COMMISSION STAFF WORKING DOCUMENT Country Report Germany 2018 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2018 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011
Date: 2018-03-07
Institutions: European Commission, Secretariat-General
Subjects: Germany, economic situation, education, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 7.3.2018 SWD(2018) 204 final  COMMISSION STAFF WORKING DOCUMENT Country Report Germany 2018 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2018 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2018) 120 final}   
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Summary of the main findings from the Macroeconomic Imbalances Procedure 

in-depth review 

4.  Reform priorities 

4.1.  Public finances, fiscal frameworks and taxation* 

4.2.  Financial sector* 

4.3.  Labour market, education and social policies 

4.4.   Beyond the aggregate: ageing, inequality and savings* 

4.5.   Investment 

4.6.   Sectoral policies 

Annex A: Overview table 

Annex B: Macroeconomic Imbalances Procedure Scoreboard 

Annex C: Standard tables 

References 

LIST OF TABLES 

Table 1.1: 

Key economic and financial indicators – Germany 

Table 2.1: 

Summary table on 2017 CSR assessment 

Table 3.1: 

MIP assessment matrix – Germany 

Table 4.2.1: 

Financial soundness indicators, all banks in Germany 

Table B.1: 

The MIP Scoreboard for Germany (AMR 2018) 

Table C.1: 

Financial market indicators 

Table C.2: 

Headline Social Scoreboard indicators 

Table C.3: 

Labour market and education indicators 

Table C.4: 

Social inclusion and health indicators 

Table C.5: 

Product market performance and policy indicators 

Table C.6: 

Green growth 

1 

4 

11 

14 

19 

19 

23 

26 

35 

38 

46 

53 

58 

59 

65 

10 

12 

18 

23 

58 

59 

60 

61 

62 

63 

64 

 
 
 
 
 
LIST OF GRAPHS 

Graph 1.1: 

Demand components of GDP growth 

Graph 1.2: 

Contributions to headline inflation 

Graph 1.3: 

Sectoral net lending 

Graph 1.4: 

Determinants of household disposable income 

Graph 1.5: 

Current account and component balances 

Graph 1.6: 

Balance of goods by broad economic category 

Graph 1.7: 

Current account balance and components of the financial account 

Graph 1.8: 

Factors explaining the current account surplus 

Graph 1.9:  General government budget balance and gross debt 

Graph 1.10: 

Tax wedge - 2016 

Graph 2.1:  Overall multiannual implementation of 2011-2017 CSRs to date 

Graph 4.1.1:  Government balance and trends in selected revenues and expenditures 

Graph 4.1.2: 

Taxes by economic function 

Graph 4.2.1:  Mortgages and corporate loans in billion EUR and in % of GDP 

Graph 4.2.2:  Annual change of different household loan categories 

Graph 4.2.3:  Funding sources of non-financial corporations 

Graph 4.3.1:  Phillips curve in Germany: compensation growth and unemployment rate 

Graph 4.3.2: 

Trends in labour costs and its components 

Graph 4.3.3:  Employment rate by citizenship 

Graph 4.3.4:  Gini coefficient and poverty risk 

Graph 4.4.1:  Dependency ratios (2036 population forecast) and savings rates of DE 

Graph 4.4.2:  Savings rates by age groups – measured in 2015 

Graph 4.5.1:  Capital stock 

Graph 4.5.2:  Gross fixed capital formation in the private sector 

Graph 4.5.3:  Potential growth and contributions 

Graph 4.5.4:  Productivity developments 

Graph 4.5.5:  Housing overvaluation gap 

Graph 4.5.6:  Gross fixed capital formation in the public sector 

Graph 4.5.7:  Net public investment by level of government 

Graph 4.5.8:  Net capital stock by type of activity 

Graph 4.6.1:  Business expenditure on R&D (BERD) performed by SMEs 

Graph 4.6.2:  Venture capital investment (market statistics) in 2016 

4 

6 

6 

6 

7 

7 

7 

8 

9 

9 

11 

19 

19 

24 

24 

25 

26 

29 

30 

31 

36 

37 

38 

38 

39 

40 

40 

41 

42 

43 

47 

47 

 
 
 
LIST OF BOXES 

Box 2.1:  

Tangible results delivered through EU support to structural change in Germany 

Box 3.1:  

Euro area spillovers 

Box 4.3.1:  

Monitoring performance in light of the European Pillar of Social Rights 

Box 4.3.2:  

Policy highlights: The introduction of the general minimum wage 

Box 4.5.1: 

 Investment challenges and reforms in Germany 

Box 4.6.1:  

Collaborative economy 

13 

17 

27 

28 

44 

50 

 
 
 
 
EXECUTIVE SUMMARY 

Germany’s  enduring  economic  upswing  offers 
an  opportunity  for  policy  action  aimed  at 
fostering  higher  potential  growth,  which  can 
prepare  the  country  for  future  challenges. 
Boosting  public  and  private  investment,  where 
gaps  have  been  clearly 
identified,  can  help 
maintain  the  efficiency  of  the  capital  stock  and 
raise  productivity  to  prepare  for  future  challenges 
such as new digital business models, low-emission 
transport  and  decentralised  (renewable)  energy 
production. 
the 
underrepresented  groups  in  the  labour  market  can 
help address the looming shortage of skilled labour 
stemming  from  demographic  change.  Boosting 
investment and expenditure in education, including 
lifelong learning, and in research and development 
long-term  growth 
raising 
are  also  key 
potential.(1) 

involvement 

Better 

of 

in 

The German economy showed robust growth in 
2015-2017,  driven  by  domestic  demand.  Real 
GDP  growth  was  at  1.9 %  in  2016  and  2.2 %  in 
2017.  In  2017,  private  consumption  grew  for  the 
second  year  running  by  2 %.  Underpinned  by  the 
continued economic expansion, unemployment fell 
to  a  record  low  of  3.6 %  by  the  fourth  quarter  of 
force. 
2017,  despite 
the  growing 
Employment 
the 
employment  rate  reaching  79.1 %  in  the  third 
quarter of 2017, as both demand for labour and the 
labour  supply 
low 
unemployment  and  high  job  vacancy  rates,  wage 
growth remains moderate. The positive output gap 
and  high  capacity  utilisation  are  expected  to  spur 
investment. Inflation rose from 0.4 % in 2016 to an 
average  of  1.7 %  in  2017  on  the  back  of  rising 
energy prices. 

increased.  Despite  record 

continued,  with 

growth 

labour 

The budget balance continues to improve, while 
government debt remains on a downward path. 
In 2016, the government surplus reached 0.8 % of 

(1)  This report assesses Germany’s economy in the light of the 
European Commission’s Annual Growth Survey published 
on 22 November 2017. In the survey, the Commission calls 
on  EU  Member  States  to  implement  reforms  to  make  the 
resilient  and 
European  economy  more  productive, 
inclusive.  In  so  doing,  Member  States  should  focus  their 
efforts  on  the  three  elements  of  the  virtuous  triangle  of 
economic policy - boosting investment, pursuing structural 
reforms  and  ensuring  responsible  fiscal  policies.  At  the 
same 
the  Alert 
the  Commission  published 
Mechanism Report (AMR) that initiated the seventh round 
of  the  macroeconomic  imbalance  procedure.  The  AMR 
found that Germany warranted an in-depth review, which is 
presented in this report.  

time, 

GDP,  higher  than  in  2015,  rising  further  to  a 
record high of 1.2 % of GDP in 2017, partly due to 
lower interest payments on public debt. The budget 
is  expected  to  remain  in  surplus  in  headline  and 
structural  terms  in  2018  and  2019  as  well.  The 
gross  debt-to-GDP  ratio  is  set  to  fall  further  from 
68.1 %  in  2016  to  below  the  60 %  Maastricht 
threshold  over  the  next  couple  of  years,  possibly 
by 2019. 

Given  its  economic  importance  and  strong 
integration  in  EU  value  chains,  Germany  is  a 
source  of  potentially  significant  spillovers  to 
other  EU  countries.  A  further  rise  in  domestic 
demand, 
public 
investment in R&D and education, would increase 
Germany’s  actual  and  potential  growth.  It  would 
also  stimulate  demand  and  GDP  growth  in  other 
EU  countries,  including  those  that  need  to  bring 
debt down.  

including 

through 

higher 

the 

2017 

in  public 

limited  progress 

in 
Germany  has  made 
addressing 
country-specific 
recommendations.  Limited  progress  has  been 
made  towards  achieving  a  sustainable  upward 
trend 
including  public 
investment, 
spending  on  education,  research  and  innovation. 
Some  progress  has  been  made  in  addressing 
capacity and planning constraints on infrastructure 
investment.  There  has  been  limited  progress 
towards  stimulating  competition  in  the  business 
services  and 
reducing 
disincentives  to  work  for  second  earners  and 
helping  them  to  move  into  standard  employment, 
promoting  higher  real  wage  growth,  and  reducing 
the  high  tax  wedge  for  low-wage  earners.  No 
progress  has  been  achieved  in  making  the  tax 
to 
system  more 
investment.  

regulated  professions, 

conducive 

efficient 

and 

Regarding progress in reaching the national targets 
under  the  Europe  2020  strategy,  Germany  is 
performing  well  on  the  employment  rate,  early 
school  leaving  and  poverty,  improving  tertiary 
education  attainment,  investment  in  research  and 
development  (R&D),  and  increasing  the  share  of 
renewable energy. However, it is unlikely to reach 
its  national 
indicative  energy  efficiency  and 
climate targets by 2020. 

Germany  performs  relatively  well  on  the 
indicators  of  the  Social  Scoreboard  supporting 
the European Pillar of Social Rights. It has very 

1 

 
 
                                                           
low unemployment but a large gender employment 
gap.  Strong  social  dialogue  and  a  relatively 
advanced  welfare  model  underpin  Germany's 
competitive economy. 

The main findings of the in-depth review set out in 
this report, and the related policy challenges, are as 
follows: 

  The  current  account  surplus  is  expected  to 
edge  down  further  in  the  future,  but  to 
remain  high.  Strong  domestic  demand  is 
expected  to  keep  import  growth  above  export 
growth,  further  easing  the  current  account 
surplus.  The  domestic 
saving-investment 
imbalance,  which  has  been  growing  since 
2008,  may  have  reached  a  turning  point  in 
2016. However, the factors keeping investment 
low relative to savings remain in place.  

  Demographic  change  and  rising 

the 

income 
inequality up to 2014 partly explain the rise 
and  persistence  of  the  current  account 
surplus.  Rising  income  inequality,  linked  to 
demographic  and  labour  market  changes,  may 
have  constrained  private  consumption  and 
increased 
trade  balance.  In  addition, 
population  ageing  and  concerns  about  the 
adequacy  of  future  pension  levels  and  old-age 
poverty  could  explain  a  rise  in  domestic 
savings.  According  to  economic  theory  and 
model  estimates,  the  demographic  transition  is 
the  current  account 
currently  pushing  up 
surplus  by  a  substantial  amount,  but  should 
lower savings in the long run. 

  Private 

investment  has  picked  up,  but 
business  investment  remains  subdued  as  a 
proportion of GDP, suggesting that obstacles 
to  investment  persist.  Housing  seems  to 
account  for  most  of  the  increase  in  private 
investment, while investment in non-residential 
construction  is  slow  to  pick  up.  Though 
investment  in  machinery  and  equipment  has 
increased to pre-crisis levels, as a share of GDP 
it remains subdued. On average, investment in 
intangible  assets,  such  as  R&D,  has  grown  in 
importance. However, it is largely concentrated 
in  medium-high  tech  sectors  and  in  larger 
and  medium-sized 
firms,  while 
enterprises  and  the  services  sector  in  general 
are tending to under-invest. This explains large 

small 

Executive summary 

favourable 

productivity  gaps  between  manufacturing  and 
services,  which  are  likely  to  dampen  potential 
growth.  Despite 
financing 
conditions,  non-financial  corporations  remain 
net  lenders.  Barriers  to  investment  include 
demographic  trends  resulting  in  shortages  of 
taxation  and  administrative 
skilled 
the 
burden, 
services  sectors  and  the  shortfall  in  very-high-
capacity broadband. 

restrictiveness 

regulatory 

labour, 

in 

investment 

improvement 

  While  public  investment  increased  recently, 
the  public  investment  gap  remains  large, 
particularly  as  regards 
in 
infrastructure  and  education.  Real  public 
investment  growth  turned  positive  in  2015, 
after  showing  negative  growth  rates  in  the 
years  before.  This 
reflects 
government  efforts  to  boost  investment.  The 
accumulated  investment  backlog  at  municipal 
level  fell  to  some  extent  in  2016,  but  remains 
large at an estimated 4 % of GDP. The biggest 
shortfalls  are  in  education,  where  the  national 
spending  target  has  not  been  met,  and  in 
infrastructure.  While  the  Federal  Government 
their  construction 
and 
investment 
investment  by 
municipalities  fell  steadily,  with  negative  net 
investment  also  in  2017.  Investment  in  public 
infrastructure is still held back by capacity and 
planning  constraints  at  municipal 
level. 
Measures  to  overcome  these  have  yet  to  show 
In  addition, 
for 
results. 
enhancing 
and 
digital 
improving public procurement. 

is  scope 
services 

the  Länder  kept 

there 
public 

stable, 

such 

  Germany  is  lagging  behind  on  very-high-
capacity  broadband  deployment,  and  the 
digital divide between urban and rural areas 
remains  a  particular  challenge.  Only  a 
comparatively  small  proportion  of  German 
territory  is  covered  by  fibre-based  access 
networks.  Instead,  upgrading  existing  copper 
cable networks continues to be the dominating 
incumbent's  preferred  technological  solution. 
However,  many  services  rely  on  very  high 
connectivity.  Lack  of  such  connectivity  holds 
back  investment,  especially  by  small  and 
medium-sized  businesses,  many  of  which  are 
located in semi-rural and rural areas. 

2 

 
 
Executive summary 

  Germany's  tax  and  social  security  systems 
are  not  particularly  progressive 
or 
supportive  of  employment  and  private 
is  a  relatively  strong 
investment.  There 
emphasis  on  more  distortive  direct  taxes, 
notably on labour income, while revenues from 
consumption  and  environmental 
taxes  are 
lower. Household income and consumption are 
restrained  by  the  high  tax  wedge  on  labour, 
especially  for 
low  earners.  The  statutory 
corporate  tax  rate  is  among  the  EU's  highest. 
Taxes on inheritance and gifts allow large-scale 
transfer  of  wealth  from  one  generation  to  the 
next  and  preserve  the  high  wealth  inequality. 
Healthcare  efficiency  could  be  improved  by 
better 
ambulatory 
specialist and in-patient care and making better 
use of eHealth.  

integrating 

primary, 

and 

low, 

Still, 

seems 

capitalisation 

the  equity  and 

  The  banking  sector  is  not  very  profitable, 
leverage  situation 
but 
remains  acceptable.  Nationally  aggregated 
profitability 
ongoing 
consolidation is improving efficiency relatively 
are 
slowly. 
satisfactory,  and  the  non-performing  loans' 
ratio is low, in the context of a relatively small 
loan  stock,  particularly 
for  non-financial 
the  housing  market 
corporations.  While 
continues  to  be  buoyant,  overall  house  price 
developments  are  not  causing  macro  or 
financial  stability  risks.  The  venture  capital 
market  remains  less  developed  than  that  of 
other international innovation leaders.  

ratios 

  Wage  growth  remains  moderate,  despite 
record  low  unemployment  and  high  job 
vacancy  rates.  The  German  labour  market  is 
performing  well  on  aggregate,  with  strong 
employment  growth  and  low  unemployment. 
However,  the  prevalence  of  part-time  work 
especially  among  women,  and  a  large  low-
wage  sector  present  structural  challenges. 
Moderate 
is  partly 
recent  wage  growth 
attributable  to  slow  productivity  increases  in 
low 
services,  weak 
collective bargaining coverage in some sectors, 
and a reduction in structural unemployment.  

inflation  expectations, 

  Despite  growing 

force 
shortages,  the  labour  market  potential  of 
underused. 
certain 

remains 

groups 

labour 

skilled 

the 

low-waged; 

Disincentives  to  work  persist,  particularly  for 
second  earners  and 
they 
include the substantial tax wedge, tax rules, and 
the  lock-in  effects  of  the  mini-job  earning 
threshold.  Long-term  unemployment,  though 
falling,  remains  sizable.  An  ageing  population 
poses  further  challenges  to  the  labour  market, 
social  policy  and  education  in  the  medium  to 
long 
family  and 
education  policies,  adult  learning  and  in  the 
integration  of  people  with 
a  migrant 
background  into  education  and  employment 
could  reduce  inactivity  and  in-work  poverty, 
improve  social  cohesion  and  potential  growth 
alike. 

Improvements 

term. 

in 

  Germany  has  a  solid  social  protection 
system overall, but there are concerns about 
the  future.  In  2015,  the  rise  in  the  risk  of 
poverty  and  inequality  has  halted  and  the 
income  position  of  low  income  households 
improved. Nevertheless, future deterioration of 
pension adequacy in the statutory first pillar is 
expected  to  increase  the  risk  of  poverty  in  old 
age, especially for low-wage earners or people 
with atypical work and interrupted employment 
history.  The  gender  pension  gap  is  one  of  the 
highest 
the  EU.  Social  outcomes  for 
migrants and their children remain a concern.  

in 

Other key economic issues analysed in this report 
which  highlight  particular  challenges 
facing 
Germany’s economy are as follows:  

  Germany's electricity networks are adapting 
to renewables production at a slow rate, and 
significant  investment  in  transmission  and 
distribution  grids  is  still  lacking.  Substantial 
delays  in  carrying  out  many  projects  have 
incurred  considerable  costs  to  German  and 
European  electricity  networks  and  electricity 
markets.  The  lack of  north-south  internal  lines 
strains  the  electricity  trade  with  Germany's 
neighbours, as domestic congestion tends to be 
pushed to the borders. Moreover, there is scope 
for higher energy efficiency in transport.  

  Progress  on  emissions  reduction  has  been 
slow.  Germany  is  expected  to  miss  its  Europe 
for 
2020  Effort  Sharing  Decision 
greenhouse gas emissions. The transport sector 
has  been  particularly  slow  to  cut  emissions  of 
both greenhouse gases and local air pollutants. 

target 

3 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

GDP growth 

The  German  economy  continued  to  grow 
strongly  in  2017.  Germany’s  real  GDP  growth 
rate  was  a  solid  2.2 %  driven  by  private 
consumption  and 
investment.  Export  growth 
picked up amid a strengthening euro area recovery 
while the strong domestic demand caused imports 
to accelerate. On balance, foreign trade had a small 
positive contribution to growth. 

to 

improve 
Economic  sentiment  continues 
across  sectors,  suggesting  continued  expansion 
in  the  coming  quarters.  Survey  data  show 
expectations  of  improving  orders,  higher  output 
and  greater  demand.  Capacity  utilisation  has 
continued  to  increase,  which  bodes  well  for 
investment.  The  strong  labour  market,  favourable 
world  trade  developments  the  expansion  in  the 
euro  area  should  help  to  sustain  the  enduring 
upswing. Overall, real GDP growth is expected to 
strengthen  to 2.3%  in 2018 and  remain  above 2% 
in 2019 (see Graph 1.1). 

Graph 1.1:  Demand components of GDP growth 

(1)Note: GDP growth and contributions to annual growth 
Source: European Commission 

from 

is  benefiting 

Potential  growth 
the 
sustained rise in labour supply and total factor 
productivity  while  capital  accumulation 
is 
lagging  behind.  Potential  GDP  growth  has 
strengthened  in  recent  years  reaching  around  2 % 
in  2016  (see  Graph  4.5.3).  It  was  driven  by 
expanding labour supply on the back of improving 
participation  and  recent  high  net  migration.  The 
number  of  foreign  nationals  in  the  labour  force 
increased  from  3.5 million  in  2011  to  4.8 million 

4 

in  2016.  In  addition,  total  factor  productivity 
growth has been strong, consistently exceeding the 
euro area average (see ‘Labour market’ below and 
Sections 4.3 and 4.5). Capital accumulation, on the 
other  hand,  has  made  a 
small 
contribution to potential growth. In the medium to 
long  term,  labour  input  is  unlikely  to  grow  as 
strongly along the extensive margin. Therefore, to 
sustain  potential  growth,  it  will  be  important  to 
enhance  capital  accumulation  by  stepping  up 
productive investment. 

relatively 

Investment 

investment 

The positive demand outlook and high capacity 
utilisation  are  expected  to  boost  investment. 
Private 
in  equipment  has  been 
recovering  since  the  soft  patch  of  2016;  it  has 
grown strongly last year, returning to the pre-crisis 
levels. Further increases are likely amid favourable 
demand prospects, not least from the euro area and 
the  rest  of  the  EU.  Consistently  rising  capacity 
utilisation  should  also  boost  the  efforts  to  renew 
and  expand  the  capital  stock.  Housing  investment 
grew strongly in the first two quarters of 2017 and 
is  expected  to  continue  growing,  though  more 
slowly. This booming sector is sustained by ample 
order book backlogs and a steady flow of building 
has 
permits.  Non-residential 
continued to stagnate to some extent, casting doubt 
on  firms'  long-term  expansion  strategies.  Public 
investment  in  2017  increased  by  around  5.1 % 
nominally  and  2.9 %  in  real  terms  posting  robust 
growth for a third year in a row (see Section 4.5).  

construction 

Labour market 

and 

labour 

demand 

Employment  growth  continued,  spurred  by 
increased 
supply. 
Employment grew by 1.3 % in 2016 and 1.5 % in 
2017,  and  by  the  third  quarter  of  2017  the 
employment rate climbed to 79.1% for those aged 
20-64. This brought the unemployment rate for the 
age  group  15-74  down  further  to  a  new  post-
in  2017.  Youth 
unification 
unemployment  at  6.7%  in  2017  was  one  of  the 
lowest  in  the  EU.  Despite  population  ageing,  the 
labour 
increased  mainly  driven  by 
increasing  labour  market  participation  of  women, 
older  workers  and  incoming  workers  from  other 
EU countries.  

low  of  3.8 % 

supply 

-6-4-2024610111213141516171819InventoriesGov. consumptionPriv. consumptionInvestmentNet exportsReal GDP (y-o-y%)forecastpps.  
 
 
1. Economic situation and outlook 

Although  the  labour  market  tightens  and  the 
output  gap  closes,  wages  continue  to  grow  at  a 
moderate  pace.  Although  nominal  compensation 
per employee increased by 2.4 % in 2017, slightly 
above  their  growth  rate  of  2.2 %  in  2016,  real 
compensation  growth  decelerated  from  1.8 %  to 
0.7 %.  Several  factors  have  kept  wage  increases 
moderate  so  far.  These  include  increased  labour 
supply;  relatively  limited  collective  bargaining 
coverage  in  some  sectors;  and  a  stronger  role  of 
non-wage  components  in  collective  bargaining 
(see Section 4.3).  

