Making policy for the economy

Shifting from crisis management to strengthening the drivers of growth

Two key aims of the Federal Government's economic policy are to ensure that the upturn rests on a broad base and to strengthen domestic growth drivers.

Pro-growth federal budget consolidation

To strengthen growth drivers, it is also necessary to pursue a credible and resolute policy of fiscal consolidation. The Federal Government is adhering to the debt reduction path mapped out in Germany's new constitutional debt rules, which require new borrowing to be cut in half by 2014. In 2011, the total government deficit is expected to tally approximately 2.5% of GDP. As a result, Germany will be one of the few EU member states that succeeds in bringing its levels of new borrowing back within the limits of the Maastricht criteria as early as 2011.

Fiscal consolidation will also open up the financial leeway to provide tax relief to citizens and businesses. Therefore, the Federal Government intends to relieve tax burdens - particularly on low and middle-income earners - as quickly as possible, preferably in the current legislative term. Furthermore, in the more immediate future, a comprehensive package of measures to simplify the tax system will also serve to enhance the financial flexibility of individuals and businesses.

Toward a new culture of stability in Europe

Germany's continued growth depends not least on stable and reliable economic conditions and policies in Europe. The difficulties in the eurozone have highlighted the need to take action to improve the institutional structure of the European Monetary Union. The Federal Government is committed to strengthening the effectiveness of the Stability and Growth Pact in order to prevent undesirable fiscal developments at an early stage. Flawed economic policies that erode competitiveness often serve to trigger fiscal distortions. As a result, the existing system of economic policy surveillance must be improved. Moreover, it is essential to establish a permanent crisis mechanism that will equip the monetary union with the long-term ability to deal effectively with the extreme case of government liquidity and solvency crises.

A new regulatory framework for financial markets

Properly functioning financial markets are a key prerequisite for boosting long-term growth potential. Germany's economic policy aims to bolster the resilience of financial institutions and the financial system as a whole. In the wake of the global financial crisis, the Federal Government launched a number of financial market reform initiatives at the national, European and international levels.

In the future, systemically important financial institutions facing insolvency will receive support when they undertake independent recapitalisation and reorganisation measures. The necessary funding will be provided by a restructuring fund that is financed by contributions paid by banks on the basis of their individual systemic risk.

Providing new employment opportunities to better tap the potential of the workforce

Germany's labour market policy continues to be guided by the principle of "making work pay". That's why the Federal Government is working to optimise incentives for people to take up jobs that require social insurance contributions. A moderate increase in standard social benefit rates for recipients of long-term unemployment compensation, together with additional educational opportunities for children, will secure the fulfilment of subsistence needs while simultaneously upholding the principle that wage levels must exceed unemployment benefit levels.

To enhance the potential for growth, it is crucial to better harness the potential of the existing workforce. This is particularly true in light of demographic changes. That's why the Federal Government intends to increase the labour force participation of women and older people in particular as well as low-skilled workers and individuals with an immigrant background.

In order to meet the challenge of an impending shortage of skilled workers, it is also necessary to focus on attracting qualified foreign specialists to Germany. The Federal Government is assessing whether Germany's immigration laws need to be adapted toward this end. Furthermore, the Federal Government will improve the procedures for recognising vocational qualifications obtained abroad.

Safeguarding prosperity through research and innovation

Innovation is a decisive growth driver. Despite Federal Government measures to consolidate public finances, we have allocated an additional 12 billion euros for spending on education, research and innovation during the current legislative period. In addition, we are taking steps to improve the policy environment for innovation and applied research, particularly in small and medium-sized businesses.

Securing a clean, reliable and affordable energy supply

Germany's new Energy Concept maps out the Federal Government's energy policy strategy, which aims among other things to achieve an 80% cut in CO2 emissions by 2050. To this end, the life spans of Germany's 17 nuclear power plants will be extended by an average of 12 years. This will help to dampen electricity prices and greenhouse gas emissions until renewable energy sources become the mainstay of our energy supply.