Economist Monica Schnitzer calls for pension reform

Professor Schnitzer, this year the Council was unable to agree on a common position on two issues. How much does the fifth member miss Lars Feld?

First of all, the new constellation meant for us that we had to spread a lot of work on four shoulders instead of five. But there is also something positive about it. In the days when we were the five of us, there was always a majority, even on contentious issues. It has changed this year. That’s why some things were discussed in more detail and there was more room for variety.

The sticking point is above all the debt issue. Unlike your fellow advisors, you and Achim Truger are open to a loan-financed investment firm. Why is it needed?

We in the council agree that the debt ceiling can be met again in 2023, as planned by the government. However, the question remains as to how to deal with the higher expenditures required to keep pace with this transformation. In order to create a long-term lead for this – consider within the realm of debt brake – loan financing is essential. Investment firms have the advantage that not only are the tasks clearly defined, but also that the expenses for them are fixed. Because one of the reasons investments have not been successful in recent years is that investments have been made sporadically, depending on the monetary situation. This means that there was not enough capacity – neither in the construction companies nor in the authorities for project planning. It requires continuity.

The council is also divided over European financial rules. What would reform look like to not open the door to over-indebtedness?

We are not interested in canceling the financial rules, they are reasonable and important. But you also have to be realistic. The 60 percent rule limits the national debt to 60 percent of GDP. Italy, for example, currently has a debt ratio of 160 percent. The current 1/20 rule forces Italy to reduce the difference to 60 percent by one-twentieth each year. So Italy will have to generate huge surpluses – only to pay off debts. There is not much left to invest, but a country cannot grow without investment. My impression is that other advisors fear that once they start to relax, confidence in the financial rules will be gone. However, we are convinced that credibility is further damaged if the rules are consistently interpreted in a generous way to present as if they were adhered to. Obviously, the rules in their current form cannot be adhered to.

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But doesn’t relaxation undermine any discipline to follow the rules?

If a country knows it has no chance of complying with the rules anyway, it has no incentive to make an effort. In order for heavily indebted countries to have a realistic possibility to abide by the rules again, relocation requirements must be adapted to their individual situation. If the goal is realistic, then again there is an incentive for states to make an effort.