The 
large  proportion  of  part  time  work, 
particularly  among  women,  prevents  the  full 
use  of  workers’ 
labour  market  potential. 
Despite high employment rates for women (74.5 % 
in 2016), the equivalent in full-time employment is 
only  58.1 %  as  part-time  employment  remains 
among  the  highest  in  the  EU.  Women  with  a 
migrant  background  and  women  with  caring 
responsibilities  are  more  often  in  part-time  work. 
The  current  arrangement  of  joint  taxation  of 
income  for  married  couples  (Ehegattensplitting), 
non-contributory  health  insurance  coverage  for 
non-working  spouses,  and  the  high  marginal  tax 
rates  just  above  the  earnings  threshold  of  a  mini 
job, create disincentives to work more hours. This 
lower  labour  market  attachment  is  combined  with 
a  large  gender  pay  gap  (22.0 %  compared  to  an 
EU-average of 16.3 % in 2015).  

In  addition,  the  labour  market  potential  of 
people with a migrant background is not being 
fully  used.  In  the  third  quarter  of  2017,  the 
employment rate of non-EU nationals (aged 20-64) 
was 54.6 %, just slightly below the EU average for 
non-EU  nationals  (58.0 %)  but  27.2 pps.  lower 
than the rate for German nationals. Women with a 
non-EU  nationality  had  an  employment  rate  of 
45.4 % 32.9 pps. lower than for women of German 
nationality. 

Social developments 

inequality  of  disposable 

Income  inequality  has  begun  to  decline  (see 
Annex  C).  This  reverses  a  decade-long  trend  of 
increasing 
income 
distribution,  which  peaked  in  2014  at  close  to  the 
EU  average.  The  latest  figures  show  a  modest 
reduction in the S80/S20 ratio, which measures the 
income  of  the  richest  20 %  of  households  in 
relation to that of the poorest 20 %. For Germany, 

the  share  fell  to  4.6  in  2016,  owing  to  an 
improvement in the incomes of poorer households. 
This  trend  is  believed  to  have  continued  in  2017. 
The  improvement  reflects  rising  wages,  which 
have also reduced the amount of in-work poverty. 
The share of income of the richest 20 % has fallen 
slightly.  This  may  reflect  a  slowing  of  the  wage 
premium  on  skills,  as  the  incomes  of  the  low  and 
medium-skilled  rose  faster  in  2016  than  those  of 
the highly skilled.  

However, wealth inequality in Germany is high 
in  international  comparison.  In  2014,  the  Gini 
coefficient for net wealth in Germany at 0.76 was 
the  second  highest  in  the  euro  area  (whose  Gini 
coefficient, calculated on the basis of data from the 
second wave of the ECB’s Household Finance and 
Consumption Survey, was 0.69). (2) For Germany, 
the  P90/50  ratio  was  7.7,  meaning  that  a  person 
who  fell  just  within  the  richest  10  %  of  the 
population  had  roughly  8  times  the  wealth  of  a 
person  in  the  middle  of  the  wealth  distribution. 
Like  wealth  as  a  whole,  financial  and  real  assets 
were distributed unevenly. 

Inequality  of  opportunity  also  remains  a 
concern.  While  overall  the  risk  of  poverty  has 
begun  to  decline  modestly  (see  Section  4.3  on 
social  policy),  the  poverty  risk  faced  by  the 
children  of  low-skilled  parents  has  continued  to 
rise  reaching  64.7 %  in  2016.  PISA  results  also 
showed  a  strong  link  between  socioeconomic 
educational  performance,  partly 
status 
explaining  the  underperformance  of  children  with 
a migrant background. (see Section 4.3). 

and 

Inflation  

Inflation is expected to remain moderate. HICP 
picked  up  from  0.4 %  in  2016  to  an  average  of 
1.7 %  in  2017  on  the  back  of  rebounding  energy 
prices  and  related  second  round  effects  (see 
Graph 1.2).  Core  inflation  (excluding  energy  and 
unprocessed  food)  has  increased  from  just  above 
1 %  over  2015-16,  to  1.5 %  in  2017  and  is 
expected to rise to 1.7 % over this year and next, in 
the  context  of  strong  demand  and  higher  wage 
growth.  Overall  headline  inflation  dynamics  are 

(2)  The  high  wealth  Gini  is  partly  explained  by  the  fact  that 
pension  entitlements  are  not  included.  Germany’s  rather 
well-developed  pension  system  reduces 
to 
the  need 
accumulate private wealth (see Frick and Grabka, 2010). 

5 

 
                                                           
1. Economic situation and outlook 

projected to be in line with the euro area’s and to 
oscillate around 1.6 %. Dampened by the expected 
stable energy prices, this moderate inflation should 
support household purchasing power. 

Graph 1.2:  Contributions to headline inflation 

Graph 1.3: 

Sectoral net lending 

Source: European Commission 

Sectoral balances 

The  widening  of  domestic  saving-investment 
balance,  reflected  in  the  increasing  current 
account  surplus,  may  have  reached  a  turning 
point in 2016. Private borrowing increased further 
in 2016 slightly above GDP growth and the rate of 
net  asset  accumulation  by  the  private  sector 
stabilised. Nominal corporate investment increased 
in  2016,  with  a  further  significant  rise  in  2017, 
while corporate savings are set to fall slightly as a 
share  of  GDP.  As  a  result,  corporations,  whose 
indebtedness is among the lowest in the euro area, 
contributed  to  the  slight  reduction  in  the  savings 
surplus.  The  household  savings  rate  increased  to 
17.1 % in 2016, propped up by low consumer price 
inflation, but is forecast to have declined to 16.6 % 
in 2017, as consumer demand remained robust and 
inflation rose. Still, the household savings rate will 
likely  remain  the  highest  in  the  euro  area  (which 
averages  12.3 %).  After  rebounding  in  2016, 
household  investment  is  expected  to  have  grown 
strongly in 2017, lowering the net lending balance 
further. A further fall in public sector indebtedness 
is 
favourable 
macroeconomic  outlook  (see  ‘Public  finances’ 
below). 

expected, 

thanks 

the 

to 

Source: European Commission 

However,  the  consumption  share  of  GDP 
remains  relatively  low,  as  the  high  household 
saving rate is being sustained. The GDP share of 
labour  income  has  increased  since  2011,  but  so 
have  the  shares  of  income  tax  and  social  security 
deductions. The share of property income has been 
falling  as  a  result  of  less  generous  dividend  pay-
outs  by  corporations  and  lower  interest  income. 
The  saving  rate  has  nevertheless  remained  stable, 
while  consumption  has  declined  in  parallel  with 
household  disposable  income  as  a  proportion  of 
GDP.  Nonetheless,  real  consumption  has  actually 
increased  as  purchasing  power  has  been  boosted 
by  low  inflation.  Even  so,  the  consumption  share 
of  GDP  (53 %  in  2016  and  2017)  has  remained 
low from an historical perspective. 

Graph 1.4:  Determinants of household disposable income 

Note: Cumulated change in pps of GDP since 2000 
Source: European Commission 

6 

-1.5-1.0-0.50.00.51.01.52.02.53.010Q111Q112Q113Q114Q115Q116Q117Q1y-o-y % changeServicesProcessed food incl.alcohol, tobaccoUnprocessed foodNon-energy industrial goodsEnergyHICP all items-8-6-4-20246810120001020304050607080910111213141516171819% of GDPHouseholdsGeneral governmentFinancial corporationsNon-financial corporationsSurplus savings/current account balanceForecast-6-5-4-3-2-1012301020304050607080910111213141516% of GDPWages and salariesNet property incomeTaxes and soc. contributionsDisp. incomeConsumption 
 
 
 
 
External position 

The  current  account  surplus  has  edged  down 
from a historically high level and is expected to 
decline  slowly  in  the  coming  years.  In  2016,  it 
fell  to  8.2 %  of  GDP,  from  a  peak  of  8.5 %  in 
2015, while it stood at 7.8 % for the year ending in 
November  2017.  The  trade  surplus  stayed  largely 
stable  at  8.5 %  in  2016,  but  fell  to  8.2 %  for  the 
year ending in November 2017. Between 2013 and 
2016  cheaper  energy  and  other  commodity  prices 
drove the widening of the trade balance by 2 pps. 
of GDP, but since then terms-of-trade effects have 
gone  into  reverse.  The  trade  balance  is  also 
contracting  in  real  terms.  The  export  outlook  is 
expected  to  be  favourable  and  to  fuel  German 
exports. At the same time, strong domestic demand 
is  expected  to  keep  import  growth  above  export 
growth  and  to  further  ease  of  the  current  account 
surplus  ratio.  Nevertheless,  the  current  account  is 
expected to remain above the MIP threshold of 6% 
of GDP for a number of years. 

Graph 1.5:  Current account and component balances 

1. Economic situation and outlook 

Graph 1.6: 

Balance of goods by broad economic 
category 

Note: four quarter moving average 
Source: European Commission 

The  trends  behind  the  widening  trade  balance 
may have started reversing. The balance of trade 
in intermediate goods widened by 2 pps. of GDP in 
the  course  of  2012-2016,  largely  in  parallel  with 
the  widening  of  the  overall  trade  balance.  Since 
mid-2016,  imports  of  intermediate  goods  have 
become relatively more important, and the balance 
has been coming down. In addition, net exports of 
passenger  cars  peaked  in  2015  and  have  been 
declining  since,  as  more  foreign  cars  are  making 
their way onto the German market. 

Graph 1.7:  Current account balance and components of 

the financial account 

Note: four quarter moving average 
Source: Deutsche Bundesbank, European Commission 

The current account surplus with respect to the 
rest of the euro area stabilised at 2.4 % of GDP 
in 2016-17. Recovery in the euro area goes hand-
in-hand  with  stronger  German  exports  and  a 
growing export ratio with respect to the region. At 
the  same  time,  the  ratio  of  euro  area  imports  to 
Germany  remains  robust,  although  imports  from 
other regions are growing at a faster rate. 

Note: twelve month moving average 
Source: Deutsche Bundesbank 

7 

-5-3-11357911050607080910111213141516171819% of GDPGoods, EAGoods, non-EAPrim. income, EAPrim. income, non-EAServices, EAServices, non-EASec. income, EASec. income, non-EACurrent accountForecast-2-10123456789091011121314151617% of GDPCapital goodsConsumer goodsPass. cars and motor fuelsIntermediate goodsTOTAL-15-10-50510152000051015% of GDPFDIPortf. Inv. AssetsPortf. Inv. Liab.DerivativesOth. InvestmentReservesCA 
 
 
 
 
1. Economic situation and outlook 

Graph 1.8: 

Factors explaining the current account surplus 

Source: European Commission 

Public finances 

to 

included 

it  already 

The  general  government  budget  balance 
continues 
improve,  while  public  debt 
continues  to  fall.  In  2016,  the  headline  surplus 
reached 0.8 % of GDP, higher than in 2015, rising 
further to a record high of 1.2 % of GDP in 2017. 
The  surplus  would  have  been  even  higher  (by 
around  0.2 %),  as 
the 
repayment  in  2017  of  a  nuclear  fuel  tax  ruled 
invalid by the German Constitutional Court. From 
its recent peak in 2010, with a government deficit 
at  4.2 %  of  GDP,  Germany  has  consistently 
improved its government balance, turning it into a 
this 
surplus 
improvement  possible  was 
that 
government  revenue  rose  from  43.0 %  of  GDP  to 
45.0 % between 2010 and 2016. At the same time, 
public  spending  fell  from  47.3 %  of  GDP  to 
44.2 %.  Since  2015,  all  levels  of  government 
(federal,  state,  municipalities  and  social  security) 
have  been  making  a  positive  contribution  to  the 
budget  surplus.  The  positive  government  balance 
is also reflected in falling government debt, which 
reached  70.9 %  in  2015,  falling  further  to  68.1 % 
in  2016.  According  to  the  Commission’s  2017 
autumn forecast, the debt ratio can be expected to 
fall  below  the  60 %  Maastricht  threshold  in  the 
next few years, possibly by 2019. 

from  2014  on.  What  made 
fact 

the 

in 

in 

in  particular 

In  addition,  there  has  been  a  shift  in  a 
composition  of  the  financial  account.  Portfolio 
investments, 
foreign  debt 
instruments,  which  typically  are  of  a  relatively 
short-term  and  speculative  nature,  have  been  the 
main foreign investment outlet, accounting for the 
bulk  of  net  capital  exports.  Following  the  2009 
investment 
financial  crisis,  German  portfolio 
abroad  tended  to  significantly  exceed  portfolio 
investment 
the  country  by  non-residents. 
However,  since  mid-2015  German  residents  have 
been  scaling  down  portfolio 
In 
parallel,  a  wave  of  repatriation  of  German 
securities  has  set  in,  from  investors  for  whom  the 
safe haven motive for holding German government 
bonds no longer counterbalances their low returns. 
Thus,  a  significant  part  of  the  current  account 
surplus  in  recent  years  reflects  disinvestment  by 
non-residents,  rather  than  German  capital  exports 
as  it  was  the  case  in  the  past  (Graph  1.7).  This 
disinvestment  by  non-residents  has  also  been 
related  to  the  increased  purchases  of  German 
government  bonds  by  the  Bundesbank  in  the 
context  of  ECB's  Public  Sector  Purchase 
Programme and has coincided with an increase of 
Germany’s Target 2 surplus. 

investment. 

the  current  account 

Nonetheless, 
surplus 
remains considerably above what fundamentals 
suggest.  According  to  the  Commission  current 
account  'norm'  calculations,  fundamental  savings-
investment  determinants  currently  suggest  a 
surplus of +2.5 pp, which is mostly due to ageing, 
but  also  due  to  the  manufacturing  intensity  of 
German exports. (3) Yet most of the surplus and its 
dynamics is explained by non-fundamental factors. 
Private-sector  deleveraging  since  2000  explains  a 
large  part  of  the  surplus,  along  with  the  fiscal 
stance,  and  an 
international 
investment position (NIIP) giving rise to a sizeable 
positive  income  balance.  Overall,  the  sustained 
current  account  surpluses  have  led  to  a  NIIP 
somewhat above what fundamentals suggest. 

increasing  net 

(3)  The  current  account  'norm'  benchmark  is  derived  from 
regressions  capturing  the  main  fundamental  determinants 
of  the  saving-investment  balance  (e.g.  demographics, 
resources),  as  well  as  policy  factors  and  global  financial 
conditions. See also European Commission, 2017a. 

8 

-5-3-113579990103050709111315% of GDPResidualCycleCredit/constructionStruct. fiscal bal.Other policy factorsGlobal fin. markets / NIIPDemographicsOther fundamentalsCurrent account 
                                                           
 
1. Economic situation and outlook 

Graph 1.9:  General government budget balance and 

Graph 1.10:  Tax wedge - 2016 

gross debt 

Note: SSC = social security contributions 
Source: OECD 

Source: European Commission 

The  tax  wedge (4)  remains  substantial  and  has 
been  a  major  source  of  increasing  government 
revenue  over the  last  few years.  The  increase in 
government  revenue  by  around  2.0 %  of  GDP 
between 2010 (43.0 %) and 2016 (45.0 %) is based 
mainly on income taxes, which contribute 1.3 % to 
the  rise.  According  to  2016  data,  Germany’s  tax 
wedge  is  one  of  the  EU’s  largest  at  49.4 % 
(average  of  22  comparable  European  OECD 
countries:  41.7 %)  for  a  single  earner  earning 
100 %  of  the  average  wage  without  children. 
Graph  1.10  shows  that,  as  in  other  countries, 
income tax accounts only for about one third of the 
tax wedge. It is rather social security contributions 
that account for the biggest share. However, unlike 
in most other European countries, that the German 
employers  pay  a  smaller  share  (16.2 %)  than 
employees  (17.3 %).  The  employees’  share  is  one 
of  the  largest  in  Europe  (the  average,  for  21 
comparable European OECD countries, is 10.1 %). 
(See also Section 4.1). 

(4)  The tax wedge on labour represents the difference between 
the  total  labour  cost  of  employing  a  worker  and  the 
worker’s net earnings. It is defined as personal income tax 
and  employer  and  employee  social  security  contributions 
(net of family benefits) as a percentage of total labour costs 
(the wage and employer social security contributions). 

9 

556065707580859095-5-4-3-2-101234510111213141516171819% of GDPBudget balance (lhs)Gross debt (rhs)forecast% of GDP0102030405060BEDEHUFRITATFICZSESILVSKPTELESEELUNLDKPLUKIE% of labour costsEmployee SSCEmployer SSCIncome taxDE employee SSC 
 
                                                           
 
 
1. Economic situation and outlook 

Table 1.1: 

Key economic and financial indicators – Germany 

(1) (1) NIIP excluding direct investment and portfolio equity shares. (2) Domestic banking groups and stand-alone banks, EU 
and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-controlled branches. 
Source: Eurostat and ECB as of 30 Jan 2018, where available; European Commission for forecast figures (Winter forecast 2018 
for real GDP and HICP, Autumn forecast 2017 otherwise) 

10 

2004-072008-122013-1420152016201720182019Real GDP (y-o-y)2.20.71.21.71.92.22.32.1Potential growth (y-o-y)1.30.91.41.71.91.91.91.9Private consumption (y-o-y)0.70.80.81.72.1...Public consumption (y-o-y)0.51.91.52.93.7...Gross fixed capital formation (y-o-y)3.10.51.21.53.1...Exports of goods and services (y-o-y)9.92.23.25.22.6...Imports of goods and services (y-o-y) 7.72.23.35.63.9...Contribution to GDP growth:Domestic demand (y-o-y)1.10.91.01.82.4...Inventories (y-o-y)0.0-0.30.1-0.3-0.2...Net exports (y-o-y)1.20.20.10.2-0.3...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.10.00.50.60.80.70.60.4Capital accumulation (y-o-y)0.30.30.20.30.30.40.40.5Total factor productivity (y-o-y)0.90.70.70.80.80.90.90.9Output gap-0.5-0.9-0.5-0.3-0.20.00.20.3Unemployment rate10.16.65.14.64.13.73.53.2GDP deflator (y-o-y)0.91.21.92.01.31.51.91.6Harmonised index of consumer prices (HICP, y-o-y)1.91.71.20.10.41.71.61.6Nominal compensation per employee (y-o-y)0.62.12.32.72.22.52.73.0Labour productivity (real, person employed, y-o-y)1.5-0.20.50.80.60.8..Unit labour costs (ULC, whole economy, y-o-y)-0.92.21.81.81.61.81.61.9Real unit labour costs (y-o-y)-1.81.0-0.1-0.20.20.2-0.20.2Real effective exchange rate (ULC, y-o-y)-2.0-0.42.9-2.61.32.32.40.1Real effective exchange rate (HICP, y-o-y)0.0-1.61.5-4.31.60.62.0.Savings rate of households (net saving as percentage of net disposable income)10.19.99.29.69.7...Private credit flow, consolidated (% of GDP)0.30.51.33.03.8...Private sector debt, consolidated (% of GDP)115.2106.7101.198.799.3...of which household debt, consolidated (% of GDP)65.658.754.753.353.1...of which non-financial corporate debt, consolidated (% of GDP)49.648.146.445.446.2...Gross non-performing debt (% of total debt instruments and total loans and advances) (2).2.12.12.01.8...Corporations, net lending (+) or net borrowing (-) (% of GDP)1.72.42.22.72.62.42.01.7Corporations, gross operating surplus (% of GDP)26.925.824.825.225.024.825.024.9Households, net lending (+) or net borrowing (-) (% of GDP)5.85.44.85.25.14.64.44.4Deflated house price index (y-o-y)-2.00.72.14.15.4...Residential investment (% of GDP)5.15.35.95.75.96.0..Current account balance (% of GDP), balance of payments5.46.07.18.58.27.87.57.2Trade balance (% of GDP), balance of payments5.55.46.58.07.9...Terms of trade of goods and services (y-o-y)-0.8-0.51.22.61.5-0.90.5-0.2Capital account balance (% of GDP)-0.10.00.00.00.0...Net international investment position (% of GDP)14.124.137.748.654.4...Net marketable external debt (% of GDP) (1)9.618.930.536.941.6...Gross marketable external debt (% of GDP) (1)125.3163.4157.4150.6147.9...Export performance vs. advanced countries (% change over 5 years)14.80.0-4.0-1.1-0.3...Export market share, goods and services (y-o-y)-0.3-3.52.00.03.3...Net FDI flows (% of GDP)1.71.21.61.80.7...General government balance (% of GDP)-2.2-1.70.10.60.80.91.01.1Structural budget balance (% of GDP)..0.50.80.90.90.91.0General government gross debt (% of GDP)65.575.476.070.968.164.761.157.9Tax-to-GDP ratio (%)38.739.039.639.840.440.640.540.6Tax rate for a single person earning the average wage (%)42.340.439.539.639.7...Tax rate for a single person earning 50% of the average wage (%)31.831.230.830.931.0...forecast 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

with 

implementing 

Progress 
the 
recommendations  addressed  to  Germany  in 
2017 has to be seen in a longer term perspective 
since the introduction of the European Semester 
process  in  2011. (5)  Looking  at  the  multi-annual 
assessment  of  the  implementation  of  the  CSRs 
since  these  were  first  adopted,  38 %  of  all  the 
CSRs addressed to Germany have recorded at least 
'some  progress'.  62 %  of  CSRs  recorded  'limited' 
or 'no progress' (see Graph 2.1). Overall, for every 
Semester  cycle,  multi-annual  implementation  in 
Germany has remained relatively weak, remaining 
below  the  average  of  the  progress  made  by  other 
Member  States.  Moreover,  the  gap  in  reform 
implementation  between  Germany  and  other 
countries  has  widened  over  time,  despite  the  fact 
that  since  2014  Germany  has  been  subject  to  in-
depth  monitoring  under 
the  Macroeconomic 
Imbalances Procedure (MIP). 

