sector will also continue.”

Though it has suffered from low economic growth for a long time, Germany is still the world’s third largest economy. Even a country like Germany is continuously seeking a change into a market-driven economy in an effort to survive amid global competition. “In the face of ever-fierce international competition, to stop means to back off,” said Clement.