Newspaper claims OECD was urged to rewrite policy recommendations on Germany

In May 2003, a German daily business newspaper, Handelsblatt, claimed that critical parts of the latest OECD country survey on Germany, published in December 2002, were partly rewritten by the German government. In particular, it is alleged that OECD recommendations to increase labour market flexibility and continue pension reforms were 'watered down'.

On 28 May 2003, the largest German business daily, Handelsblatt, published evidence that appears to suggest that the German federal government (Bundesregierung) 'massaged' policy recommendations in the economic survey of Germany (DE0302106F) published by the Organisation for Economic Cooperation and Development (OECD) in December 2002. The OECD is an international organisation with the stated aim of helping governments to tackle current economic, social and governance challenges.

According to Handelsblatt, the draft of the influential report written by OECD economists was fairly extensively modified because of interventions by the German government. The newspaper alleged that, on the one hand, passages that were critical of current policies were revised, whereas, on the other hand, sections that praised Germany’s economic policy were added. On the most important changes, Handelsblatt stated that: 'Original demands made by the OECD to implement legal opening-clauses in collective bargaining agreements that would have resulted in protests by trade unions were excised ... Additionally, the OECD had to water down statements regarding the public pension scheme’s lack of sustainability.' Some of the important changes which, it was claimed, were made to the introduction to the OECD report are listed in the table below.

It is normal for some changes to be made to the OECD’s draft reports by the governments of its 30 member countries, as these country reports need the unanimous support of all member states before their publication. However, according to Handelsblatt, a participant in the process claimed that this specific report was massaged because of pressure exerted by the German federal government in a manner he had never previously experienced. By contrast, a spokesperson for the German Federal Ministry of Economy and Labour stated to Handelsblatt that a decisive intervention by the government to excise offensive parts of the report had not taken place.

Some alleged differences between the draft and the published version of the December 2002 OECD economic survey of Germany
OECD draft version Published version
Germany has been an underperforming economy for a number of years with weak domestic demand and high structural unemployment, reflecting a rigid labour market. This has restricted growth and made the economy vulnerable to external shocks resulting in near stagnation over the last couple of years. The projected recovery relies almost entirely on the expansion of world trade. The high structural deficit leaves little scope for the automatic stabilisers to operate ... Germany has, for a number of years, been an economy characterised by weak domestic demand, low employment growth and a high share of structural unemployment, highlighting the need for labour market reform. These developments have been shaped by a long drawn-out adjustment to the exceptional unification shock as well as increased vulnerability to adverse external shocks. Growth has been very low since 2001, and the projected recovery relies strongly on the expansion of world trade.
The recent pension reform is a step in the right direction, but more will have to be done in order to eliminate remaining incentives for early retirement and to pre-fund ageing related expenditure increases. The recent pension reform is a step in the right direction, but more may have to be done to pre-fund ageing related expenditure increases.
Current opportunities to deviate from collective wage contracts are not enough. The legislation governing wage determination should allow agreements between a company’s work force and the management to override collective agreements. Consideration should be given to widening the scope for wage determination at the company level, so as to better align collective wage contracts with labour market conditions.
Germany’s dismissal procedures are overly complicated and should be simplified. Moreover, the option should be opened for work contracts to specify severance pay in case of redundancy in return for a less stringent dismissal protection. Germany’s dismissal procedures appear to be complex and should be reviewed in order to promote employment while striking a proper balance between flexibility and security. An example could be to offer an option to open work contracts to specify severance pay in case of redundancy in return for a less stringent dismissal protection.
The positive momentum for reform should be used to implement measures that are likely to improve labour utilisation. This requires, inter alia, reducing the tax wedge, widening the scope for enterprise related compensation schemes so as to support a higher degree of wage flexibility, and streamlining the overly complex employment protection legislation. The positive momentum for reform should be used to implement measures that are likely to improve labour utilisation. This requires, inter alia, reducing the tax wedge, promoting a higher degree of wage responsiveness to market conditions, and reviewing the complex dismissal procedures.
Strengthening of competition and efficiency in product markets can also contribute to improved growth performance. Strengthening of competition and efficiency in product markets can also contribute to improved growth performance. Over the last years Germany has emerged amongst the pioneers in product market reform and market opening in Europe.

Source: Handelsblatt.

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