Graph 2.1:  Overall multiannual implementation of 2011-

2017 CSRs to date 

* The overall assessment of the country-specific 
recommendations related to fiscal policy exclude 
compliance with the Stability and Growth Pact. 
** 2011-2012: Different CSR assessment categories.  
***The multiannual CSR assessment looks at the 
implementation since the CSRs were first adopted until the 
February 2018 Country report. 
Source: European Commission 

A sound fiscal position masks missed fiscal and 
structural  reform  opportunities.  Germany  has 
managed  to  preserve  a  sound  fiscal  position  since 
2011,  ensuring  compliance  with  its  medium-term 
budgetary  objective  and  keeping  debt  on  a 
downward  path.  It  has  also  taken  some  first  steps 
to  improve  fiscal  governance,  which  involves 
matching fiscal capacity and responsibilities better 
at  federal  and  Länder  level.  Reforming  efforts  to 
make the tax system more efficient and modernise 
the  tax  administration  have  however  remained 

(5)  For  the  assessment  of  other  reforms  implemented  in  the 
past, see in particular section 4.1, 4.2, 4.3, 4.5 and 4.6. 

to  comprehensively 

limited  in  scope,  and  no  measures  have  yet  been 
taken 
review  corporate 
taxation  and  the  local  trade  tax  (Gewerbesteuer). 
While the effects of some recent measures such as 
steps to increase funding and planning capacity at 
municipal 
later,  public 
investment  has  expanded  only  to  a  small  extent, 
despite the good financial situation. This may have 
meant  missing  out  on  possibilities  to  improve 
potential growth, especially given the low-interest-
rate environment. 

level  will  be  visible 

The good labour market outcomes result mainly 
from earlier reforms and institutional strengths, 
rather  than  recent  measures.  High  employment 
growth  and  low  unemployment  reflect  the  strong 
cyclical  upturn  combined  with  the  favourable 
impact of past labour market reforms, employment 
friendly  social  dialogue,  and  a  competitive  export 
industry.  Between  2011  and  2016,  the  tax  wedge 
for workers earning two-thirds of the average wage 
was  cut  by  only  0.3 pps.,  to  45.3 %.  During  the 
same period, the EU-28 average fell by 0.9 pps. to 
36.8 %. While the 2014 pension reform facilitated 
earlier  retirement,  it  is  not  yet  clear  whether 
measures  to  incentivise  later  retirement  through 
greater flexibility will have the intended effect. In 
addition,  fiscal  disincentives  for  second  earners 
largely 
and  people  with  mini-jobs  remained 
unchanged.  Policy  inertia  contributes  to  some 
lock-in  of  productive  capacity,  thus  hindering 
further  increases  in  productivity  and  potential 
growth.  Even  if  the  introduction  of  the  statutory 
general  minimum  wage  in  2015  had  an  impact, 
wage  increases  remained  moderate.  This  also 
reflected  that,  despite  some  government  efforts  to 
coverage  of 
improve  bargaining 
collective agreements stagnated. 

coverage, 

Education  spending  has  remained  subdued. 
Education  spending  remained  well  below  the  EU 
average  as  a  share  of  GDP  (2011  4.3 %,  2015: 
4.2 %,  against  an  EU  average  of  4.9 %).  While 
availability of full-time childcare facilities and all-
day  schools  improved,  the  attendance  of  children 
under  3  years  of  age  remained  slightly  below  the 
Barcelona  objectives.  It  even  fell  by  0.2 pps.  to 
32.7 % in 2016 as demand expanded as a result of 
the 
immigration.  Despite 
education 
by 
socioeconomic inequalities, and across the Länder 
significant performance differences persist. 

some  measures, 
remains  marked 

system 

11 

3%59%22%8%8%No ProgressLimited ProgressSome ProgressSubstantial ProgressFull Implementation 
 
 
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Summary table on 2017 CSR assessment 

(1) This overall assessment of CSR1 does not include an assessment of compliance with the Stability and Growth Pact. 
Source:  European Commission 

the 

service 
restrictions 

To  date,  there  is  no  comprehensive  strategy  to 
modernise  the  regulated  professions  and  to 
sector. 
in 
boost  competition 
Extensive 
and 
regulatory 
administrative formalities apply to firms providing 
services  in  Germany,  especially  where  business 
services  are  concerned.  Germany  submitted  an 
action  plan  to  the  European  Commission  in 
January 2016, including a range of measures, such 
as  modifying 
legal  provisions  governing 
certain  specific  professions:  lawyers  and  patent 
attorneys,  tax  advisers,  and  auditors.  Yet,  it  has 
only  partially  adopted  or 
the 
measures described. Overall, progress is limited. 

implemented 

the 

to 

Overall, Germany has made limited progress in 
responding 
country-specific 
the  2017 
recommendations  (CSRs) (6).  Limited  progress 
has  been  made  towards  achieving  sustainable 
growth in public investment, a CSR closely related 
about 
to 

recommendation 

euro 

area 

the 

(6)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
CSR is presented in the Overview Table in the Annex. This 
overall  assessment  does  not  include  an  assessment  of 
compliance with the Stability and Growth Pact. 

strengthening  domestic  demand  and  growth 
potential.  This  is  done  by  stepping  up  investment 
in infrastructure and boosting the funding available 
under  the  Municipal  Investment  Promotion  Fund 
for modernising school buildings, including digital 
infrastructure.  At  the  same  time,  there  has  been 
stepping  up  public 
limited  progress  with 
expenditure on education, research and innovation 
which  even  if  increasing  in  absolute  terms,  has 
remained  largely  stagnant  as  a  share  of  GDP. 
Some  progress  has  been  made  with  tackling 
capacity and planning constraints on investment in 
infrastructure.  No  progress  has  been  made  with 
tax  system  more  efficient  and 
making 
investment-friendly.  Progress  was 
in 
promoting competition in the business services and 
regulated  professions.  Progress  was  limited  on 
issues 
area 
recommendation  on  labour  market,  including  on 
reducing disincentives to work for second earners, 
facilitating  transition  to  standard  employment  and 
reducing  the  tax  wedge  for  low-wage  earners. 
Similarly,  limited  progress  has  been  made  with 
creating conditions for higher real wage growth. 

limited 

related 

euro 

also 

the 

the 

to 

12 

  Germany Overall assessment of progress with 2017 CSRs:  Limited CSR1: While respecting the medium-term objective, use fiscal and structural policies to support potential growth and domestic demand as well as to achieve a sustained upward trend in investment. Accelerate public investment at all levels of government, especially in education, research and innovation, and address capacity and planning constraints for infrastructure investments. Further improve the efficiency and investment-friendliness of the tax system. Stimulate competition in business services and regulated professions.  Limited progress (1)  Limited progress in using fiscal and structural policies to support potential growth and domestic demand as well as to achieve a sustained upward trend in investment.  Limited progress in accelerating public investment at all levels of government and in particular in raising public expenditure on education, research and innovation.  Some progress in addressing capacity and planning constraints for infrastructure investment.   No progress in improving the efficiency and investment friendliness of the tax system.  Limited progress in stimulating competition in business services and regulated professions. CSR2: Reduce disincentives to work for second earners and facilitate transitions to standard employment. Reduce the high tax wedge for low-wage earners. Create conditions to promote higher real wage growth, respecting the role of the social partners. Limited progress  Limited progress in reducing disincentives to work for second earners.  Limited progress in facilitating transitions to standard employment.  Limited progress in reducing the high tax wedge for low-wage earners.  Limited progress in creating conditions to promote higher real wage growth, respecting the role of the social partners.    
                                                           
 
 
 
2. Progress with country-specific recommendations 

Box 2.1: Tangible results delivered through EU support to structural change in Germany 

Germany  is  a  beneficiary  of  significant  European  Structural  and  Investment  Funds  (ESI  Funds) 
support  and  can  receive  up  to  EUR  28  billion  until  2020.  This  represents  around  4%  of  public 
investment (1) annually over the period 2014-2018. By 31 December 2017, an estimated EUR 14.9 billion 
(53  %  of  the  total)  was  allocated  to  projects  on  the  ground.  These  investments  help  creating  1  500  new 
research  jobs  in  supported  public  and  private  research  facilities.  Another  8  100  researchers  benefit  from 
investments  in  their  institutions.  More  than  100  interactive  innovation  partnerships  have  been  launched 
boosting  the  innovation  culture  in  the  agricultural  and  forestry  sector  in  Germany.  1  600  children  enjoy 
improved  childcare  facilities  or  schools  in  North  Rhine-Westphalia.  In  rural  areas,  more  than  20  million 
rural inhabitants benefit from supported investment in basic services and infrastructures. 

implement  country-specific 
structural  policy  challenges  and 
ESI  Funds  help  address 
recommendations.  Investments  in  research  and  development  in  the  private  sector  are  stimulated,  among 
others,  by  the  enhanced  use  of  financial  instruments  such  as  loans,  grants  or  guarantees  for  public 
interventions. The Funds invest in coaching for people with a distance to the labour market which in turn 
helps  enhance  the  overall  labour  market  participation  with  specific  measures  aimed  at  improving  the  job 
prospects of older workers. 

Various reforms were undertaken already as precondition for ESI Funds support (2). For example, all 
German  regions  developed  or  updated  Smart  Specialisation  Strategies  for  research  and  innovation. 
Remarkable in a European context is the strong focus of the strategies on the productive environment and 
materials, reflecting the structure of the German economy. 

Germany  is  advancing  the  take  up  of  the  European  Fund  for  Strategic  Investments  (EFSI).  As  of 
December  2017,  overall  financing  volume  of  operations  approved  under  the  EFSI  amounted  to  EUR  5 
billion,  which  is  expected  to  trigger  total  private  and  public  investment  of  EUR  21.9  billion.  More 
specifically,  53  projects  involving  Germany  have  been  approved  so  far  under  the  Infrastructure  and 
Innovation Window (including 26 multi-country projects), amounting to EUR 4.4 billion in EIB financing 
under the EFSI. This is expected to trigger about EUR 17 billion in investments. Under the SME Window, 
21  agreements  with  financial  intermediaries  have  been  approved  so  far.  European  Investment  Fund 
financing enabled by the EFSI amounts to EUR 632 million, which is expected to mobilise approximatively 
EUR  4.9  billion  in  total  investment.  Over  28  800  smaller  companies  or  start-ups  will  benefit  from  this 
support.  RDI  ranks  first  in  terms  of  operations  and  volume  approved,  followed  by  energy,  transport  and 
SMEs. 

Funding under Horizon 2020, the Connecting Europe Facility and other directly managed EU funds is 
additional to the ESI Funds. By the end of 2017, Germany has signed agreements for EUR 2.1 billion for 
projects under the Connecting Europe Facility. 

https://cohesiondata.ec.europa.eu/countries/DE 

(1)  Public investment is defined as gross fixed capital formation + investment grants + national expenditure on agriculture 

and fisheries. 

(2)  Before  programmes  are  adopted,  Member  States  are  required  to  comply  with  a  number  of  so-called  ex-ante 

conditionalities, which aim at improving conditions for the majority of public investments areas. 

also  through  the  use  of  financial  instruments  (see 
Box 2.1). 

they 

European  Structural  and  Investment  Funds 
help address challenges to inclusive growth and 
convergence.  Notably, 
contribute  by 
coaching  people  so  that  they  can  re-enter  the 
labour  market  thereby  enhancing  overall  labour 
market  participation.  For  example,  they  offer 
specific  measures  for  older  workers  in  order  to 
improve  their  job  prospects.  Investments  in  R&D 
in the private and the public sector are stimulated, 

13 

 
 
3.  SUMMARY OF THE MAIN FINDINGS FROM THE 

MACROECONOMIC IMBALANCES PROCEDURE IN-DEPTH 
REVIEW 

The in-depth review for the German economy is 
presented 
in  this  report.  In  spring  2017, 
Germany was identified as having macroeconomic 
imbalances,  in  particular  relating  to  its  large 
current  account  surplus  reflecting  excess  savings 
investment.  The  2018  Alert 
and 
subdued 
Mechanism  Report 
(European  Commission, 
2017d)  concluded  that  a  new  in-depth  review 
should  be  undertaken  for  Germany  to  assess 
developments  relating  to  identified  imbalances. 
Analyses  relevant  for  the  in-depth  review  can  be 
found in the following sections: public finances in 
section 4.1; the financial sector in section 4.2; the 
labour  market  and  social  policy,  in  the  respective 
subsections  of 
inequality  and 
section  4.3; 
demographics  in  section  4.4,  public  and  private 
the  housing  market  and  public 
investment, 
procurement  in  the  respective  subsections  of 
section 4.5. (7). 

Imbalances and their gravity  

Germany's large and persistent current account 
surplus  stems  from  the  successful  export 
performance  of  its  manufacturing  sector  not 
being  matched  by  corresponding  domestic 
investment and consumption, despite a pick-up 
since  2015.  Although  a  surplus  on  the  current 
account  is  consistent  with  the  German  economy's 
structural characteristics, its current high level and 
persistence  are  not  attributable  to  fundamental 
factors  alone  (see  section  1  on  current  account 
'norm' discussion). Rather, it has resulted from the 
interaction  of  various  domestic  and  external 
factors.  Chief  among  these  are  the  two  negative 
private investment shocks, which ensued from the 
bursting  of  the  dotcom  and  financial  market 
bubbles,  and  the  relative  disadvantage  of  German 
debt securities in terms of returns coupled with the 
limited 
investment 
strategies.  Also,  it  cannot  be  ruled  out  that 
concerns  about  pension  adequacy  push  up  the 
aggregate  saving  rate  that  would  be  expected  in 
view  of  the  strong  age  cohorts  approaching 
retirement  age 
(‘baby  boomers’).  Moreover, 
significant positive terms-of-trade effects - in view 

flexibility  of  households' 

of cheaper imports and despite the depreciation of 
the euro and low inflation - have served to amplify 
the  surplus  in  nominal  terms  in  2014-2016.  Over 
time,  these  various  factors  have  pushed  up  net 
savings across all sectors of the economy, while at 
the  same  time  depressing  the  consumption  and 
investment ratios.  

implementing  policies 

Given  its  size  and  strong  trade  and  financial 
linkages  with  the  rest  of  the  euro  area,  the 
existing  economic  challenges  of  the  German 
economy  also  have  wider  implications  for  the 
that 
euro  area.  Thus, 
increase  potential  growth  in  Germany  can  help  to 
support  the  ongoing  euro  area  recovery  and,  in 
turn,  ease  debt  reduction  needs  faced  by  highly 
indebted  Member  States.  Box  3.1  illustrates  the 
effects  on  domestic  and  foreign  GDP  of  an 
increase  in  spending  on  R&D  and  education.  The 
two simulations presented therein follow the spirit 
of the euro area recommendation 1(8), in particular 
improving  growth  potential  and 
as 
supporting the creation of quality jobs. 

regards 

Evolution, prospects, and policy responses 

The  current  account  surplus  has  been  falling 
since 2015 but remains above the rate suggested 
by  fundamental  factors  and  is  expected  to 
remain  above  the  MIP  threshold.  For  the  12 
months  ending  in  November  2017,  it  stood  at 
7.8 %  of  GDP,  suggesting  a  further  decline 
compared to 2015 (8.5 %) and 2016 (8.2 %). This 
correction was mainly driven by the trade balance, 
which declined to 8.2 % for the 12 months ending 
November after hovering at around 8.5 % in 2015 
and 2016. In particular, imports have strengthened 
in line with domestic demand benefitting all major 
trading  partner  areas,  including  the  euro  area.  In 
addition, contributing to a gradual correction of the 
current  account  surplus,  the  negative  secondary 
income balance has widened (from -1.3 % of GDP 
in  2016  to  -1.6 %  for  the  12  months  ending  in 
November  2017)  as  a  result  of  higher  private 
sector 
transfers  (notably  remittances)  abroad. 
However,  net  capital  exports  have  remained  high 

(7)  An  asterisk  indicates  that  the  analysis  in  the  section 

contributes to the in-depth review under the MIP. 

(8)  European  Commission  recommendation  for  a  Council 
recommendation  on  the  economic  policy  of  the  euro  area 
(22.11.2017). 

14 

 
 
                                                           
                                                           
3. Summary of the main findings from the MIP in-depth review 

(reinforcing  foreign  production  locations)  picked 
up.  This  suggests  it  may  be  useful  to  review 
potential obstacles other than uncertainty to private 
investment. They include: inefficiency in corporate 
taxation;  the  high  administrative  burden;  the  less 
developed  venture  capital  market  compared  to 
international 
regulatory 
restrictiveness in the services sector; and delays in 
implementation  of  electricity  and  broadband 
infrastructure projects. 

innovation 

leaders; 

Public  investment,  which  has  been  muted,  has 
fallen  short  of  depreciation.  As  mentioned  in 
Section 4.5, net public investment turned negative 
in  2003.  This  outcome  reflects  a  gradual  scaling 
back  of  investment  in  maintaining  and  expanding 
public  infrastructure.  The  design  of  federal  fiscal 
relations  may  also  have  contributed  to  protracted 
underinvestment,  especially  at  municipal  level, 
where net  investment  has been  markedly  negative 
since 2003. It is also partly a reaction to the post-
unification  investment  boom  in  eastern  Germany 
and  the  consolidation  needs  in  western  Germany, 
notably  at  municipal  level.  An  additional  annual 
public  investment  of  0.3 %  of  GDP  over  the  next 
decade  would  be  needed  to  close  the  investment 
backlog  at  the  municipal  level.  The  latter  is 
estimated at EUR 126 bn in 2017, according to the 
public 
conducted 
yearly 
development bank KfW (2017a).  

survey 

the 

by 

Years  of  restrained  growth  in  consumption 
have  also  dampened  domestic  demand  and 
contributed  to  the  building  up  of  the  external 
surplus.  High  unemployment,  a  long  period  of 
wage moderation and a fall in the total number of 
hours worked in the first half of the 2000s resulted 
in  low  growth  in  disposable  incomes,  even  if 
consumer  price 
inflation  was  supportive  of 
purchasing  power.  Wage  growth  picked  up  from 
2014,  but  not  to  the  extent  the  tightening  labour 
market situation and unit labour costs in relation to 
the  euro  area  average  would  suggest.  Since  2014, 
nominal  wage  growth  remained  roughly  stable 
even as inflation picked up in 2017, resulting in the 
slowing  down  of  real  wage  growth.  Disincentives 
to work for certain groups are constraining labour 
participation,  disposable  income  and  consumption 
opportunities. These  include a  high  tax wedge for 
low-wage earners, disincentives for second earners 
to increase working hours and the fiscal treatment 
of mini-jobs that creates lock-in effects. 

although their composition has changed.  In recent 
quarters,  they  have  been  driven  by  recalling 
German  bonds  rather  than  by  acquiring  foreign 
debt securities. The former has also coincided with 
a  mounting  TARGET  2  balance.  Outward  foreign 
direct  investment  abroad  saw  some  recovery  in 
comparison  to  2016.  All  in  all,  accumulated 
current  account  surpluses  have  resulted  in  a  large 
positive  net 
investment  position, 
which  reached  55.1%  in  2016,  somewhat  above 
what fundamental factors would suggest. 

international 

The  private  saving-investment  balance  did  not 
widen  further  in  2016.  Private  borrowing  rose 
further in 2016 slightly above GDP growth, while 
the  rate  of  net  asset  accumulation  by  the  private 
sector  stabilised.  Nominal  corporate  investment 
increased  in  2016  and  further  in  2017,  while 
corporate  savings  are  projected  to  have  fallen 
slightly as a proportion of GDP. This implies that 
companies, which are among the least indebted in 
the euro area, have helped bring down the savings 
surplus. The household savings rate rose to 17.1 % 
in  2016,  propped  up  by  low  consumer  price 
inflation, but is projected to have fallen to 16.6 % 
in  2017,  in  line  with  robust  consumer  and  rising 
inflation.  However,  the  household  savings  rate  is 
likely to remain the highest in the euro area (whose 
the  household 
average 
investment growth rebounded and households’ net 
lending position  weakened  marginally.  Household 
investment  is  expected  to  have  grown  strongly  in 
2017, lowering the net lending balance further. 

is  12.3 %).  In  2016, 

low 

Until  recently,  corporate  investment  has  been 
interest  rate 
held  back,  despite 
the 
environment.  While  private 
investment  has 
recovered to pre-crisis levels, business investment 
has  remained  largely  flat  as  a  share  of  GDP. 
Moreover,  in  view  of  the  favourable  financing 
conditions  and  low  interest  rate  environment,  a 
more  forceful  pick-up  could  have  been  expected. 
Uncertainty  over  long-term  business  prospects  is 
often  mentioned  as  a  probable  contributory  factor 
in domestic investment restraint in recent years. In 
non-residential 
components, 
terms 
construction  (e.g.  infrastructure)  investment  has 
stagnated  after  years  of  decline  before  the  crisis. 
By contrast, investment in residential construction 
has recently seen strong growth, partly reflecting a 
sizable  accumulated  housing  supply  shortage. 
While  private  infrastructure  investment  continued 
to  stagnate  in  2017,  foreign  direct  investment 

its 

of 

15 

 
3. Summary of the main findings from the MIP in-depth review 

the  NIIP 

the  German  economy  and  society.  Hence,  it  is 
significantly  higher  than  empirical  benchmarks, 
taking  into  account  these  factors  in  explaining 
cross-country  differences,  and  much  above  the 
level that would be required to stabilise the already 
high  net  international  investment  position  (i.e. 
benchmark) (9).  Subdued 
above 
investment  and  private  consumption,  resulting  in 
an  excess  of  saving  over  investment,  have  also 
contributed to the build-up of the external surplus. 
This  can  be  partly  explained  by  necessary 
adjustments in the aftermath of the post-unification 
including  prolonged  wage  moderation, 
boom, 
labour market reforms and significant scaling back 
of construction activity. While there is currently a 
clear  and  robust  shift  towards  more  domestic 
demand-driven  growth,  both  consumption  and 
investment  remain  relatively 
the 
favourable  cyclical, 
labour  market,  financing 
conditions and infrastructure investment needs. 

low,  given 

Continued  relatively  subdued  investment  as  a 
share  of  GDP  also  undermines  Germany’s 
future  growth  potential,  and  has  implications 
for the euro area. While private consumption has 
picked  up,  private 
investment  has  remained 
restrained, despite favourable financing conditions. 
Public  investment  has  picked  up,  though  budget 
projections  indicate  scope  under  EU  and  national 
fiscal  rules  for  further  increases.  Persistently  low 
investment  could  hamper  Germany’s  economic 
growth 
term.  Stronger  capital 
accumulation would be needed to sustain potential 
growth  in  the  future,  especially  if  population 
ageing  intensifies  and  immigration  slows  down. 
Given  Germany's  size  and  strong 
trade  and 
financial  linkages  with  the  rest  of  the  euro  area, 
expanding investment could also ease deleveraging 
needs faced by highly indebted Member States. 

long 

the 

in 

Overall,  the  policy  response  to  address  the 
imbalances  has  so  far  remained  limited.  The 
federal  fiscal  reform  and  associated  measures  led 
to  a  moderate  improvement  of  fiscal  space  and 
investment  capacity  for  municipalities.  Efforts  to 
improve  the  business  environment  for  private 
investment have remained limited. The same holds 
for  efforts  to  reduce  the  high  tax  wedge  for  low 
earners and work disincentives for second earners. 

