Remarks by Angel Gurría, OECD Secretary-General
Berlin, 6 October 2011
Minister Roesler, Members of Parliament, Excellencies:
When moving into uncharted territory you do not want to walk alone. This was true after the Second World War when the United States and Europe decided to implement the Marshall Plan, rebuild Europe and built the foundations of the OECD in 1961.
It is true today, in a time of severe economic uncertainty with weakened growth prospects and high unemployment. We have to tackle huge public and private debt problems in the short-run while convincing the markets with a long-term policy strategy. We have to ensure broad employment and skills formation at a time of capital intensive production and global competition. And we have to explore new sources of growth like innovation, green growth and skills.
There is no question that Germany is in the international spotlight to lead the way towards a more sustainable recovery. But it has long played a pioneering role in promoting international and multilateral co-operation. Together with France, Germany helped establish the G7 in 1975. It was Germany which supported the creation of the G20 Finance Ministers process in 1999. It was Chancellor Merkel who initiated a dialogue between G8 and emerging economies on equal footing in Heiligendamm for which the OECD had the honour to serve as a platform. And advanced and emerging economies now meet in the format of the G20 at leaders’ level, acknowledging the new realities in the world economies and the fact that multilateral cooperation is more important than ever if we want to overcome the crisis and rebuild a stronger, cleaner and fairer world economy.
Germany has also led by domestic example. It recognized at a very early stage the danger of public and private debt getting out of hand. The German long-term consolidation strategy with a ‘debt break’ enshrined in the constitution is probably the most credible way to assure fiscal stability and convince the markets.
The innovative focus of the German industry on high-tech manufacturing has helped during a time of a slowdown of services, banks and insurances. The manufacturing resurgence of 2010 was also supported by the flexibility of social partners that helped to retain skilled labour until demand picked up again.
With its environmental focus Germany is leading the way into a new era of Green Growth. German enterprises are at the technological forefront of green technologies. Germany shows in practice that green and growth go together. Therefore I am glad that we will discuss the major policy issues at the green growth panel later this afternoon.
All these elements constitute the ‘German Model’ of the “Soziale Marktwirtschaft” which aims at combining a free and open economy with social inclusion and environmental sustainability.
OECD has always been a partner for the German government with its evidence-based policy advice. We have also helped showcase best practice examples from Germany that other countries could emulate. Let me highlight just two such areas for this two-way partnership between Germany and the OECD.
Employment and job creation need a functioning labour market
Go structural has been our mantra, which has been reinforced through the crisis. But even before, we presented evidence for the growth-enhancing potential of product and labour market reforms. Germany’s performance during the crisis, especially in terms of employment is a clear example of how reforms in good times will repay themselves in bad times Opening up labour markets may count among the most difficult reforms, because the pain is felt immediately and the gain is a matter of confidence. In 2005 the number of unemployed people in Germany was approaching five million, today we under three million people are out of a job.
Today, Germany is the only country in which long-term unemployment has fallen during the crisis. This outstanding performance has its roots in the flexibility of the social partners and on encompassing labour market reforms. Building in significant part on the 1994 OECD Jobs Strategy, Germany implemented sweeping reforms that may look controversial from the inside but internationally they are considered to be exemplary. Increased flexibility in working time arrangements and non-standard work contracts helped Germany to weather the economic crisis, making ‘Kurzarbeit’ a word to learn and remember.
One of the groups most affected by the economic crisis is the youth. In the first quarter of 2011, the unemployment rate for young people in the OECD area was 17,4% compared with 7% for adults. Youth who are not in employment nor in education and training face a high risk of exclusion from labour markets and social life. The successful school-to-work-transition that comes with the German apprenticeship system has helped significantly to keep youth unemployment down, even during the crisis. It is therefore a model for other OECD member countries to emulate.
The PISA “Sputnik” moment and the education reform
This brings me to my second example: Before the PISA shock hit “the country of Alexander von Humboldt” in 2001, Germans associated with PISA only a lovely city in Italy and its leaning tower. The first results from PISA sent a shockwave through this country, not because Germany fared particularly poorly, but because it fared so much lower than whilst its citizens expected from their school system. The outcomes of the first Programme for International Student Assessment did not coincide with the perception Germans had of the quality of the German educational system.
After studying how the best performing education systems successfully deal with their main challenges, Germany initiated a wide range of equity-related reforms, some of which have been truly transformational in nature. These include early childhood education, establishing national educational standards for schools; or enhancing the support for disadvantaged students, such as students with a migration background. And if you look at the PISA results a decade later, you will find few countries which have made as much progress as Germany.
At the same time, the German model also faces some important challenges in the current economic context. As highlighted in OECD’s Economic Survey of Germany a key challenge is how to ensure the continued high performance of the export sector in a constrained international environment while broadening this performance to strengthen domestic demand. In particular, the policy framework needs to become more conducive to innovation and structural change in the services sector. Liberalization in the services sector would bring benefits to Germany and to the euro area. It would boost investment and therefore growth in Germany. By injecting more competition, it would enhance the potential for innovation beyond the manufacturing sector. Last but not least, It would reduce the saving / investment gap and therefore moderate the external imbalances in the euro area.
The crisis at the periphery of the euro zone has sparked off major changes in the governance of the monetary union. This process, in which Germany continues to exert a leadership role as the recent vote in the Bundestag confirms, shows that Germany is fully aware that a strong euro zone is first of all, in her best interest. Overcoming the current difficult situation requires action on several interconnected grounds: coping with the loss of confidence towards a number of sovereigns, addressing the need for a stronger banking sector, and achieving a stronger and more balanced growth. For such a challenge to be met successfully all actors must play their role: Crisis countries must continue to implement their adjustment and reforms programs, European institutions must be provided with adequate resources while continuing to put pressure for adjustment and exercise effective surveillance. All euro area countries must provide their full backing to such institutions to help them to fulfill their role. Germany will no doubt do its share.
Ladies and Gentleman:
These are defining times for the world economic and financial system. The old Richard Rogers song “You’ll never walk alone” has become a hymn for the team spirit in many football stadiums, but it could be also a hymn for multilateral cooperation. In these challenging moments for the world economy it is important that we do not walk alone, it is important that we learn from each other, it is important that we discuss and act together.
We at the OECD look forward to continuing to work with Germany as it tackles these important challenges.
Thank you very much!