(9)  Work  on  the  methodology  for  estimating  current  account 
benchmark  is  ongoing  in  cooperation  with  the  Economic 
Policy Committee. 

The  adjustment  of  the  current  account  surplus 
is  expected  to  be  only  gradual  in  the  medium 
term.  Both  export  and  import  growth  is  expected 
to  remain  strong,  while  terms  of  trade  effects  are 
set to have an only limited impact. Stronger import 
growth  is  expected  to  be  driven  by  a  pick-up  in 
equipment  investment  and  demand  for  foreign 
the  value  chain  amidst  stable 
inputs  along 
domestic  and  foreign  demand  growth.  As  a  result 
of  stronger  growth  of  imports  as  compared  to 
exports,  Germany’s  trade  surplus  should  continue 
to  ease  leading  to  a gradual decline  in  the current 
account surplus. Over a longer period of time, the 
large-scale  demographic  shift  from  working  to 
retirement  age  is  expected  to  start  to  lower  the 
aggregate savings rate and thus the current account 
surplus. However, in the medium term, the current 
account  surplus  is  expected  to  remain  above  the 
MIP  threshold  and  to  decline  only  gradually. 
(European Commission, 2017b) 

The  policy  response  to  address  the  imbalances 
has remained limited so far. Although the federal 
fiscal  reform  and  the  relieving  of  municipalities 
from  certain  social  spending  obligations  will 
strengthen  the  fiscal  position  of  the  Länder  and 
municipalities, it remains to be seen to what extent 
this additional fiscal space will actually be used for 
additional public investment. The consultancy and 
the federal transport infrastructure company, set up 
in  the  context  of  the  reform  of  fiscal  relations  to 
support  the  local  governments  in  planning  and 
implementing investment projects, can be expected 
to  accelerate  public  investment.  Yet,  this  reform 
falls  short  of  increasing  the  tax  autonomy  of  the 
Länder  and  municipalities,  which  could  have 
further  increased  the  scope  for  public  investment. 
Efforts  to  improve  the  business  environment  for 
private  investment  have  remained  limited.  The 
same holds for efforts to reduce the high tax wedge 
for low earners and work disincentives for second 
earners,  with  a  view  to  supporting  labour  market 
participation, disposable income and consumption. 

Overall assessment  

The  German  economy  displays  a  persistently 
large  current  account  surplus,  which  reflects  a 
subdued  level  of  investment  relative  to  saving. 
The size and persistence of the surplus can only be 
partly  explained  by 
industrial 
structure 
competitive 
manufacturing  sector)  and  other  characteristics  of 

the  country's 
highly 

(e.g. 

the 

16 

 
                                                           
3. Summary of the main findings from the MIP in-depth review 

Box 3.1: Euro area spillovers 

Based on the European Commission’s QUEST model (1), this box compares the effect of an increase in 
expenditure  on R&D  and  education (2).  These  scenarios  specifically aim  at  improving  potential  growth, 
thereby  addressing  long-term  challenges  of  the  German  economy  and  complementing  earlier  simulations 
that aimed at a more immediate economic boost, including an increase in public investment and a reduction 
in personal income tax (European Commission, 2017c). 

Not surprisingly, the overall effects are relatively limited in the short-run. Based on model assumptions, 
education reforms lead to only very gradual changes in aggregate skill levels due to cohort effects, as it takes 
time  for  the  new,  better-skilled  cohorts  to  enter  to  the  labour  force (3).R&D  subsidies  may  be  even 
accompanied by a slight decline of GDP, as stronger R&D activity detracts high-skilled labour from other 
sectors of the economy. Fostering R&D should therefore ideally be combined with policies that increase the 
supply of high-skilled workers, e.g. investment in tertiary education, in order to dampen the competition for 
high-skilled labour. 

While the reforms already generate certain positive spillovers in the short run, their impact increases 
considerably over time. Both simulated reforms together positively contribute to GDP and employment in 
the rest of the euro area in the longer term. For an identical amount of fiscal spending, the long-term positive 
spillovers  are  particularly  high  for  the  R&D  expenditure,  while  also  being  significant  for  the  education 
measures. It is estimated that increasing R&D expenditure by 1 % of GDP will raise GDP in the rest of the 
euro  area  by  about  0.4 %  in  15  years  and  by  0.6%  in  20  years.  This  will  be  achieved  through  increased 
domestic  output  and  thanks  to  knowledge  spillovers,  resulting  from  the  international  dissemination  of 
innovations  that  foster  intangible  capital  formation  and  productivity  gains  abroad.  Increasing  education 
expenditure by 1 % of GDP across-the-board of education institutions is expected to increase the GDP of the 
rest  of  the  euro  area  by  0.15 %  after  20  years  through  the  trade  channel;  spillovers  in  the  form  of  cross-
border  knowledge  dissemination  are  absent  in  the  scenario  of  higher  domestic  spending  on  education. 
Spillovers  are  further  mitigated  by  the  fact  that  domestic  competitiveness  gains  (more  net  exports)  partly 
offset positive demand spillovers (more net imports) to the rest of the euro area. 

Table 1: 

Impact of the reform scenarios in Germany and in the rest of the euro area 

(1)  To illustrate the reading of the table: increasing expenditure on education by 1% of GDP (about EUR 30 bn) 
increases German GDP by 0.42% of GDP in the first year following the measure and by 2.86% in the twentieth year 
following the measure. 
Source: European Commission 

(1)  Detailed 

the 
http://ec.europa.eu/economy_finance/research/macroeconomic_models_en.htm. 

information 

QUEST 

model 

and 

on 

applications 

is 

available 

at: 

(2)   For illustration, the expenditure increase on R&D and education is assumed to be permanent and scaled to 1 % of GDP 
in  both  cases.  The  budgetary-closure  rule  is  deactivated  during  20  years,  so  that  the  scenarios  correspond  to  debt-
financed fiscal expansions. Monetary policy rates are assumed to remain unchanged, not responding to the increase in 
public investment during the first two years. 

(3)  The  simulation  scenario  assumes  that  the  additional  spending  increases  productivity  of  employees  at  all  skill-levels. 
Though the model cannot differentiate different types of education, one could assume that increased spending on adult 
education would be effective in the short to medium-term, while general education has rather long-term effects. 

17 

Years1234510152012345101520GDP-0.10-0.55-0.66-0.54-0.291.463.254.390.02-0.010.000.020.040.150.390.61Employment0.330.430.420.390.380.380.370.360.010.000.020.050.080.200.330.41Trade balance (% GDP)-0.09-0.12-0.06-0.010.020.060.070.070.120.170.170.160.150.140.060.04Government balance (% GDP)-0.55-0.55-0.61-0.64-0.63-0.39-0.070.20GDP0.420.450.560.700.841.542.302.860.010.010.020.020.030.060.110.15Employment0.160.150.110.090.070.00-0.13-0.260.010.020.020.030.030.070.110.13Trade balance (% GDP)-0.17-0.15-0.12-0.10-0.10-0.08-0.06-0.060.030.030.030.030.030.020.020.02Government balance (% GDP)-0.29-0.34-0.35-0.35-0.35-0.33-0.31-0.31GermanyRest of euro areaR&D subsidy (1 % GDP)Education subsidy (1 % GDP) 
 
 
 
 
 
Table 3.1: 

MIP assessment matrix – Germany 

Source: European Commission 

18 

 Gravity of the challenge Evolution and prospects Policy response Imbalances (unsustainable trends, vulnerabilities and associated risks) External balance Germany has a persistently large current account surplus, which came down marginally to 8.2 % of GDP in 2016 and recently decreased to 7.8% for the year ending in November 2017. Accumulated surpluses have resulted in a large positive net international investment position, which reached 55.1 % of GDP in 2016. The surplus reflects saving and deleveraging by all sectors of the economy: households, firms, and the public sector. High corporate savings and low investment have contributed most significantly to the widening of the savings surplus in recent years. Weak domestic investment poses risks to Germany’s potential growth in the future. In addition, as deleveraging pressures still weigh on EU growth, strengthening investment in Germany would benefit both Germany and its euro area and EU partners. The German surplus is projected to decline but to persist at more than 7 % of GDP in the medium term. Imports have been increasing, including relative to exports and GDP, over the recent quarters. Net capital exports have remained significant on account of repatriation of German bonds while investment in foreign debt securities slowed down. Real private consumption has strengthened, by 2.1 % in 2016 and 2017, and is expected to slow down only marginally. The low interest rates have not translated into significant changes in household consumption patterns, but rather reinforced the propensity to save. An extended period of dynamic wage growth would support private consumption, provided it also translates fully into disposable income. At its current level, investment contributes little to potential growth. Private sector investment has increased recently but as a share of GDP it remains sluggish at 17.9 % in 2016. Importantly, investment in infrastructure has barely reacted to supportive growth and funding conditions, casting doubt on the evolution of the economy's future productive capacity.  Public investment picked up in 2016 and 2017. However, there has been no reversal of the markedly negative net investment at municipal level. Public investment is set to grow at a stronger pace, once financial relief and planning support that has been granted to federal states and municipalities is starting to bear fruit. The policy response so far has remained limited. Important steps have been taken to increase public investment, but they have not yet resulted in a clear upward trend in the public investment-to-GDP ratio. Germany has used its available fiscal space only to a limited extent and has not taken full advantage of exceptionally favourable financing conditions to meet its investment needs and improve conditions for private investment  Relieving municipalities of social expenditure obligations will increase their scope for public investment. The additional revenue of 0.3 % of GDP allocated to the federal states as part of the agreed reform of federal fiscal relations could also facilitate public investment at all government levels. A consulting service for municipalities has been put in place and may alleviate administrative constraints on public infrastructure investment.  Limited efforts have been made in 2017 to stimulate competition in the services sector, improve the efficiency of the tax system, reduce the high tax wedge (especially for low wage earners), reducing disincentives for second earners, facilitating the transition to standard employment and creating conditions to promote higher real wage growth, respecting the role of the social partners. Conclusions from IDR analysis  Germany is running a persistently large current account surplus reflecting subdued investment relative to savings in both the private and public sector. Persistently weak domestic investment could constrain potential growth in the long term. This could entail macroeconomic risks and affect the rebalancing and growth prospects of the rest of the euro area, when deleveraging pressures in several Member States persist.  While private consumption has strengthened, business investment has remained restrained, despite the favourable financing conditions. An even stronger increase in private consumption is hampered by only moderately rising wages despite a rather tight labour market as well as a persistently high tax burden and disincentives to work for certain groups. Public investment has picked up, though the available fiscal space has not been fully used.  Steps taken to increase public investment have not yet resulted in a clear upward trend in the public investment-to-GDP ratio that appears required to close the infrastructure investment gap. Efforts to improve the business environment for private investment have remained very limited. Regulatory restrictiveness in the services sector remains high and inefficiency in corporate taxation persists. Disincentives to work for certain groups continue to reduce labour supply, disposable income and consumption opportunities.   
 
 
 
 
 
4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES, FISCAL FRAMEWORKS AND 

TAXATION*(10) 

Public finances 

Taxation 

Germany’s  public  finances  are  robust,  and  the 
debt-to-GDP ratio is improving. Since its bottom 
in  2010  (-4.2 %  of  GDP)  in  the  aftermath  of  the 
financial  crisis, 
the  budgetary  balance  has 
consistently improved, becoming positive in 2014, 
and rising to +0.8 % in 2016 and to 1.2 % in 2017. 
Likewise,  overall  government  debt,  which  peaked 
at 81.0 % of GDP in 2010, has fallen continuously, 
reaching  68.1 % 
the 
Commission's 2017 autumn forecast, it is expected 
to  fall  below  the  60 %  Maastricht  threshold  by 
2019  (European  Commission,  2017b).  While 
government  revenues  increased  by  2.0 pps.  of 
GDP  between  2007  and  2016,  mainly  owing  to 
higher 
security 
contributions 
(see  graph  4.1.1),  government 
expenditure increased by only 1.3 pps. of GDP.  

in  2016.  According 

income 

social 

taxes 

and 

to 

The overall level of taxation corresponds to the 
average among the Member States, but the tax 
wedge  is  high.  The  overall  level  of  taxation  at 
39 %  of  GDP  in  2016  lies  between  the  euro  area 
average of 40.1 % and the EU average of 38.9 %. 
The  tax  wedge  for  low  earners  (at  50%  of  the 
average wage) is high and only 9.2 pps. lower than 
the  tax  wedge  for  high  wage  earners  (at  167%  of 
the  average  wage), 
low 
progressivity  compared  to  other  EU  countries. 
Social  security  contributions  account  for  about 
two thirds  of  the  tax  wedge,  while  income  tax 
accounts 
Importantly, 
employees  contribute  well  above  average  to  the 
security  systems,  while  employers'  contributions 
are  still  below  average  (see  also  Box  4.1  which 
displays various possible scenarios  to  remedy  this 
state of affairs).  

indicating  relatively 

one third. 

only 

for 

Graph 4.1.1:  Government balance and trends in selected 

revenues and expenditures 

Graph 4.1.2:  Taxes by economic function 

Source: European Commission 

(10)  An  asterisk  shows  that  the  analysis  in  the  section 
contributes  to  the  in-depth  review  under  the  MIP  (see 
Section 3 for an overall summary of main findings). 

Source: European Commission, 2017c 

By  comparison  with  other  EU  countries, 
Germany places a relatively strong emphasis on 
more distortive direct taxes, notably on labour, 
to  raise  revenues.  Taxes  on 
income  from 
employment amounted to 19.3 % of GDP in 2015, 
the  6th  highest  figure  in  the  EU-28.  By  contrast, 
revenue from taxes on consumption and capital fall 
at  the  lower  end  of  the  distribution,  ranking  23rd 
and  15th  out  of  28  countries.  In  2015,  revenues 
from  recurrent  property  taxes  came  to  0.4 %  of 

19 

-120-100-80-60-40-20020406080100120140160180-40-30-20-10010203040506001020304050607080910111213141516bn EURbn EUR,y-o-y changeInterest (reversed sign)Social contributionsCurrent taxes on income and wealthTaxes on production and importsNet lending(=)/net borrowing(-) (rhs)024681012DEEU28EA19CapitalConsumptionLabour -Paid by employers Labour -Paid by employees Labour -Paid by non-employed % of GDP 
 
 
 
                                                           
 
4.1. Public finances, fiscal frameworks and taxation* 

31 % is among the EU's highest and it is also high 
in comparison with other major economies (ZEW, 
2017a).(12)  Apart  from  inefficiencies  arising  from 
the  inclusion  of  some  non-profit  elements  in  the 
local  trade  tax  base,  the  system  is  susceptible  to 
special tax planning to minimise tax payments.(13) 
Similarly,  the  effective  average  tax  rate  stands  at 
the  EU  average 
28.2 %,  significantly  above 
20.9 %.  Moreover,  the  debt  bias  in  corporate 
taxation  also  remains  high  7th  highest  in  the  EU. 
This is because debt financing costs are deductible 
from  the  corporate  income  tax  base,  whereas  the 
same treatment is not extended to equity financing 
costs.  In  the  ‘International  Tax  Competitiveness 
Ranking’ of 35 OECD countries (Pomerlo, 2017), 
Germany’s  system  ranks  21st  overall  and  14th  as 
regards  corporate  tax.  The  low  ranking,  in  29th 
position  of  personal 
taxation,  also 
applicable to transparent entities as partnerships, is 
a result of the system's complexity and the high tax 
rates. Moreover, loss-carry forward provisions are 
relatively strict, limiting the amount to 60 % of the 
taxable income for a given year. Finally, Germany 
also  ranks  very  low  (31st  out  of  33  countries 
examined,)  as  regards  attractiveness  to  businesses 
engaged in digital activities (ZEW, 2017b).   

income 

In  the  past  few  years,  a  number  of  targeted 
measures  have  been  taken  to  make  the  tax 
framework  more  conducive  to  investment.  The 
INVEST  grant  programme,  set  up 
in  2013, 
supports  private  investors  wishing  to  acquire  a 
stake  in  innovative  new  companies.  Under  this 
programme, investors in start-ups receive a tax free 
grant  worth  20 %  of  the  sum  invested.  The 
programme was expanded as of January 2017 (see 
section  4.6  on  venture  capital)  and  the  maximum 
grant  was  doubled.  An  exit  grant  for  individuals 
selling  their  shares  was  introduced,  amounting  to 
25 %  on  the  capital  gains,  which  roughly  covers 
the  tax  due  on  the  sale.  (14)  A  recent  study  notes 
that  some  of  the  INVEST  scheme's  features 
constitute good practice, such as the use of upfront 
relief administered outside the tax system, and the 

(12)  This is the result of a local trade tax (Gewerbesteuer) added 
to  the  corporate  income  tax  as  well  as  the  solidarity 
surcharge. 

(13)  Entschließung  des  Bundesrates  zur  Verhinderung  von 
Gestaltungsmodellen  zur  Minderung  der  Gewerbesteuer 
mittels  Lizenzzahlungen  – 
'Gerechte  Verteilung  der 
Gewerbesteuer zwischen den Gemeinden gewährleisten'  
(14)  Furthermore,  shares  can  now  be  held  by  either  a  natural 
person  or  by  an  associated  company  and  follow-up 
financing support was introduced. 

GDP,  which  is  well  below  the  EU  average  of 
4.3 %. All in all, taxes on labour contribute above 
average  to  government  revenue  in  Germany,  by 
comparison with other EU countries, while capital 
taxes are much lower. 

Over the past ten years, transfer property taxes 
have  become  increasingly  important  in  the 
financing  of  states'  budgets.  All  the  Länder, 
except  Bavaria  and  Saxony  have  increased  their 
tax  rates  on  property  transfers  since  2007.  In  a 
number of cases, the rate almost doubled. Overall, 
almost  all  Länder  now  apply  rates  between  5 % 
and  6.5 %,  up  from  a  uniform  3.5 %  in  2007.  In 
combination  with  higher  real  estate  prices,  the 
increased 
revenue 
considerably.  This  trend  is  expected  to  continue 
(IW Köln, 2017). 

rates  have  boosted 

tax 

There  is  potential  for  shifting  taxation  from 
labour  to  other  tax  bases  less  detrimental  to 
growth, including environmental taxes. At 1.9 % 
of GDP, the overall level of environmental taxes is 
quite  low  in  Germany  compared  with  the  EU 
average  of  2.4 %  of  GDP.(11)  In  2004,  the  level 
was  still  at  the  EU  average,  but  since  then  it  has 
fallen steadily. This decrease was driven mainly by 
a decrease in transport fuel taxes. The tax rates on 
motor fuels have not been adjusted since 2003. As 
a result, they have been eroded by inflation to the 
level  before  the  ecological  tax  reform.  The  tax 
advantage on marginal rates on diesel compared to 
petrol  is  among  the  highest  in  the  EU,  although 
diesel  has  a  more  harmful  impact  on  ambient  air 
quality than unleaded petrol. Exemptions from the 
energy  tax  for  specific  energy-intensive  processes 
were introduced in 2006, when the energy tax law 
was introduced. In recent years, no measures have 
been  taken  to  broaden  the  tax  base  by  reducing 
environmentally  harmful  tax  incentives,  such  as 
energy  tax  reductions  and  the  favourable  taxation 
of  company  cars.  Such  measures  would  allow  a 
shift to tax sources less detrimental to growth and 
help  to  resolve  environmental  issues  (see  also 
Section 4.6).  

Germany's tax system is still not very conducive 
to  investment.  Its  statutory  corporate  tax  rate  of 

(11)  The  renewable  energy  surcharge  (EEG-Umlage),  which 
comes    to  about  0.8 %  of  GDP  is  not  included  in  this 
statistic as it not a tax in the legal sense. 

20 

 
                                                           
 
                                                           
4.1. Public finances, fiscal frameworks and taxation* 

the  German  government  (Federal  Ministry  for 
Labour  and  Social  Affairs,  2017a),  two  thirds  of 
respondents  said  inheritances  were  their  main 
source of wealth, rather than savings. 

Healthcare 

in  Germany 

The  German  health  system  is  performing  well, 
although  it  is  costly  and  there  is  scope  for 
efficiency  gains.  Health  expenditure  as  a 
percentage of GDP, 11.3 % in 2016, is the highest 
in  the  EU  and  the  ratio  has  increased  by  1.2 pps. 
However, over the period 2016-2070, the expected 
increase  of  0.7%  in  the  public  expenditure  on 
health  care  (7.4%  of  GDP  in  2016  excluding 
expenditure  on 
long-term  nursing  care  but 
including  capital  formation),  appears  moderate 
compared  to  0.9%  for  the  EU  also  in  light  of  the 
ageing  population 
(European 
Commission,  2018).  Germany  provides  813 beds 
per 100 000 population, the highest ratio in the EU 
(515). However, bed capacity has been reduced by 
3.9 %  since  2005,  which  is  less  than  the  EU 
average  of  11.9 %.  The  average  length  of  a 
hospital stay in 2015 (9 days) was among the EU's 
highest. France, for instance, is at the lower end of 
the  distribution  with  only  5.5 days.  High  rates  of 
avoidable hospital admissions for chronic diseases 
also  suggest  over-provision  of  hospital  care  and 
room  for  better  integration  of  primary  care, 
ambulatory  specialist  care  and  in-patient  care 
(OECD  and  European  Observatory  on  Health 
Systems and Policies, 2017). 

Expenditure  on  pharmaceuticals  is  high  and 
growing.  Germans  spend  the  most  per  capita  on 
retail pharmaceuticals in the EU. The consumption 
of  prescribed  defined  daily  doses  rose  by  over 
50 %  between  2004 
and  2015.  Overall, 
pharmaceutical expenditure has increased by about 
70 % since 2000 — more than any other cost item 
covered  by  statutory  health  insurance  (SHI).  The 
main  reason  for  this  is  patent-protected  new 
originator products, though generics account for a 
substantial  share  of  the  total  (81  %  in  2016).  The 
daily treatment costs of patented medicines are on 
average  16 
than  for  generics. 
(Schwabe et al, 2017) 

times  higher 

legal  framework  for  statutory  health 
The 
insurance  (SHI)  and  private  health  insurance 
(PHI)  creates  inefficiencies  and  challenges  the 
solidarity  principle  in  health  care.  The  SHI  is 

taken 

scheme's  transparent  cost  and  impact  monitoring 
of  the  scheme  (PWC  and  IHS,  2017).  Other 
measures 
include:  simplified 
taxation of investment funds, revisions to the rules 
for  tax  loss  carry  forwards  and  measures  to 
modernise 
tax  administration  procedures  (see 
European Commission, 2017c). 

in  2016 

address 

Reducing  tax  exemptions  from  inheritance  tax 
can  help 
the  highly  unequal 
distribution of wealth and broaden the tax base 
to allow reducing the burden on smaller family 
businesses.  With  0.16 %  of  GDP  inheritance  tax 
accounts  for  only  0.41 %  of  total  tax  revenue, 
according  to  2012  data.  Estimates  suggest  that  a 
total  of  about  EUR  200  to  300  billion  (around  6-
10 %  of  GDP)  is  given  as  a  gift  or  inherited  in 
Germany  every  year  (Bach  and  Thiemann,  2016). 
These  capital  transfers  are  highly  concentrated  at 
the top of the wealth distribution: one third of the 
total amount of inheritances and gifts is transferred 
to 
just  1.5 %  of  beneficiaries,  who  receive 
inheritances of over EUR 500 000. The 0.08 % of 
cases involving transfers exceeding EUR 5 million 
received  14 %  of  the  transfer  volume  and  more 
than  half  of  corporate 
transfers,  which  are 
currently largely exempt from inheritance tax. The 
2016  reform  of  the  inheritance  tax  is  expected  to 
change little in this regard. A reduction of the tax 
exemptions  would  significantly  broaden  the  tax 
base,  which  would  make  it  possible  to  reduce  tax 
rates  and  lower  the  burden  on  smaller  family 
businesses (Bach and Thiemann, 2016).  

recurrent 

Low 
taxes  on  property  and 
inheritance  should  be  seen  in  the  context  of 
substantial  wealth  inequality.  At  0.76,  the  2014 
Gini coefficient for net wealth in Germany was the 
second highest in the euro area (whose overall Gini 
coefficient  was  0.69,  based  on  data  from  the 
second  wave  of  the  European  Central  Bank's 
Household Finance and Consumption Survey). The 
wealthiest 10 % of the population hold about 60 % 
of  total  wealth,  while  the  lower  half  of  all 
households  holds  only  around  1 %.  Real  estate 
ownership  and  business  assets  were  strongly 
concentrated among the wealthier households, with 
only  10 %  holding  shares  or  business  assets,  and 
13 %  holding  mutual  investment  funds.  In  the 
absence of a wealth tax, higher and more targeted 
inheritance taxes applied to the wealthiest strata of 
society could help reducing wealth inequality. In a 
recently published report on wealth and poverty by 

21 

 
4.1. Public finances, fiscal frameworks and taxation* 

Since  2015-2016,  the  Federal  Ministry  of 
Finance  conducted  spending  reviews  designed 
to make federal budget spending more effective. 
The first cycles of spending reviews focused on the 
following  policy  programmes: 
‘support  of 
combined traffic (15)’, ‘support for the professional 
mobility  of  young  people  seeking  vocational 
training  in  Germany’,  ‘housing’,  and  ‘energy  and 
climate’. The ongoing review cycle for 2017/2018 
covers  the  topics  ‘procurement  of  standardised 
bulk articles’ and ‘humanitarian aid and transition 
aid  including  crisis  prevention,  crisis  response, 
peace-keeping and development cooperation’. 

(15)  Combined  traffic  is  a  special  form  of  freight  transport  in 
which  semi-trailers,  trucks  or  containers  are  transported 
along  the  main  part  of  the  transport  route  by  rail  or  by 
inland  waterway,  while  lorries  are  used  to  pick  up  and 
deliver loaded units from the loading and unloading points. 
The aim of combined traffic is to promote environmentally 
friendly means of transport. 

based  on  the  principle  of  ability  to  pay  (risk-  and 
income based solidarity), while the PHI is financed 
through  risk-related  premiums.  SHI  contributions 
are independent of risk and based on income up to 
a  certain  threshold,  and  non-earning  spouses  and 
children  are  covered  without  any  surcharges.  PHI 
premiums  are 
risk  dependent  and  separate 
premiums  have  to  be  paid  for  spouses  and 
children.  Although  several  reforms  have  been 
made,  the  current  legal  framework,  which  allows 
people  on  higher  incomes,  civil  servants  and  the 
self-employed  to  opt  out  of  SHI,  undermines  the 
risk-  and  income-based  solidarity  principle  in 
health care (Busse et al., 2017). Moreover, doctors 
can  charge  PHI  patients  more  than  those  covered 
by  SHI.  This  creates  inequalities  in  waiting  times 
and  accessibility  for  medical  services,  as  well  as 
incentives  for  overprovision  of  health  services  to 
PHI patients (see also Chapter 4.3). 

Fiscal framework 

as 

to 

forecast, 

stipulated 

guarantee 

The  Federal  Government  has  implemented  an 
endorsement  process 
the 
independence  of  the  macroeconomic  forecast 
underlying  the  budgetary  projections.  The 
Commission's  Opinion  on  Germany’s  Draft 
Budgetary  Plan  for  2017  (European  Commission, 
2017d)  noted  that  there  is  still  no  procedure  to 
have an independent body produce or endorse the 
macroeconomic 
in 
Regulation  (EU)  No  473/2013.  The  German 
legislator adopted a law that defines the process for 
the preparation of macroeconomic forecasts by the 
government and the process for their endorsement 
by an independent body. The law came into effect 
on 4 July 2017. In September 2017, the ordinance 
governing the appointment of an independent body 
("Vorausschätzungsverordnung")  was  published. 
In accordance with Regulation (EU) No 473/2013, 
the  "Gemeinschaftsdiagnose",  an  association  of 
several  economic  research  institutes,  is  appointed 
as an independent body tasked with assessing and 
confirming  the  forecast  released  by  the  Federal 
Government.  The  ordinance  will  come  into  effect 
on 1 July 2018. As regards the compliance with the 
upper  limit  on  the  general  government  structural 
deficit  of  0.5 %  of  nominal  GDP,  the  Advisory 
Board  of 
the  Stability  Council  provides  a 
favourable  assessment  in  its  report  of  December 
2017 (Stability Council, 2017). 

22 

 
 
 
                                                           
4.2.  FINANCIAL SECTOR* 

Banking sector 

small 

The  main  challenges  facing  the  industry  are 
squeezed  revenues  from  the  low-interest-rate 
incurred  owing  to 
environment  and  costs 
digitalisation  and  regulatory  requirements. 
Heavy  dependence  on  interest  income  (more  than 
73 %  of  aggregate  revenue)  and  the  large  number 
institutions  make  German  banks 
of 
particularly  vulnerable  to  these  challenges.  At  a 
time when they have very high operating costs — 
in 2016 the cost-to-income ratio exceeded 69 % — 
banks may need a strategic vision to address these 
challenges.  This  could  involve  adapting  their 
business  model,  considering  mergers,  and  cutting 
costs.  

increasing 

through 
Maintaining  positive  profitability 
realising  hidden  reserves, 
the 
maturity  transformation,  and  more  risk-taking 
does not appear to be sustainable. The survey on 
low  interest  rates  (German  Central  Bank,  2017) 
indicated that structural adjustments are necessary 
to  maintain  profitability.  If  interest  rates  stay  at 
current  levels,  small  and  medium-sized  banks 
expect  their  profits  to  fall  further  between  2016 
and  2021.  This  would  imply  a  drop  of  16 %  in 
their return on total capital. Moreover, keeping up 
with  regulatory  developments  has  a  large  fixed 
cost component. 

Profitability  remains  very  low.  ECB  data  shows 
that  Return  on  Equity  (RoE)  stood  at  0.6 %  in 
March  2017,  amongst  the  lowest  in  the  EU. 
Lacklustre performances by several medium-sized 
banks,  low  intermediation  margins,  and  a  weaker 
capacity to generate non-interest income all weigh 
on  profits.  While  overall  employment  expanded 
strongly in Germany, in the banking and insurance 
sectors  it  fell  by  10 000  in  the  first  half  of  2017, 

according  to  the  federal  employment  service. 
Significant  headcount  reduction  usually  has  up-
front  costs  and  lead  to  cost  savings  only  in  the 
medium  term.  The  number  of  branches  decreased 
by only 14.4 % between 2007- and 2016, keeping 
Germany in the top third of EU countries with the 
highest branch density. 

is 

in 

the 

lowest 

the  EU 

At  the  same  time,  the  equity  and  leverage 
situation  remains  acceptable.  Banks’  June  2017 
Tier 1 ratio stands at an acceptable level (16.0 %), 
slightly  above  the  EU  average  (15.4 %).  Yet,  the 
in 
leverage  ratio 
percentage.  Compared  to  most  member  states, 
German  capitalisation  ratios  increased  less,  as 
most banks in Germany are not listed on the stock 
exchange  and  therefore  rely  more  on  organic 
capital  generation  instead  of  issuing  shares.  Asset 
quality  is  very  strong.  End  June  2017,  non-
performing  loans  (NPL)  amount  to  1.6 %  of  total 
gross  loans,  compared  to  1.9 %  twelve  months 
earlier  and  significantly  below  the  euro  area’s 
average of 4.5 %. Loan-loss provisions went from 
42.4 %  to  43.6 %  between  June  2016  and  June 
2017. 

Housing  market  developments  do  not  yet  give 
rise  to  neither  macro-  nor  financial  stability 
increases  are  particularly 
risks.  House  price 
pronounced in some cities, yet overall the process 
can still be considered (the end of) a normalisation 
process across time and countries (see Chapter 4.5, 
IMF  2017a).  Housing  loans’  growth  keeps  on 
accelerating,  4.2 %  year-on-year  in  September 
2017  compared  to  3.8 %  in  September  2016.  The 
overall outstanding stock of mortgages now stands 
20 %  above  its  January  2011  value  (Table  4.2.1). 
Nonetheless  as  nominal  GDP  grew  at  a  similar 
pace,  aggregate  mortgages  hover  around  36 %  of 

Table 4.2.1: 

Financial soundness indicators, all banks in Germany 

*ECB aggregated balance sheet: loans excl to gov and MFI / deposits excl from gov and MFI **For comparability only annual 
values are presented 
Source: ECB 

23 

(%)20102011201220132014201520162017Q2Non-performing debt2.41.61.71.82.52.01.81.6Non-performing loans----3.93.02.62.3Non-performing loans NFC----8.96.56.46.0Non-performing loans HH----2.92.31.81.8Coverage ratio35.040.138.342.834.836.736.938.4Loan to deposit ratio*84.783.482.580.179.278.478.578.4Tier 1 ratio11.411.713.815.214.815.415.616.0Capital adequacy ratio15.315.817.418.717.317.918.118.4Return on equity**1.92.21.11.32.51.72.2-Return on assets**0.10.10.00.10.10.10.1- 
 
 
 
 
4.2. Financial sector* 

10.5 %,  while  the  German  market  grew  5.7 %, 
pulled by vehicle leasing which grew 6.3 %. 

Despite  offering  one  of  the  lowest  yields  in  the 
euro area, German private sector deposits grew 
3.6 %  annually.  ECB  statistics  show 
that 
corporates’  new  overnight  deposits  bear  negative 
interest rates on average, i.e. -0.01 % since March 
2017.  Household  deposits  with  maturities  up  to  2 
years  yield  0.28 %  —  the  euro  area’s  lowest 
returns. Private sector deposits grew 3.6 % yoy in 
November  2017 
totalling  EUR  3 531  billion 
(109 %  of  GDP  –  67%  coming  from  households, 
18% from corporates and 24% from the non-bank 
financial  sector),  which  exceeds  the  rather  low 
level  of  private  sector  loans  (EUR  2 777  billion) 
by 23 pps. of GDP.  

Overall,  deposits  have  increased  slightly  above 
nominal  GDP  growth,  at  times  when  the 
German private sector debt grows at moderate 
pace.  As  both  household 
corporate 
indebtedness  decline  slightly  as  percentage  of 
GDP,  passive  deleveraging  continues  despite 
Germany's  private  sector  debt  being  amongst  the 
lowest in the euro area. 

and 

Graph 4.2.2:  Annual change of different household loan 

categories 

Source: ECB 

The economy is strongly financed through own 
funds,  while  both  debt  and  equity  finance  is 
below EU average. Unlike companies in other big 
member  states  that  rely  more  on  capital  markets, 
the  classic  German  Mittelstand  (medium-sized 
enterprises)  relies  more  on  internally  generated 
funds  as  evidenced  by  the  slightly  above  EU-

GDP  over  the  past  6  years,  which  lends  further 
evidence to the assessment  that current real estate 
price 
increases  are  not  primarily  driven  by 
mortgage lending. 

Graph 4.2.1:  Mortgages and corporate loans in billion EUR 

and in % of GDP 

Source: ECB 

Corporate  loans  continue  to  accelerate  in  line 
with economic developments and slightly lower 
credit  standards.  Outstanding  corporate  loans 
have  increased  by  4.1 %  over  the  12  months 
preceding  September  2017.  This  represents  an 
acceleration from 3.2 % one year earlier. The main 
drivers  were  the  services  sector  (including  real 
estate)  and  to  a  lesser  extent  manufacturing  (e.g. 
machinery,  chemicals).  Particularly  strong  credit 
growth  for  longer  maturities  may  indicate  a  more 
positive  outlook  for  companies.  Still,  in  relative 
terms,  corporate  loans  barely  amount  to  30 %  of 
GDP  (Graph  4.2.1).  This  stands  below  European 
Commission  fundamentals-based  benchmarks  for 
Germany,  and  reflects  more  than  a  decade  of 
deleveraging (16). 

New leasing contracts are on track for another 
record-year.  The  leasing  market  Europe-wide 
amounted  to  EUR  164  billion  in  the  first  half  of 
2017  —  out  of  which  EUR  59  billion  stemmed 
from  Germany.  Leasing  in  Europe  grew  by 

(16)  Fundamental-based 

are 

from 
benchmarks 
regressions  capturing  the  main  determinants  of  credit 
growth and taking into account a given initial stock of debt. 
See  also  European  Commission  (2017),  "Benchmarks  for 
the  assessment  of  private  debt",  Note  for  the  Economic 
Policy Committee" 

derived 

24 

252729313335373941436007008009001000110012002004200620082010201220142016% of GDPbn EURLending for house purchase bn EURNon-financial corporations bn EURLending for house purchase % of GDP (rhs)Non-financial corporations % of GDP (rhs)-2-1012345Total private Non-financial corporationsHouseholdsMortgage credity-o-y % ch. 
 
                                                           
 
4.2. Financial sector* 

average  gross  operating  surplus  (25.0 %  and 
22.7 % respectively, cf. Graph 4.2.3). 

venture  capital  remains  relatively  limited  (see 
Chapter 4.6 for more in-depth discussion). 

Overall,  banks  display  healthy  stability  ratios 
and ample liquidity. Cost cutting still has a long 
way to go in times where challenges of digitisation 
have to be addressed. Banks will have to re-orient 
their  business  strategy  to  reduce  dependence  on 
interest  margins.  Yet,  smaller  margins  are 
somewhat  counterbalanced  through  growing  loan 
volumes  as  liquidity  is  amply  available.  The  real 
economy is thus benefiting from the high liquidity 
position and competition in the sector. Only 11 % 
of companies surveyed in Germany in spring 2017 
cite  financing  difficulties  as  a  restraining  factor, 
4 pp  less  than  in  2014.  Most  companies  do  not 
claim any financing constraints and agree that it's’ 
the  least  important  factor  hampering  investment 
(59 %) (Cologne Institute for Economic Research, 
2017; German Savings Banks Association, DSGV, 
2018). 

Graph 4.2.3:  Funding sources of non-financial corporations 

(1) Listed shares and debt securities represent total liabilities 
based on national accounts (Eurostat), loans by Monetary 
financial institutions (MFI, including banks) represent 
outstanding amounts (ECB BSI). In addition, gross operating 
surplus derives from national accounts. 
Source: ECB, European Commission, Invest Europe 

Listed  shares  represent  the  largest  funding 
source to corporations. They amount to 46.7 % of 
GDP,  7.3  percentage  points  below  EU  average. 
Since  the  turn  of  the  century  German  companies 
have  embarked  on  a  long-lasting  deleveraging 
trend. While German corporates traditionally relied 
strongly on bank financing, now the importance of 
bank  loans  is  considerably  below  EU  average 
(29.8 %  versus  35.8 %).  After  a  decade  of  net 
negative  debt  issuance,  German  companies’  net 
bond  stock  has  stabilised  in  early  2016.  Debt 
securities amount to barely 5.0 % of German GDP 
versus  an  EU  average  of  12.3 %.  In  addition  to 
debt securities, many public entities and small and 
medium sized enterprises in Germany rather use a 
promissory  note  (Schuldschein),  which 
is  a 
mixture  between  a  bond  and  a  loan.  Their  set-up 
cost  is  a  fraction  of  normal  debentures  as  for 
instance  no  prospectus  has  to  be  drawn  up. 
Between  January  and  August  already  EUR  21 
billion  were  emitted  with  an  average  interest  rate 
of  1.23 %  compared  to  EUR  25.4  billion  in  new 
emissions for 2016 adding up to a total outstanding 
of EUR 86 billion (2.7 % of German GDP). 40 % 
of  emitters  are 
(mainly  Austrian) 
foreign 
companies.  As  some  notes  qualify  for  deposit 
guarantee 
they  are  not 
accounted  under  debt  securities.  The  role  of 

scheme  protection 

25 

0102030405060Listed sharesDebt securitiesMFI loansGrossoperatingsurplus:corporationsDEEU% of GDP 
 
 
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

Labour market* 

Despite record low unemployment and high job 
vacancy  rates,  wage  growth  remains  moderate. 
On  the  back  of  sustained  economic  growth, 
employment continues to grow and unemployment 
has dropped to record lows (see Section 1). Graph 
4.3.1  displays  the  link  between  wage  growth  and 
unemployment  rate  (the  so-called  Phillips  curve) 
for  different  periods  starting  from  2001.  The 
relationship  appeared  stable  before  the  crisis, 
moving 
further 
structural  improvements  in  the  German  labour 
market.  In  2011-2015,  this  relationship  became 
also  flatter.(17)  In 2016, wages  expanded  at  above 
2% and accelerated somewhat to 2.7% in the first 
three  quarters  of  2017  as  the  labour  market 
tightened, showing some responsiveness. 

leftward  after,  pointing 

to 

Graph 4.3.1:  Phillips curve in Germany: compensation 

growth and unemployment rate 

growth  partly  explain  the  moderate  nature  of 
recent  wage  growth.  The  level  of  productivity 
growth 
inflation 
impacted  wages,  while 
expectations  have  remained  weak.  Recent  wage 
increase  have  not  yet  compensated  for 
the 
accumulated  divergences  between  wage  and 
productivity.  Over  2000-2016, 
labour 
productivity per person increased by about 10.8 %, 
while  real  compensation  per  employee  only 
increased  by  about  6.2 %.  The  recent  increase  in 
immigration did not seem to have prevented strong 
wage  dynamics 
segments 
particularly affected by immigration. 

lower  wage 

real 

in 

before 

remained  high, 

the  proportion  of 

The  modest  increases  of  low  wages  and  the 
higher  number  of  hours  worked  in  lower  wage 
to  keep  wage  growth 
deciles  contributed 
subdued 
the  minimum  wage 
introduction.  Based  on  the  recently  released 
Eurostat  survey  on  the  Structure  of  Earnings 
full-time 
Statistics,  while 
employees  (40  hours  per  week/160  hours  per 
month) 
the  proportion  of 
employees  who  worked  less  than  10  hours  per 
week  rose  between  2010  and  2014  from  6.7 %  to 
8.8 %.(18)  Because  of 
the 
distribution 
and  midi-jobs 
employees, which in general receive a lower wage 
than  full-time  employees,  it  is  estimated  that 
aggregate  wage  growth  was  16 %  lower  than 
without  a  shift  in  the  distribution.(19)  This  effect 
can  persist  if  transition  to  regular  employment  is 
not ensured (Galassi, 2016). 

towards  mini- 

these  changes 

in 

(1) Nominal compensation per employee is calculated as a 
total compensation of employees divided by total number 
of employees. The total compensation is defined as the total 
remuneration, in cash or in kind, payable by an employer to 
an employee in return for work done by the latter during the 
accounting period and it has two components: i) Wages 
and salaries payable in cash or in kind; and ii) Social 
contributions payable by employers. 
Source: European Commission, Eurostat 

Weak  inflation  expectations,  falling  structural 
unemployment  and  the  level  of  productivity 

(17)  A flattening of the Phillips curve suggested by the chart is 
for  cyclical 
confirmed  by  estimates 
unemployment,  productivity  growth.  In  addition, 
the 
reduction in the NAWRU exerts an independent downward 
pressure  on  wages.  Now  as  structural  unemployment  is 
reduced,  at  the  same  level  of  unemployment  wages 
accelerate less than they would have done in the past. 

that  control 

than 

Weaker  coverage  of  collective  bargaining  may 
have also contained wage growth. Over the past 
30  years,  coverage  has  declined  more  rapidly  in 
in  other  western  European 
Germany 
countries,  from  about  85 %  in  1985  to  56 %  in 
2014  (See  European  Commission,  2016b  for 
causes).  In  Germany,  the  sector-led  bargaining 
system resulted in subdued wage developments in 
sectors with weaker unions – most of them dealing 
with non-tradables, such as services.  

(18)  With the introduction of the minimum wage working hours 
were  reduced  from  40.1  hours  per  week  in  2014,  to  36.3 
hours  in  2015.  However,  this  trend  stopped  in  2016  (36.2 
hours). (Destatis, 2017) 

(19)  Based on a shift-share analysis of the impact of the change 
in  structure  of  jobs  on  wage  growth  between  2010  and 
2014, using the Structure of Earnings Statistics. 

26 

-10123424681012Compensatoin per employee Unemployment rate2001Q1-2008Q22008Q3-2009Q42010Q1-2011Q12011Q2-2015Q42016Q1- 
 
 
                                                           
                                                           
4.3. Labour market, education and social policies 

Box 4.3.1: Monitoring performance in light of the European Pillar of Social Rights 

The  European  Pillar  of  Social  Rights,  proclaimed  on  17  November  2017  by the European  Parliament,  the 
Council  and  the  European  Commission,  sets  out  20  principles  and  rights  to  benefit  citizens  in  the  EU.  In 
light of the legacy of the crisis and changes in our societies driven by population ageing, digitalisation and 
new ways of working, the Pillar serves as a compass for a renewed process of convergence towards better 
working and living conditions.  

Germany  performs  relatively  well  on  the  Social  Scoreboard  (1)  supporting  the  European  Pillar  of 
Social  Rights.  Germany  has  high  employment  rates  and  very  low  unemployment.  Regarding  equal 
opportunities  in  the  labour  market  and  fair  working  conditions,  the  issue  of  labour  market  segmentation 
deserves continuing attention. 

for 

A  number  of  challenges  remain,  such  as 
making  it  more  attractive  for  women  to 
work  more  hours  and  reducing  the  high 
gender  pay  gap.  Specific  tax  arrangements 
create  disincentives 
second  earners 
(Ehegattensplitting)  and  low  wage  earners 
(marginal  tax  rate)  to  work  longer.  Changing 
the  default  tax  combination  from  2018  only 
slightly  adjusts  the  situation.  Germany  took 
measures  to  address  the  gender  pay  gap  by 
adopting  in  2017  the  Act  on  greater  wage 
equality 
and  men. 
Companies  are  expected  to  analyse  wage 
developments  on  a  regular  basis,  prepare  a 
report and undertake measures ensuring equal 
pay for equal work. 

between  women 

Germany has with 6.8 % (November 2017) 
one  of  the  lowest  youth  unemployment 
rates in Europe. The German dual system of 
vocational education and training provides an 
excellent  approach  to  skill  development;  in 
particular  initial  vocational  education  and 
training. Thanks  to  this  system  the  country 
enjoys low youth unemployment and provides 
young people with high skill levels. About 50 
percent of all school-leavers attend vocational 
training  provided  by  companies,  reach  high 
skills  level  allowing  companies  to  acquire 
skilled  staff.  Overall,  vocational  integration 
benefits  and  services  for  young  people  are 
provided both by the Federal Government and by the Länder and local authorities. Job centres, employment 
agencies  and  youth  welfare  offices,  providing  social  services,  cooperate  in  order  to  provide  young  people 
with one-stop support. Germany also has various initiatives that all share the goal of helping young people to 
transit successfully from school to vocational training or academic study and subsequently into employment. 

1   The  Social  Scoreboard  includes  14  headline  indicators,  of  which  12  are  currently  used  to  compare  Member  States 
performance.  The  indicators  "participants  in  active  labour  market  policies  per  100  persons  wanting  to  work"  and 
"compensation  of  employees  per  hour  worked  (in  EUR)"  are  not  used  due  to  technical  concerns  by  Member  States. 
Possible alternatives will be discussed in the relevant Committees. GDHI: gross disposable household income. 

27 

Early leavers from education and training (% of population aged 18-24)On averageGender employment gapOn averageIncome quintile ratio (S80/S20)On averageAt risk of poverty or social exclusion (in %)Better than averageYouth NEET (% of total population aged 15-24)Good but to monitorEmployment rate (% population aged 20-64)Best performersUnemployment rate (% population aged 15-74)Best performersGDHI per capita growth On averageImpact of social transfers (other than pensions) on poverty reductionOn averageChildren aged less than 3 years in formal childcareOn averageSelf-reported unmet need for medical care Better than averageIndividuals' level of digital skillsBetter than averageSocial protection and inclusionDynamic labour markets and fair working conditionsEqual opportunities and access to the labour marketGERMANYMembersStates'areclassifiedaccordingtoastatisticalmethodologyagreedwiththeEMCOandSPCCommittees.ThemethodologylooksjointlyatlevelsandchangesoftheindicatorsincomparisonwiththerespectiveEUaverages,andclassifiesMemberStatesinsevencategories(from"bestperformers"to"criticalsituations").Forinstance,acountrycanbeflaggedas"betterthanaverage"iftheleveloftheindicatorisclosetoEUaverage,butitisimprovingfast.Formethodologicaldetails,please consult the draft Joint Employment Report 2018, COM (2017) 674 final.NEET:neitherinemploymentnorineducationortraining;GDHI:grossdisposablehousehold income 
 
 
4.3. Labour market, education and social policies 

Box 4.3.2: Policy highlights: The introduction of the general minimum wage 

Germany  introduced  on  1  January  2015  a  statutory  general  minimum  wage  of  8.50  EUR  per  hour. 
This was seen also as a response by German legislators to the continued erosion of the collective bargaining 
system  and  declining  bargaining  coverage,  which  resulted  in  a  high  share  of  low  paid  workers.  Now  a 
commission  (Mindestlohnkommission),  which  represents  employers  and  employees,  and  includes  labour 
market researchers as observers, is responsible for recommending adjustments of the minimum wage, based 
on  comprehensive  analysis  of  the  labour  market.  The  government  either  accepts  the  recommendation  or 
leaves the minimum wage unchanged. The minimum wage was first increased as of 1 January 2017 to 8.84 
euros,  where  the  Commission  took  into  account  in  particular  recent  developments  of  collectively  agreed 
wages. In general the minimum wage is applicable in all branches of activity and all regions, with exceptions 
for apprentices, certain interns, people aged below 18 years and long-term unemployed people during their 
first  six  months  of  employment.  Temporarily  further  exemptions  were  allowed  for  collectively  agreed 
sectoral minimum wage floors, which incentivised  collective bargaining and may have allowed mitigating 
negative  employment  consequences.  In  addition  to  the  statutory  general  minimum  wage,  branch-specific 
minimum wages may be applied.  

Fears  that  the  introduction  of  the  minimum  wage  would  lead  to  significant  employment  losses  have 
not  materialised.  Helped  by  the  expansion  phase  of  the  business  cycle,  employment  creation  remained 
strongly positive, even in East Germany where wage increases were particularly pronounced due to the low 
initial wage level. Only so-called mini-jobs (marginal part-time employment) declined noticeably at the start 
of 2015. Many of these lost mini-jobs were upgraded to regular, socially insured employment. An evaluation 
of the effects of the minimum wage is planned for 2020. 

Beyond  workers's  wages,  work  satisfaction  also  improved.  The  introduction  helped  to  increase  lower 
wages at the bottom of the distribution, as expected. Moreover, it also incentivised employers to invest in 
human  capital,  improve  working  conditions,  and  thus  increased  employees'  satisfaction  at  the  workplace 
(Pusch and Rehm, 2017)  

Some aspects of the minimum wage setting may merit fine-tuning. Continuous assessment of the impact 
of the minimum wage remains an important task for the Commission, and the system may be tested when 
the economic cycle will worsen. In addition, it is not clear whether the resources available for enforcing the 
minimum wage are adequate to tackle non-enforcement. Out of the 27,323 investigations conducted in the 
first half of 2017, about 10 % (2,433) found non-compliance, primarily in construction and the hospitality 
industry.  Early  2016,  still  a  significant  number  of  workers  were  earning  below  the  minimum  wage,  with 
estimations ranging from 750 000 workers based on a survey of firms (Destatis, 2017) to nearly 2  million 
workers based on the SOEP survey of individuals (Burauel et al, 2017).  

As a  result,  service  sector wages  are  the  lowest 
in  the  EU  relative  to  manufacturing  wages 
(80 % in Germany, 91 % in the euro area, 103 % in 
the  EU-28).  Moreover,  while 
collective 
agreements  could  have  been  extended,  thereby 
partly  remedying  the  reduction  in  the  coverage  of 
original agreements, this was done only a very few 
cases.  Although  the  law  introducing  the  general 
minimum  wage  provided  for  an  easing  of  the 
conditions  for  general  extensions(20),  the  number 
of  general  extensions  remained  similar  to  that  in 
previous  years,  with  447  extensions  in  July  2017. 
(Federal  Ministry  for  Labour  and  Social  Affairs, 
2017b) 

(20)  The condition for the original agreement to cover 50 % of 

employees in the sector was abolished. 

introduction  of  the  statutory  general 
The 
minimum wage helped to increase lower wages. 
The introduction of the statutory general minimum 
wage in 2015 increased wages at the bottom of the 
distribution, as expected (see Box 4.3.2).  

The  current  round  of  wage  negotiations  has  a 
strong focus on working time flexibility, on top 
of  wage 
increases.  The  2017-2018  wage 
negotiation round covers 9.7 million employees in 
the  metal  and  electronics  industries,  the  civil 
service,  and  the  construction  industry.  IG  Metall, 
the  trade  union  of  workers  in  the  metal  and 
electronics  industries  called  at  the  start  of  the 
negotiations for the possibility of opting for a 28-
hour working week rather than a 35-hour one. This 

28 

 
                                                           
4.3. Labour market, education and social policies 

average  of  23.1 %).  As  a  result,  Germany  has  a 
very  wide  gender  pay  gap(22).  To  reduce  the 
gender  pay  gap,  the  Parliament  adopted  a  law  to 
promote  transparency  in  wage  structures  between 
women  and  men  in  March  2017.  Under  this  law, 
companies  with  over  500  employees  are  expected 
to  assess  wage  developments  regularly,  report  on 
them, and take action to make sure that women and 
men earn equal pay for equal work.  

to 

the 

Disincentives  to  working  longer  hours,  coupled 
with the lack of sufficient childcare and all-day 
school  facilities  are  key  reasons  for  women’s 
lower  attachment 
labour  market. 
Germany has one of the highest tax wedges (23) for 
low  earners,  which  creates  disincentives 
to 
working  or  to  working  longer  hours.  About  60 % 
of  low  earners  in  2015  were  women  (Kalina  and 
Weinkopf,  2017).  The  impact  of  parenthood  on 
employment  is  also  higher  in  Germany:  the 
employment rate of women  with children under 6 
is  16.1 pp.  lower  than  that  of  women  without 
children, versus an EU average of 8.8 pp. (See also 
Box 4.3.1)  

With increased demand for childcare and more 
places  in  all-day  schools,  it  remains  key  to 
improve  quality  in  early  childhood  education 
and  care.  In  2015,  97.4 %  of  4  to  6-year-olds' 
were  enrolled  in  early  childhood  education  and 
care establishments. The rate is markedly lower for 
the under-threes. The participation rate in daycare 
of  school  children  up  to  11  rose  from  10.6%  to 
16.1%  between  2006  and  2015,  while 
the 
participation rate in all-day schools rose from 9.8% 
to  39 %  (Conference  of  Ministers  of  Culture, 
2016). However, in early childhood education and 
care  alone,  unsatisfied  demand  and  demographic 
changes  necessitate  more  than  600  000  additional 
places  until  2025  for  children  up  to  school  age 
(German Youth Institute, 2017). Issues persist around 
service  quality  and  flexibility.  In  2017,  additional 

(22)  In  2015,  the  unadjusted  gender  pay  gap  was  22%  as 
compared  with  an  EU  average  of  16.3%.  Much  of  this 
disparity  can  be  explained  by  working  time,  economic 
activity  and  occupation  (men  work  longer  hours,  in  better 
paid NACE sectors and occupations, and take fewer career 
breaks  compared  with  women).  However,  an  unexplained 
gender pay gap of 7.7% remains (Boll et al., 2016). 

(23)  The tax wedge on labour represents the difference between 
the  total  labour  cost  of  employing  a  worker  and  the 
worker’s net earnings. It is defined as personal income tax 
and  employer  and  employee  social  security  contributions 
(net of family benefits) as a percentage of total labour costs 
(the wage and employer social security contributions). 

was also the outcome of the ‘choice’ model agreed 
between  Deutsche  Bahn  and  trade  unions,  which 
allowed employees to choose between a wage rise 
of 2.6 %, six more days of annual leave, or a one-
hour reduction in weekly working hours (21).  

External  price  competitiveness  remains  strong. 
As  a  result  of  wage  growth  and  moderate 
productivity  gains,  the  nominal  unit  labour  cost 
increased 1.7 % in the first three quarters of 2017, 
above that in the euro area, indicating a slight loss 
in  the  external  competitive  position.  As  inflation 
rose, real earnings growth decelerated, from 1.8 % 
in  2016  as  a  whole  to  0.7 %  in  Q3  2017.  (Graph 
4.3.2)  

Graph 4.3.2:  Trends in labour costs and its components 

* Forecast values taken from European Commission autumn 
2017 Forecast 
Source: European Commission 

for 

the 

labour 

fully  utilising 

A  tight  labour  market  and  ageing  population 
force. 
call 
Vacancies  registered  by  the  public  employment 
service have been rising steadily, reaching 770 000 
by  November  2017.  Demographic  ageing  means 
that cohorts entering the labour market are smaller 
and immigration can only partially offset this trend 
(see also Section 4.4). At the same time, there was 
still  substantial  long-term  unemployment  862 000 
in November 2017, (for further discussion see also 
European  Commission,  2017c).  The  high  female 
part-time  employment  rate  is  accompanied  by  the 
second  highest 
in  part-time 
employment  (37.5 %  as  compared  with  an  EU 

gender  gap 

(21)  56 % of employees have opted for more annual leave, 2 % 
for shorter working hours and 42 % for higher wages. 

29 

-6-4-2024681002030405060708091011121314151617*18*19*Rate of change y-o-y (%)Inflation (GDP deflator growth)Real compensation per employeeProductivity contribution (negative sign)Nominal unit labour costULC in Euro Area 
 
                                                           
                                                           
4.3. Labour market, education and social policies 

(young  people  neither 

NEET 
in  education, 
employment  or  training,  aged  15-24)  rate  of  third 
country nationals as compared to that of nationals 
the  employment 
(21.1%  vs  5%).  Moreover, 
situation  of  native-born  with  foreign  born  parents 
(i.e. 
also 
unfavourable. (24)The  proportion  of  early  leavers 
from  education  and  training  among  foreign-born 
students  (23.2 %)  was  almost  three  times  that  of 
students born in Germany (8.2 %) in 2016.  

second-generation) 

is 

Graph 4.3.3:  Employment rate by citizenship 

(1) Employment rates of people aged 20-64 ( percentage of 
population), non-seasonally adjusted 
Source: Eurostat 

of 

asylum 

newly-arrived 

While  the  number  of  newly-arrived  asylum 
seekers has fallen, integrating the large number 
of  young  refugees  into  education  and  work 
represents  a  long-term  challenge.  The  total 
number 
seekers 
(according  to  registrations  in  the  EASY-system) 
fell  strongly  in  2017  to  an  estimated  198 000 
(Federal Office for Migration and Refugees, 2018), 
from about 890 000 in 2015. Various stakeholders 
ranging from the Federal Government, the Länder 
and  local  governments  to  the  Federal  Office  for 
Migration 
public 
employment  services,  social  partners,  companies 
and  foundations  took  important  measures  in  2017 
aimed  to  help  the  new  arrivals  to  find  work,  with 
an expanded range of integration courses focusing 
training. 
on  career  guidance  and  vocational 

and  Refugees 

(BAMF), 

financing  of  EUR  1.1  billion  was  approved  for 
additional places. The Government also announced 
that a ‘quality development law’ was to be drawn 
up.  

Mini-jobs  provide  flexible  arrangements  for 
people  who  want  to  work  a  limited  number  of 
hours,  but  also  create  lock-in  effects.  The  total 
number of mini-jobs remained around 7.5 million. 
The number of people whose only job was a mini 
job  fell  from  5.1 million  in  2014  to  4.8 million  in 
2017, while the number of those with a mini-job as 
their  second  job  rose  from  2.0 million  in  2010  to 
2.7 million  in  2017.  Nearly  half  of  people  with 
mini-jobs are either of pensionable age or students, 
and the majority are women. This seems to suggest 
that  mini-jobs  have  not  led  to  an  ever  increasing 
erosion  of  standard  employment.  However,  there 
appear to be strong lock-in effects. High marginal 
tax  rates  just  above  the  earnings  threshold  of 
EUR 450  yield  strong  threshold  effects  and  in 
2016  more  than  23 %  of  mini-jobbers  earned 
exactly  EUR 450.  Interaction  with  the  tax  system 
(exemptions  for  secondary  jobs,  tax  treatment  of 
second earners) further increases lock-in effects.  

to 

to  Germany 

People  with  a  migrant  background  are 
generally  less  well  integrated  into  the  labour 
market,  notably  to  limited  language  skills  and 
lower  qualifications.  The  employment  rate  of 
nationals  of  other  EU  countries  rose  by  1.5 pp. 
between 2015 and 2016, reaching 78.2 %, as they 
take  up  employment. 
move 
However,  the  same  does  not  hold  for  non-EU 
migrants.  The  employment 
rate  of  non-EU 
nationals  fell  by  almost  3 pp  between  2015  and 
2016.  It  is  below  the  EU  average  (54.2 %  v 
56.5 %)  and  significantly  below  the  employment 
rate  of  German  nationals  (26.5 pp.  lower;  see 
Graph 4.3.3). The main reason for this is the large 
inflow  of  non-labour  migrants  who 
face 
considerable  difficulties  in  finding  jobs.  Women 
are  particularly  affected  with  an  employment  rate 
of  44.7 %:  Lack  of  language  skills  together  with 
lower  qualifications  seem  to  be  among  the  main 
reasons  for  this.  Getting  non-EU  nationals  into 
jobs will thus continue to pose a lasting challenge 
(Bähr et al., 2017, Gürtzgen et al., 2017).  

While overall youth unemployment in Germany 
is  one  of  the  lowest  in  the  EU,  young  people 
with  a  migrant  background  face  challenges. 
This  is  also  reflected  in  the  significantly  higher 

(24)  In  2014,  native  born  with  foreign  born  parents  had  lower  
employment  rate  (56.2%)  by  around  19.6  %  points  than 
native-born  without  a  migrant  background 
(75.8%)  
(Eurostat, lfso_14lel). 

30 

2030405060708090050607080910111213141516% of population 20-64NationalsEU28 mobile workersThird countries 
 
                                                           
4.3. Labour market, education and social policies 

(Federal  Ministry  of  Education  and  Research, 
2017)  Considering  difficulties  in  labour  market 
integration,  demand  for  training  and  active  labour 
market  policies  is  expected  to  remain  strong  in 
2018.  

overall  have  a  high  at-risk  of  poverty  rate. 
Germany  also  performs  well  for  the  indicators 
related  to  adequacy  of  minimum  income  benefits, 
which play a major role as the last safety net. 

Graph 4.3.4:  Gini coefficient and poverty risk 

Social policy*  

In  2016, 

the  percentage  of 

The  steady  rise  in  the  at-risk  of  poverty  rate 
and  inequality  seen  since  the  crisis  slightly 
reversed. 
the 
population  at  risk  of  poverty  or  social  exclusion 
continued to fall, owing to improvements in all of 
its  three  components.  The  at-risk  of  poverty  rate 
has fallen slightly, from 16.7 % to 16.5 %, the first 
decline  since 
the  crisis.  Following  a  steady 
increase  since the  crisis,  in-work poverty  also  fell 
slightly  in  2016.  However,  this  improvement 
remains modest (and only benefits men, as in-work 
poverty  among  women  increased  further).  Further 
improvements  are  held  back  by  disincentives  to 
work  longer  (second  earners,  mini-jobs  lock-in 
effect, see above) and the moderate wage dynamic. 

and 

economic 

labour  market 
Positive 
developments are only recently accompanied by 
reduced  income  inequality.  In  2016,  the  richest 
20 % of households had 4.6 times as much income 
as  the  poorest  20 %,  a  decline  of  0.2  from  the 
previous  year.  Germany  currently  lies  somewhere 
in the middle of the EU countries, according to the 
Gini  index  of  equivalised  disposable  income (25). 
However, income inequality worsened in the early 
2000s,  and  the  Gini  coefficient  subsequently 
hovered around this higher level (see Graph 4.3.4). 
The  recent  declines  in  inequality  and  poverty  risk 
may  be  explained  by  the  positive  labour  market 
developments,  plus  the  new  national  minimum 
wage. Improvements in the income position of low 
income  households  have  helped  reduce  rising 
disposable income inequality. Germany ranks well 
above or close to EU average for indicators related 
to  coverage  and  adequacy  of  unemployment 
benefits.(26)  Still,  duration  for  a  one  year  work 
record  is  comparatively  low  and  unemployed 

(25)  The  Gini  coefficient  of  equivalised  disposable  income 
takes values between 0 and 1 and is a measure of equal or 
unequal distribution. Higher values show a higher level of 
inequality. 

(26)  According  to  the  benchmarking  exercise  in  the  area  of 
unemployment  benefits  and  active  labour  market  policies 
conducted  within  the  EMCO  Committee.  See  the  draft 
Joint Employment Report 2018 for details. 

* Break in time series in SOEP due to a change in sampling 
methods 
** Values take owner-occupied living space into account 
1) At risk of poverty rate: proportion of people with an 
equivalised net income below 60 % of the median income 
Source: Federal Ministry for Labour and Social Affairs, 2017 

The declining replacement rate in the statutory 
first  pillar  has  a  negative  effect  on  pension 
adequacy  and  increases  the  risk  of  poverty  in 
old age. At 17.6 % in 2016, the risk of poverty in 
old age (i.e. above 65) was above the EU average 
of 14.7 % and higher than the average for the total 
population (16.5 %). The risk of poverty in old age 
applies particularly to former low-wage earners or 
people  with  atypical  jobs,  self-employed  people 
without  employees  or  those  with  an  interrupted 
employment  history  (temporary  agency  workers). 
Moreover, Germany has the second widest gender 
pension  gap  in  the  EU  (45.7 %).  In  addition,  the 
replacement rate of the statutory pension scheme is 
expected to decline (see Chapter 4.4). In response, 
in June 2017 the Bundestag enacted three bills on 
the  pension  reform  which  also  address  old-age 
poverty.  They  include  tax  credits  for  low  earners, 
in  basic  public  allowances  and 
an 
additional 
for  employers  offering 
occupational  pension  schemes.  Even  if  fiscal 
sustainability  risks  are  currently  low  in  Germany, 
making it more attractive to work more and longer, 
can  help  increase  old-age  income,  boost  potential 

incentives 

increase 

31 

0,20,220,240,260,280,30,320,340,3602468101214161895000510111213*141516%At risk of poverty rate (SOEP)At risk of poverty rate (SILC)Gini (SOEP, rhs)Gini (SILC, rhs) 
                                                           
 
4.3. Labour market, education and social policies 

Germany (0.5 % of the population) and the density 
of  physicians,  nurses  and  hospitals  in  Germany  is 
among  the  highest  in  the  EU.  However,  Germany 
is among the four OECD countries with the largest 
regional differences in the number of hospital beds 
per  10 000  inhabitants  (OECD,  2016d).    National 
data show that some rural areas, particularly in the 
eastern  Länder  are  short  of  doctors,  while  some 
regions in the west lack enough nurses. Despite the 
growing  number  of  nursing  graduates,  national 
studies predict considerable future shortages in the 
profession, owing to demographic ageing.  

Education and skills 

the 
growing 

Spending  on  education  remains  below  the  EU 
target  with 
the  government 
average  and 
possible  negative 
implications  for  potential 
growth. Public expenditure on education remained 
at flat as a share of GDP in 2015 and below the EU 
average  (see  Section  4.5).  This  gives  cause  for 
concern  in  view  of  the  numerous  new  challenges, 
integration  of  newly  arrived 
including 
migrants, 
and 
digitisation.  Distribution  constraints  on  public 
spending  in  education  due  limited  cooperation 
possibilities  between  central  and  federal  level 
remain  largely  in  place;  despite  a  change  in  the 
Base  Law.  Support  from  the  federal  government 
due  to  the  constitutional  changes,  in  force  since 
June 2017, are at present restricted to investments 
in  school 
infrastructure  for  financially  weak 
municipalities  (Federal  Ministry  for  Economic 
Affairs and Energy, 2017a).  

numbers 

student 

output, improve the fiscal outlook, and reduce the 
need to save for retirement. 

Self-employed  people  may  be  particularly  at 
risk  of  old  age  poverty  as  a  result  of  limited 
social  protection.  Those  self-employed  people 
who do not have compulsory pension schemes for 
the  free  professions  and  who  do  not  have 
considerable  personal  means  have  little  protection 
on retirement. Inadequate pension entitlements for 
the  self-employed  will  make  them  dependent  on 
means-tested pension supplements in old age or if 
their  earnings  capacity  is  reduced  (Bäcker,  2014; 
Geyer, 2014; Brettschneider and Klammer, 2016). 
Former self-employed people already account for a 
high  share  of  recipients  of  this  benefit  (Federal 
Ministry for Labour and Social Affairs, 2017c).  

In  2016, 

some  respects. 

The young are more vulnerable than the elderly 
in 
the  material 
rate  of  people  over  65  was 
deprivation 
considerably lower, at 7.0 %, than that of children 
(10.6 %).  Persistent  generational 
below  18 
inequalities  may  have  a  severe 
impact  on 
intergenerational fairness. (European Commission, 
2017e). Moreover, Germany a high gap in the EU 
between people with disabilities and those without 
as  regards  being  at  risk  of  poverty  or  social 
the  EU  average  of 
exclusion  (15.6 pps.  vs 
10.1 pps.  The  rising  cost  of  housing  has  a 
considerable  impact  on  the  poor.  In  2016,  despite 
an  overall  declining  trend,  the  housing  cost 
overburden  rate  of  people  at  risk  of  poverty  was 
still  significantly  above  the  EU  average  (15.6  % 
vs. 11.1 %) . 

Social outcomes for migrants and their children 
remain  a  concern.  Foreign  workers  have  not 
benefited from the recent fall in the rate of in-work 
poverty.  Their  poverty  risk  rose  from  16.8  %  in 
2015  to  17.7 %  in  2016,  while  the  situation 
improved for German workers (falling from 8.8 % 
to 8.4 %). Although the poverty risk for children of 
foreign  nationals  improved  considerably  in  2016 
(20.9 %,  vs.  23.5 %  in  2015),  they  are  still  at  a 
much  higher  risk  than  the  children  of  German 
parents (14.5 %, vs 13.7 % in 2015). 

Access 
though 
to  health  remains  good, 
inequalities persist between regions and groups. 
While  operating  at  high  cost  and  with  certain 
inequalities  in  access  (see  Section  4.1.),  unmet 
medical  needs  for  medical  care  are  very  low  in 

Educational  outcomes  are  stable  overall  but 
remain  considerably 
influenced  by  socio-
economic  background.  According  to  the  2015 
OECD  Programme 
International  Student 
for 
Assessment (PISA), the share of top performers in 
the  highest  socio-economic  quartile  is  above  the 
in  science,  mathematics  and 
OECD  average 
reading, while the share of weak performers in that 
group is below average. In science, the difference 
in the rate of low achievers between the lowest and 
highest  social  quartiles  is  23 pp.,  equivalent  to  a 
difference  of  almost 3  years  of  schooling(27). 
While  these  results  mark  an  improvement  in  the 
equity of the German education system since PISA 

(27)  The  difference  between  mean  scores  equals  103  score 
points; a score difference of 38 points is associated with 1 
year of schooling. 

32 

 
                                                           
4.3. Labour market, education and social policies 

young  people  earning  tertiary  degrees,  above  the 
education  level  of  their  parents,  is  lower  in 
Germany  than  the  OECD  average.  This  might  be 
partially  explained  by  the  traditionally  strong 
prevalence  of  Vocational  Education  and  Training 
(VET)  (OECD,  2016b)  and  its  good  employment 
prospects.  Students  with  a  migrant  background 
face much bigger hurdles to complete their tertiary 
studies:  they  experience  dropout  rates  of  43 % 
versus  29 %  for  the  student  population  without  a 
migrant background (Ebert and Heublein, 2017).  

Employment rates for VET graduates continue 
to  be  high  but  fewer  people  are  choosing  this 
education  path.  The  proportion  of  Germany’s 
upper secondary VET students (ISCED 3) slightly 
decreased  in  2015  to  46.8 %,  just  below  the  EU 
average of 47.3 %. The employment rate of recent 
VET  graduates  in  2016  was  at  90.1 %  markedly 
higher than the EU average of 75 %. In 2016, the 
number  of  unfilled  apprenticeship  positions  
registered  by  the  Federal  Employment  Agency 
reached a new record high of 43 500, while 20 600 
registered  applicants  did  not  find  a  suitable 
to  a  significant 
apprenticeship.  This  points 
mismatch  in  qualifications  and  at  sectoral  and 
regional levels (Federal Ministry of Education and 
Research,  2017).  Efforts  to  better  advertise  the 
VET  system  include  orientation  and  information 
campaigns  at  secondary  schools,  outreach  to 
higher  education  dropouts  and  improvements  in 
VET  training,  for  example,  through  experience 
abroad.  Digitalisation  in  VET  focuses  on  inter-
company  vocational  training,  competence  centres 
speeding-up  the  digitalisation  in  training  and 
funding for digital equipment of SMEs.  

Adult  learning  is  below  the  EU  average  and 
remains  a  particular  challenge  for  the  low-
skilled. Adult participation in learning remained at 
8.5 %  in  2016,  practically  unchanged  and  below 
the  EU  average  of  10.8 %.  Reaching  the  low-
skilled  and  unskilled,  the  long-term  unemployed 
and  older  people  is  especially  difficult.  In  the 
the  Upskilling  Pathways:  New 
context  of 
recommendation 
Opportunities 
(European  Commission,  2016d)  several  steps  are 
being  undertaken  in  Germany  to  address  the  low-
skilled  adult  population  of  7.5  million  adults  — 

for  Adults 

(Federal  Ministry  for  Economic  Affairs  and  Energy, 
2017a). 

2006 (OECD, 2016b), they show that considerable 
disparities remain. A national survey on linguistic 
and  mathematical  competences  of  4th  graders 
marks  little  progress  in  lessening  the  influence  of 
socioeconomic  factors  on  educational  success 
compared 
for 
earlier 
Educational Quality Improvement, 2017). 

(Institute 

studies 

to 

There  is  a  wide  performance  gap  between 
native-born and foreign-born students. In PISA 
2015  low  performance  in  science  was  11.8 %  for 
children  without  a  migrant  background  versus 
42.2 %  for  immigrants.  Children  of  immigrants 
(second generation) closed the gap only partially at 
31.1 % (European Commission, 2016c). This is of 
concern given the very substantial share of second 
generation students in Germany (13.2 % compared 
to 6.5 % across the EU). 

the 

Renewing 
teaching  workforce  raises 
challenges.  In  Germany,  45 %  of  primary  and 
secondary 
teachers  are  aged  50  or  above, 
compared  with  35 %  in  the  rest  of  the  EU.  The 
necessary  replacement  of  retired  teachers  has 
already led to general supply gaps in some regions 
and  subject  areas  such  as  mathematics  and 
sciences (Standing Conference of the Ministers of 
Education and Cultural Affairs, 2013). To alleviate 
the  situation,  pensioned  teachers  are  reactivated, 
teachers  from  abroad  are  recruited  and  more  and 
more  career  changers  are  being  accepted  into  the 
profession,  often  without  prior  pedagogical 
training  but  with  tailored  accompanying  support 
after they take up teaching(28). Flexible provisions 
are  necessary  to  address  the  growing  demand  for 
teachers  with  even  higher  than  expected  student 
numbers (Klemm and Zorn, 2017), but they do not 
provide  a  permanent  solution.  Commonly  agreed 
standards  for  career  changers  and  measures  to 
increase 
teaching 
profession  might  contribute  to  further  raise  the 
teacher supply. 

the  attractiveness  of 

the 

education 

University 
is  becoming  more 
widespread  but  is  more  difficult  to  accomplish 
for  students  with  a  migrant  background.  The 
rate  of  people  obtaining  a  tertiary  degree  has 
reached  33.2 %  in  2016(29).  Upward  mobility,  i.e. 

(28)  Estimates find that this concern up to 10 % of all teachers 
hired  in  2016,  and  in  some  federal  states  as  much  as  one 
third of newly hired primary teachers (BDK, 2017).  

(29)  The national target of 42%, which includes ISCED level 4 
qualifications, has been passed and reached 46.8 % in 2016 

33 

 
                                                           
                                                                                   
4.3. Labour market, education and social policies 

many  of  them  in  employment  —  who  lack  basic 
reading and writing skills (Grotlüschen, 2016). 

34 

 
4.4.   BEYOND THE AGGREGATE: AGEING, INEQUALITY AND 

SAVINGS* 

Inequality 

Income inequality increased in Germany in the 
early  2000s,  and  wealth  inequality  is  high  in 
international  comparison.  These 
facts  are 
summarised  in  the  recent  Poverty  and  Wealth 
Report  and  were  largely  confirmed  by  a  previous 
country  report  and  an  in-depth  review  which 
argued that high income inequality may result in a 
high  overall  propensity  to  save  (Federal  Ministry 
for  Labour  and  Social  Affairs,  2017;  European 
Commission, 2017c and 2014a). 

Rising inequality may be linked to demographic 
and labour market changes. The real incomes of 
the lowest income decile fell by 8 % between 1991 
and 2014, owing to the expansion of the low wage 
sector, population ageing and lagging adjustments 
of transfers (Grabka and Goebel, 2017). Structural 
changes in the labour market, such as the increase 
in  low  wage  employment,  atypical  employment, 
to 
and  decreasing  unionisation,  contributed 
divergent 
(Federal 
real  wage  developments 
Ministry  for  Labour  and  Social  Affairs,  2017). 
However, this result needs to be seen in the light of 
labour  market  reforms  and  other  factors  which 
changed  the  composition  of  the  employed  labour 
force  during  the  period  in  question (30).  With  the 
improved  employment  rate,  inequality  of  earned 
income among the whole population has decreased 
from  2005  onwards,  and  has  even  gone  down 
below  the  level  of  the  year  2000  (Felbermayer  et 
al., 2016). 

a 

the 

have 

effect 

impact  of 

dampening 

Theoretical  literature  suggests  that  inequality 
may 
on 
macroeconomic  developments.  The  theoretical 
inequality  on 
literature  on 
macroeconomic  developments  has 
identified 
several  channels:  i)  the  growth  channel:  high 
income  inequality  implies  that  a  large  proportion 
of  income  is  channelled  to  high-income  groups, 
which have a higher propensity to save. This could 
dampen  private  consumption  and  consequently 
growth;  ii)  the  incentive  channel:  high  income 
inequality increases the incentives for low-income 
groups  to  achieve  higher  income  gains,  which 
could  have  a  positive  effect  on  productivity 
(Mirrlees, 1971; Lazear and Rosen, 1981); iii) the 
human  capital  channel:  high  income  inequality 

(30)  For instance, employment grew from 39 million in 2005 to 

43 million people in 2014. 

reduces  opportunities  for  private  investment  in 
education.  This  could  reduce  the  human  capital 
base 
long  run,  with  a 
corresponding  negative  effect  on  productivity 
(Galor and Zeira, 1993). 

the  medium 

to 

in 

its 

the 

the 

theoretical 

Recent  empirical  evidence  for  Germany  is 
literature 
consistent  with 
suggesting that inequality may have an effect on 
growth, 
trade 
components  and 
balances. (31)  Recent  empirical  studies  by  the 
OECD find a negative impact of income inequality 
on growth (Cingano, 2014; OECD, 2015). (32) The 
study by Albig et al (2017) hints at the possibility 
that  Germany's  cumulative  real  GDP  growth  rate 
over 1991-2015 could have been higher if income 
inequality had stayed constant. The study identifies 
the  human  capital  channel  as  the  main  driver  of 
this  result,  whose  negative  impact  kicks  in  with  a 
delay  of  one  decade.  This  illustrates  the  case  for 
timely anticipatory policy action, especially in the 
field  of  equality  of  opportunity  in  education  (see 
share  of 
Chapter  4.3).  Furthermore, 
consumption 
income 
decreases  substantially  with  increasing  monthly 
income,  suggesting  that  there  is  a  significant 
difference  in  savings  rates  across  the  income 
distribution  (33).  The  study  by  Albig  et  al  (2017) 
indicates  that  the  savings  rate  might  have  risen 
more and that private consumption was somewhat 
weaker  between  1991  and  2015  compared  to  the 
case  where  the  Gini  coefficient  had  remained 
constant.  It  also  points  out  that  the  trade  and 
current account surplus may have increased due to 
a  stronger  effect  of  rising  inequality  on  imports 
than on exports. 

in  disposable  household 

the 

Population ageing 

As  a  result  of  increasing  life  expectancy  and 
lower birth rates, the share of elderly people in 
the  population  has  increased.  Apart  from  the 
standard population ageing, there are some specific 
age 
features 

the  German 

characterising 

(31)  There  is  no  general  consensus  in  the  literature  about  the 
direction  or the  size  of  the  effect  of inequality  on  growth. 
For more details, see the meta-analysis described in Neves 
et al. (2016). 

(32)  For  a  review  of  these  studies,  see  Federal  Ministry  for 

Economic Affairs and Energy (2017b). 

(33)  See  also  Brenke  and  Wagner  (2013),  who  show  that  the 
savings rate for the first quartile of the income distribution 
is  significantly  lower than  that  for the  fourth  quartile,  and 
that this gap widened significantly over 1995-2007. 

35 

 
 
                                                           
                                                           
4.4. Beyond the aggregate: ageing, inequality and savings* 

distribution. First, there is the large group of 'baby-
boomers'  born  between  the  mid-1950s  and  mid-
1960s.  Second,  the  birth  cohort  following  the 
'baby-boomers'  (born  since  the  mid-1970s)  had 
particularly low levels of births per year. 

theoretical  pattern 
to  a  positive  and 
leads 
increasing NIIP, as can be observed in the German 
case. 

Graph 4.4.1:  Dependency ratios (2036 population forecast) 

and savings rates of DE 

The consequences of this pattern are significant 
for  the  German  economy  and  the  current 
account. The 'baby-boomers' are currently in their 
prime  working  age,  where  work  income  and 
savings  are  highest.  However,  when  most  of  this 
group reaches pensionable age, the German labour 
force  will  shrink  substantially,  while  the  group  of 
pensioners  will  grow  strongly.  This  cohort  effect 
of 
affect 
macroeconomic variables, such as overall savings, 
the  sum  of  income  tax  payments (34),  and  overall 
social security contributions. 

'baby-boomers'  will 

also 

the 

According  to  economic  theory,  demographics 
are  currently  contributing  to  the  German 
surplus,  but  should  lower  savings  in  the  long 
run,  thereby  balancing  the  current  account. 
Anticipation  of  ageing  can  be  a  key  driver  of 
higher  savings.  This  may  help  explain  the  very 
high  German  current  account  surplus.  However, 
the  current  account  increase  implied  by  theory 
(e.g.  Buiter,  1981;  Obstfeld  and  Rogoff,  1995)  is 
the  current 
always 
account  position  should  increase  when  larger 
cohorts pass through high saving stages of the life 
cycle  and  are  faced  with  'ageing  news'  (positive 
cohort  effect).  It  should  then  decrease  when  a 
larger  proportion  of  the  population  grows  older 
and  their  savings  rate  is  lower  (negative  cohort 
effect). 

temporary.  In  particular, 

Moreover,  population  ageing  also  provides  a 
rationale  for  Germans  to  invest  a  significant 
share  of  savings  abroad.  An  ageing  population 
may  also  be  affecting  domestic 
investment 
patterns,  resulting  in  rather  subdued  investment 
growth at home and higher investment abroad. The 
prospect  of  shrinking  domestic  labour  supply  and 
waning domestic demand are depressing returns on 
domestic  investment.  Yields  on  assets  abroad  are 
likely to be higher, owing to a more favourable age 
structure (e.g. Barro and Sala-i-Martin, 2003). This 

(34)  The effect on income taxes is aggravated by the transition 
in  the  tax  treatment  of  pension  payments  towards  taxing 
them when paid out. For details, see Beznoska and Hentze; 
2016. 

Source: Eurostat 

that 

influence 

However, there seem to be also other factors at 
play 
the  structurally  high 
German  saving  rate.  German  saving  rates  have 
recently 
to  17 %, 
fluctuated  at  around  15 
the  rates  of  most  other 
significantly  above 
European  countries.  This  is  sometimes  explained 
by a specific German propensity to save (European 
Commission, 2014a). Moreover, elderly and young 
households  in  Germany  depart  from  economic 
theory in that they do not dissave on average (see 
Graph 4.4.2). The result is known as the ‘German 
savings  puzzle’  (see,  for  instance,  Belke  et  al., 
2015;  Boersch-Supan  et  al.,  2001)  (35),  which 
contrasts  with  Modigliani's  standard  economic 
theory  of  the  life-cycle  model  of  income  and 
consumption  smoothing  (Ando  and  Modigliani, 
1963). As a result, the adjusted German version of 
the  life  cycle  savings  pattern  appears  structurally 
higher across all age cohorts than what one would 
expect in the light of standard theory. 

(35)  The  pattern  characteristic  of  the  'German  savings  puzzle' 
can, however, be observed in some other EU member states 
as well. 

36 

141516171800.10.20.30.40.50.61991199419972000200320062009201220152018202120242027203020332036GermanyOld age dependency ratio 65+Old age dependency ratio 70+Savings rate (rhs) 
                                                           
 
                                                           
4.4. Beyond the aggregate: ageing, inequality and savings* 

most  notably  by  the  ‘Riester-Rente’  which  was 
introduced  in 2002.  Those  reforms  may also have 
pushed  up  private  savings,  as 
they  strongly 
incentivised  old-age  provision.  Moreover  they 
focus on safe, but low-yielding assets, which are to 
a  large  extent  sourced  from  abroad  (European 
Commission,  2016b).  Additionally, 
low 
interest  rate  environment  might  also  be  a  reason 
for  private  households  to  further  increase  their 
savings  in  order  to  achieve  a  certain  nominal 
amount ('nominal illusion'). 

the 

Several  studies  have  focused  on  empirically 
identifying the present impact of demographics 
on  the  current  account (39),  but  results  vary 
depending  on  the  methodology  applied.  In  the 
Commission’s  'current  account  norm'  model (40) 
(European Commission, 2017a) the overall current 
account  level  that  can  be  empirically  attributed  to 
country-specific factors yields a German surplus of 
2.5 %  for  2016,  which  is  significantly  below  the 
actual level. In contrast, the IMF’s model estimates 
a  German  current  account  surplus  for  2016  of 
about  4.5 %  of  GDP  (IMF,  2017b).  Interestingly, 
the contribution of factors other than demographics 
to the ‘estimated current account norm’ is roughly 
the  same  (1.6 pps.),  but  the  two  models  differ 
substantially in the estimation of the demographic 
impact  (3 pps.  for  the  IMF  vs  1.1 pps.  in  the 
Commission model). 

In  the  long  run,  empirical  models  suggest  that 
the German current account balance is likely to 
become  negative  as  a  result  of  population 
ageing.  In  an  overlapping  generation’s  model, 
Busl et al. (2012) estimate that the cohort effect of 
the 'baby-boomers' being in their prime saving age 
will  make  a  positive  contribution  to  the  German 
current  account  surplus  until  2030.  However,  in 
the 
transitions  from 
large-scale 
working to retirement age will start to bring down 
the  aggregate  saving  rate  and,  thus  balance  the 
current  account.  According  to  ZEW, this negative 
cohort  effect  will  yield  a  German  current  account 
deficit of 2 % of GDP by 2033. 

longer 

term, 

(39)  Following  the  work  of  Chinn  and  Prasad  (2003),  several 
authors,  including  Phillips  at  al.  (2013),  Lane  and  Milesi-
Ferretti (2012), Salto and Turrini (2010), Lee et al. (2008), 
and Gruber and Kamin (2007), have contributed. 

(40)  The  current  account  'norm'  benchmark  is  derived  from 
regressions  capturing  the  main  fundamental  determinants 
of  the  saving-investment  balance  (e.g.  demographics, 
resources),  as  well  as  policy  factors  and  global  financial 
conditions. 

Graph 4.4.2:  Savings rates by age groups – measured in 

2015 

Source: European Commissions' calculation, based on 
Destatis, continuous household budget survey (Laufende 
Wirtschaftsrechnungen) 

the 

'baby  boomers'  and 

Additionally, pension adequacy might be at risk 
for 
subsequent 
generations,  thereby  contributing  to  stronger 
precautionary  savings.  As  the  German  public 
pension  system  is  designed  as  a  pay-as-you-go 
system (36) (37), ageing will challenge the system's’ 
overall  sustainability  (38),  which  may  affect  old-
age poverty (see Chapter 4.3). In turn, this is likely 
to encourage precautionary savings to compensate 
for  the  expected  reduction  in  old-age  income. 
Employment-specific  second  pillar  pensions  may 
compensate  to  some  extent  (by  contributing  to 
future 
is 
constrained  because  it  is  not  mandatory  for  firms 
to have them or for workers to enrol. Additionally, 
they  are  less  attractive  to  mobile  workers  who 
change employers. 

incomes).  However, 

impact 

their 

The  federal  government  has  also  provided 
incentives  for  making  additional  precautionary 
savings.  To  compensate  for  the  lower  pension 
level,  private  pension  savings  were  encouraged; 

(36)  In  a  ‘pay  as  you  go’  system,  the  contributions  of  the 

working-age population pay for pensions directly. 

(37)  According  to  Bloom  et  al.,  2007,  econometric  analysis 
shows that households' savings are lower in countries with 
pay-as-you-go  pension  schemes  and  higher  in  those  with 
capital-based schemes.  

(38)  According to European Commission’s projections, ageing-
related costs are expected to increase by around 4.2 pps. of 
GDP  between  2016  and  2070  (European  Commission, 
2018). 

37 

051015202518 - 2525 - 3535 - 4545 - 5555 - 6565 - 7070 and above%approx savings rate 
 
                                                           
                                                           
4.5.   INVESTMENT 

in 

the  recent  pick-up 

Despite 
investment 
growth, important asset types still need to catch 
up. Despite a strong economic performance in the 
wake  of  the  crisis,  Germany’s  capital  stock 
increased much more slowly than that of the rest of 
the EU-15, with potentially negative effects on the 
long-term  potential  growth  (Graph  4.5.1).  As 
regards  the  various  asset  types,  investment  in 
machinery and equipment has started to respond to 
the  economic  upswing;  investment  in  intellectual 
property  products  has  grown  consistently  and  is 
gradually increasing in importance; and investment 
in  residential  construction  is  picking  up  too, 
although  supply  is  still  lagging  behind  housing 
needs 
the  other  hand, 
investment  in  other  construction  is  stagnating, 
possibly affecting essential infrastructure.  

in  certain  areas.  On 

is  stagnating.  Investment  in  intangible  assets  has 
continued  to  gain  importance  on  aggregate,  but 
disparities  across  sectors  and  firm  sizes  are 
persistent.  The  private  investment  share  of  GDP 
seems  to  be  rising  mainly  on  account  of  housing 
investment, driven by both real increases and price 
inflation (Graph 4.5.2).  

Graph 4.5.2:  Gross fixed capital formation in the private 

sector 

Graph 4.5.1:  Capital stock 

Source: Destatis, European Commission 

life-long 

learning.  A  particular  need 

Private  investment  in  intangible  assets  appears 
to  be  concentrated 
in  some  sectors  and 
restrained  in  others.  Investment  in  intangible 
assets(41)  is  crucial  to  promoting  productivity 
includes 
growth  (Thum  et  al.,  2017).  This 
investment  in  R&D  and  software,  and  vocational 
and 
is 
investment in digital skills, essential for innovation 
and  the  dissemination  of  technology.  While  large 
technology-intensive  corporations,  particularly  in 
the  automotive  sector,  are  investing  in  intangible 
assets,  the  services  sector  and  small  and-medium-
sized  enterprises  (SMEs)  are  lagging  behind  by 
comparison  with  other  advanced  economies 
(OECD, 2016c). Investment appears to be strongly 
concentrated  in  only  a  few  sectors,  with  often 
fewer  than  half  of  the  companies  in  those  sectors 
investing  in  intangible  assets  (Belitz  et  al.,  2017). 

(41)  The System of National Accounts (SNA) currently captures 
R&D,  mineral  exploration,  computer  software  and 
databases,  entertainment,  literary  and  artistic  originals 
under  the  asset  category  "intellectual  property  products", 
while  the  broader  term  "intangible  assets",  synonymously 
termed  also  "knowledge  based  capital",  can  include  also 
assets which are not captured by the SNA. 

Index 2010=100 
Source: European Commission  

Private investment development* 

investment  has  picked  up  and 

Private 
is 
expected to grow briskly in the short to medium 
term, but business investment intensity remains 
weak. Investment in machinery and equipment has 
posted  strong real increases in  the  course of 2017 
reacting  to  record  high  orders,  high  capacity-
utilisation  rates  and  a  favourable  outlook.  It  has 
reached  pre-crisis  levels,  but  its  intensity  remains 
subdued  against 
the  backdrop  of  favourable 
financing  conditions  and  declining  relative  prices 
for  machinery  and  equipment.  On  the  other  hand 
investment  in  non-residential  construction  (NRC) 

38 

6070809010011012091939597990103050709111315172010=100DEFRUKITEU 15 w.o. DE15161718192021220123456789000102030405060708091011121314151617% of GDPEquipmentHousingNRCIntang. andoth. assetsTotal (rhs) 
 
 
 
                                                           
4.5. Investment 

Productivity* 

and 

total 

productivity 

Labour 
factor 
productivity  are  growing  faster  than  the  euro 
area  average,  but  sector-specific  challenges 
remain. Productivity growth is the most important 
driver  of  long-term  growth  and  a  prerequisite  for 
maintaining  Germany’s  high  living  standards. 
Overall, labour productivity is growing faster than 
the  euro  area  average,  especially  in  medium-high 
technology  sectors,  such  as  motor  vehicles, 
chemicals  or  machinery  and  equipment. 
In 
contrast, labour productivity growth in the services 
sector  has  been  a  long  way  below  that  of  the 
manufacturing  sector  over  the  last  decade  (Graph 
4.5.4).  While  total  factor  productivity  shows  a 
stronger  increase  than  the  euro  area  average,  the 
annual  growth  rate  for  the  last  three  years  for 
which  records  are  available  has  remained  stable 
and below pre-crisis growth levels. 

Graph 4.5.3:  Potential growth and contributions 

Source: European Commission 

Available  firm-level  data  show  that  the  gap 
between  the  most  and  the  least  productive 
companies  has  widened  over  the  last  decade. 
This  applies  to  both  labour  productivity  and  total 
there  are 
factor  productivity,  suggesting 
from  being 
obstacles  preventing 
efficiently reallocated to their most productive uses 
(42). Recent research by the OECD further suggests 
that  about  12 %  of  capital  is  sunk  in  “zombie 

resources 

that 

(42)  Data 

from 

the  Competitiveness  Research  Network 
(CompNet), available up to 2012. Update with more recent 
data currently under progress, but not yet available. 

in 

Furthermore,  recent  data  suggest  that  the  share  of 
SMEs  in  business  R&D  expenditure  has  been 
gradually  declining  in  recent  years  (See  also 
Section 4.6). All this points towards a considerable 
sector  and  company-size  specific  concentration  of 
investment 
intangible  assets  and  possibly 
underinvestment  in  SMEs  and  other  sectors,  such 
as  services,  which  can  dampen  potential  growth. 
The  increasing  average  age  of  firm  owners, 
especially  where  SMEs  are  concerned,  could  be 
one  of  the  reasons  for  their  lower  research  and 
innovation  activity,  as  older  entrepreneurs  are 
typically  more  risk-averse  towards  investments  in 
innovation. 

in  2016), 

Despite  favourable  financing  conditions,  non-
lenders. 
financial  corporations  remain  net 
investment 
While  SMEs  have  positive  net 
(EUR 44 billion 
larger  companies 
continue  to  invest  at  a  lower  rate  than  capital 
depreciation  (KfW,  2017b).  With  a  good  self-
financing  capacity  and  an  equity  ratio  of  30 %, 
German companies rely less on external finance. In 
this context, the standard push factor, low interest 
rates, appears to have hardly any impact on firms' 
investment decisions.  

Obstacles to investment, according to company 
surveys  include  shortages  of  skilled  labour 
administrative  and  infrastructure  constraints 
and  the  tax  treatment  of  innovation  activity. 
According  to  a  recent  company  survey  (DIHK, 
2018),  68%  of  businesses  report  a  lack  of  skilled 
personnel  as  a  bottleneck  to  investment  and 
according to a different survey  (DIHK, 2017), an 
even  larger  share,  82%  of  businesses,  report 
shortages  of  skilled  human  resources  as  an 
obstacle to their innovation activities.. This affects 
SMEs  more  than  big  business.  Substitution  of 
capital for labour is considered to have limitations 
(where  capital  and  labour  are  complementary), 
especially  for  SMEs.  The  prospect  of  a  shrinking 
labour force is thus likely to put a lid on domestic 
investment  growth  in  the  medium  and  long  run. 
Improving  human  capital, 
in 
education  and  skills  of  the  workforce,  could  help 
offset this risk and contribute to higher investment. 
Other obstacles to business innovation include the 
administrative  burden  and  the  lack  of  broadband 
internet (an obstacle reported by 65% and 58% of 
businesses respectively).  

investing  more 

39 

-0.50.00.51.01.52.02.50001020304050607080910111213141516%, ppsTFPCapital accumulationLabourPotential growthTFP - EA 
 
                                                           
4.5. Investment 

firms” (firms that have been in existent for over a 
decade  and  have  had  an  interest  coverage  ratio  of 
less  than  one  over  three  consecutive  years).  This 
reallocation  and 
may  act  as  a  barrier 
productivity  growth  (McGowan  et  al.,  2017).  The 
concentration of investment in intangible assets in 
a  few  sectors  and  firms  has  also  exacerbated  the 
performance gap. 

to 

Graph 4.5.4:  Productivity developments 

(1) Value added per hour worked, prices of 2010 
(2) Market services include activities with classification 
codes G (Trade), H (Transport), I (Hospitality), J 
(Communications), M and N (Professional and Business 
services). 
Source: European Commission 

Developments in the housing market* 

The  housing  market  is  facing  strong  demand 
fuelled by rising incomes, low interest rates, and 
high  levels  of  net  migration.  Price  heterogeneity 
across regions has increased strongly, especially in 
and  around  the  major  urban  centres.  While  prices 
increased  overall  (Graph  4.5.5),  overvaluation  in 
some major urban centres reached about 15-30 %. 
However,  this  is  not  excessive  in  international 
comparison  (Bundesbank,  2017)  and  there  is  no 
indication  so  far  of  a  national  house  price  bubble 
and  macro-prudential  risks  remain  contained  (see 
also Section 4.1). The strong price increases reflect 
buoyant  residential  demand,  and  scarce,  even  if 
slowly  catching  up,  supply.  Measures  to  ease 
supply constraints have double benefits: improving 
the housing situation and mitigating overvaluation 
risks.  Measures  for  renovating  and  upgrading  can 
also contribute to climate policy goals and reduce 
costs of living. 

More  investment  could  help  make  affordable 
housing  more  widely  available.  Most  studies 
agree that Germany faces a significant construction 
backlog  in  major  and  intermediate  urban  areas, 
though there is no agreement on the extent of this 
gap  (Dahl  and  Goralczyk,  2017).  Government 
estimates  suggest  that  the  current  250  thousand 
units  completed  annually  need  to  increase  to  350 
thousand, while other broad-based studies suggest 
a  gap  closer  to  200  thousand  units  over  the  next 
five  years,  to  compensate  for  underinvestment 
since 2010. Estimates that take account of official 
statistics  on  construction  costs  per  square  metre 
suggest 
imply 
increasing  residential  investment  by  0.8-1.6 %  of 
GDP.  To  open  up  attractive  urban  space  for  new 
dwellings,  higher  complementary  investment  in 
urban  transport  and  utilities  (e.g.  in  water  supply 
and waste treatment) might also be necessary. The 
latter  does  not  seem  to  have  kept  up,  which  has 
resulted  in  a  decline  capital  stock  and  potentially 
capacity  bottlenecks  (Graph  4.5.8).  Although  the 
rental  price  break 
(‘Mietpreisbremse’)  could 
contain  increases  in  rental  prices  in  the  short  run, 
increases  in  house  prices  are  trickling  down  over 
time.  A  lasting  policy  for  affordable  housing 
requires  an  adequate  supply  response  (see  also 
IMF 2017a). 

the  gap  would 

that  closing 

Graph 4.5.5:  Housing overvaluation gap 

(1) Overvaluation gap estimated as an average of the 
price/income, price/rent and fundamental model valuation 
gaps. Long-term values are computed over 1995-2016. 
Source: European Commission 

Filling  the  housing  supply  gap  could  have  a 
impact  on  the  current  account 
significant 
surplus.  The  large  dip  in  construction  investment 
(as a share of GDP) from the late 1990s until 2015 

40 

25303540455055609597990103050709111315EUR/hourManufacturingMarket services-15-10-50510152025309598010407101316Model-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg. 
 
 
the 

surplus.  Remedying 

was  the  most  significant  change  in  German 
investment  during  the  emergence  of  the  current 
account 
sizeable 
accumulated  shortage  of  housing,  would  have  a 
significant  impact  on  the  current  account.  Given 
historical  elasticities  and  input-output  estimates, 
the  main  impact  of  increasing  investment  in 
housing  would  be  to  push  up  domestic  nominal 
GDP. In addition such a change would also result 
in  spillovers,  strong  effects  in  nominal demand  in 
the rest of the euro area, based on latest estimates 
of 
technology 
coefficients.  Raising  construction  investment  – 
including  also  renovation  and  upgrading  -  by 
EUR 30-60 billion  over  five  years  (i.e.  1-2 %  of 
GDP) to close the supply gap, would thus translate 
into  a  0.25-0.5 pps.  reduction  in  the  current 
account  surplus,  not  taking  secondary  effects  on 
labour  markets,  wages,  etc. 
into  account. 
Eradicating  the  entire  construction backlog  within 
five  years  would  probably  require  an  increase  in 
construction  investment  of  more  than  3  pps.  from 
its current share of 10 % of GDP.  

inter-industry 

international 

it 

The  Federal  Government  has  introduced  a 
number  of  measures  aimed  at  alleviating  the 
shortage  of  dwellings.  First, 
introduced 
Housing  Construction  Campaign,  a  package  of 
measures designed to tackle housing shortages and 
rising  house  prices.  Second,  it  has  committed  to 
contributing  an  annual  EUR 1 billion  over  2016  – 
2019 
to  social  housing  projects  supporting 
families, students, pensioners and refugees. Third, 
to  deal  with  the  ongoing  refugee  crisis,  KfW  has 
made  EUR 1 billion  available  since  2015  for 
municipal  authorities 
to  provide  housing  for 
refugees. Fourth, the urban development assistance 
programme  “Social  City”  focuses  on  stabilising 
and upgrading economically and socially deprived 
urban  areas  and  is  an  example  of  successful 
collaboration among various bodies at federal and 
level.  For  2017,  EUR 190 million  of 
Länder 
funding was made available for this programme. 

4.5. Investment 

Graph 4.5.6:  Gross fixed capital formation in the public 

sector 

Source: Destatis, European Commission 

Public  investment  including  knock-on  effects 
on private investment* 

Public investment is picking up but a significant 
backlog  has  largely  remained  in  place.  Real 
public investment increased robustly in 2015-2017 
in  comparison  to  the  sometimes  negative  growth 
rates in the years before (Graph 4.5.6). This trend 
reflects the efforts by the government to strengthen 
investment, but the public capital stock as a share 
of  GDP 
Investment  as a 
percentage  of  capital  stock  in  the  government 
sector  and  also  public  investment  as  a  percentage 
of public expenditure are lower in Germany than in 
other  EU-15  countries  and  the  euro  area  average 
(43).  The  biggest  fall  since  the  crisis  has  been 
recorded in construction and the only sector, which 
has  expanded  in  line  with  GDP  over  the  years,  is 
intellectual property. 

is  still  declining. 

(43)  With  specific  regard  to  government  investment,  the  gross 
fixed  capital 
the  general 
government  depends  on  the  classification  of  units  and  in 
some  cases  specific  transactions  (European  Commission, 
2016e). 

formation 

recorded 

for 

41 

0.91.11.31.51.71.92.12.32.50.00.20.40.60.81.01.21.41.6000102030405060708091011121314151617% of GDPEquipmentHousingNRCIntang. andoth. assetsTotal (rhs) 
 
 
                                                           
4.5. Investment 

projects 

to  Germany's 

holding back public investment are staff shortages 
and a lack of engineering expertise; funding is less 
of  a  problem.  Staff  reductions  in  recent  years, 
particularly at municipal level, have contributed to 
a  loss  of  skills  and  the  capacity  to  plan,  organise 
and  manage 
investment  projects,  particularly 
relatively  large-scale  ones.  The  government  has 
now  responded  to  this  challenge  by  setting  up  a 
service  agency  (PD  –  Berater  der  öffentlichen 
Hand  GmbH)  that  offers  assistance  in  managing 
investment 
11 000 
municipalities. However, it was not until 2017 that 
the  agency  became  operational,  and  the  take-up 
rate has been rather low so far. Time will tell how 
effective it will prove to be; one issue is the large 
number  of  municipalities,  which  could  create 
capacity bottlenecks at the agency itself. The new 
Infrastructure 
Transport 
(Infrastrukturgesellschaft  Verkehr)  is being set  up 
in  order  to  concentrate  knowledge  and  staff  at 
large-scale 
federal 
investment  projects  more  effectively. 
is 
It 
scheduled  to  be  set  up  in  2018  and  become  fully 
operational  by  2021.  A  comprehensive  long-term 
investment  strategy  could  also  help  incentivise 
more investment by providing clarity and certainty 
about future developments. 

level,  so  as 

to  manage 

Company 

for 

infrastructure  can  have 

Public  investment  in  education,  R&D  and 
digital 
long-term 
crowding-in  effects  on  private  investment.  A 
recent  study  suggests  that  public  investment,  e.g. 
in  digital  infrastructure  and  education,  can  have 
positive  long-term  effects  on  private  investment 
(crowding-in effects) (Krebs and Scheffel, 2016) – 
the  positive  effects  are  also shown  in  the QUEST 
simulations  shown  in  Box  3.1. Public  expenditure 
on  education  has  remained  at  4.2 %  of  GDP  in 
2015  and  below  the  EU  average (44)  of  4.8 % 
across the EU. The national target of 10 % of GDP 
for  spending  on  education  and  research  by  2015 
was  not  met  and  spending  remained  at  9.1 %  of 
GDP  in  2015.  This  corresponds  to  an  investment 
gap estimated at EUR 27.2 billion (0.9 % of GDP; 
German Trade Union Confederation, 2017).  

In  contrast,  public  investment  can  be  expected 
to  crowd  out  some  private  investment  in  the 

(44)  Complete  comparability  of  public  education  expenditure 
can  however  not  be  achieved  because  of  the  different 
organisation  of  work-based  components 
in 
different  Member  States,  where  (private)  expenditure  by 
companies in Germany is considerable. 

in  VET 

Graph 4.5.7:  Net public investment by level of government 

Source: European commission 

net 

large 

in  a 

suffered 

investment 

authorities' 

the  municipalities 

Local 
in 
infrastructure  has  been  falling  for  years, 
resulting 
investment  backlog. 
Municipal authorities are responsible for over half 
of  public  investment,  so  it  is  vital  to  address  the 
challenges  facing  this  level  of  government.  While 
the  federal  government  and  the  Länder  have 
managed  to  keep  their  construction  investment 
stable, 
from  a 
continuous decline. In the early 1990s, about 17 % 
of  their  expenditure  went  on  infrastructure.  The 
figure had dropped to 13 % by 2000 and 10 % by 
2010,  falling  further  to  8 %  by  2016.  The  gravity 
of the reduction in investment can also be seen by 
the  continuously  negative  net 
investment  of 
municipalities  (around  EUR  6  billion  annually 
over  2010-2016,  0.2 %  of  GDP),  as  new 
investments only replace about 80 % of the capital 
stock  lost  through  depreciation  each  year  (Graph 
4.5.7).  According  to  the  yearly  survey  conducted 
by the public development bank KfW (2017a), the 
municipal  investment  backlog  had  reached  about 
EUR 126 billion  (4 %  of  GDP)  by  2017.  Within 
this  backlog,  the  areas  with  the  biggest  shortfall 
(27 %)  and 
are: 
‘Schools  and  education’  (26 %).  Closing 
the 
investment  backlog  at  municipal  level  would 
require  an  additional  annual  public  investment  of 
0.3 % of GDP over the next decade. 

‘Infrastructure  and  streets’ 

Measures  to  bridge  the  gaps  in  the  skills  and 
planning capacity needed for public investment 
have yet to yield results. Two of the main factors 

42 

-0.3-0.2-0.10.00.10.200051015% of GDPFederalStateLocalSSFGeneral 
 
                                                           
4.5. Investment 

construction  sector.  Public  structural  and  civil 
engineering  orders,  including  contracts  for  road 
construction,  are  at  an  historically  high  level  last 
reached  at  the  turn  of  the  century.  Orders  in  the 
road construction sector are peaking. However, the 
surge  in  public  construction  orders  is  coming  up 
against  capacity  bottlenecks  in  the  construction 
sector.  The  current  high  capacity  utilisation, 
combined  with 
lengthy  planning  permission 
processes and construction design procedures, may 
slow  down  increases  in  public  investment.  While 
there  has  so  far  been  no  overheating  (Gornig  and 
Michelsen,  2017a  and  2017b),  price  increases  for 
construction  services  can  be  expected 
(Ifo 
Institute,  2017).  Many  construction  firms  plan  to 
invest  more,  though  skills  shortages  have  been 
reported  as  the  main  bottleneck  for  capacity 
expansion (DIHK, 2017). 

Graph 4.5.8:  Net capital stock by type of activity 

the 

and the take-up of cutting-edge digital innovations. 
However, only 7.3 % of the territory was covered 
by  fibre-based  access  networks,  with  an  EU 
average  of  26.8 %  (IHS  and  Point  Topic,  2018). 
Instead, 
the  German 
incumbent,  where 
government  is  an  anchor  stakeholder,  prefers  to 
use vectoring. Vectoring is a technique to upgrade 
the  existing  copper  cable  networks  used  as  a 
technological  solution 
for  expanding  digital 
networks and connecting new users due to its cost-
effectiveness and currently acceptable data transfer 
capacity.  

The  digital  divide  between  urban,  semi-rural 
and  rural  areas  is  a  particular  challenge. 
Currently only 36.2% of rural areas and 67.7% of 
semi-rural areas have access to fast internet (>= 50 
Mbit/s 
(Federal  Ministry  of  Transport  and 
Infrastructure, 2017) and only 2.4 % of rural areas 
are  covered  with  fibre-based  access  networks 
(Fibre to the Home) (IHS and Point Topic, 2018). 
However,  many  services,  such  as  mobile  health 
devices for monitoring chronic health conditions or 
telemedicine  services  that  can  improve  access  to 
care  for  patients  living  in  remote  or  sparsely 
populated  areas,  rely  on  ultrafast  connectivity.  In 
addition, many of Germany’s SMEs are located in 
semi-rural and rural areas. 

for 

failures 

could  account 

Market 
the 
underinvestment  in  broadband  in  rural  and 
semi-rural areas. Because of the high fixed costs 
of  investment,  unit  costs  increase  significantly  as 
population  densities  drop,  i.e.  in  rural  and  semi-
rural  areas.  If  deployed  on  commercial  terms, 
broadband  networks  therefore  tend  to  profitably 
cover only population in urban areas. However, in 
a  recent  survey  86 %  of  all  the  companies 
interviewed considered broadband rollout to be the 
most  important  task  for  the  new  government 
(Federal  Ministry  for  Economic  Affairs  and 
Energy, 2017c). Widespread and affordable access 
to  broadband  generates  positive  externalities 
because  of  its  capacity  to  accelerate  growth  and 
innovation in all sectors of the economy. Different 
financing  models,  such  as  a  wholesale-only 
approach  or  different  cooperation  models,  could 
facilitate  the  roll-out  of  rural  broadband  (WIK-
Consult, 2017). 

Chain linked volumes 
Source: European Commission 

in 

lagging  behind 

expanding 
is 

communication 
Germany 
is 
networks,  but 
the 
deployment  of  very  high-capacity  broadband. 
The  expansion  of  the  communication  networks 
was  stepped  up  in  2016  (Graph  4.5.8).  The 
deployment  of  a  very  high-capacity  digital 
infrastructure,  including  next-generation  gigabit-
networks(45), is a pre-requisite for competitiveness 

(45)  The Commission’s strategy on Connectivity for a European 
Gigabit  Society,  adopted  in  September  2016,  sets  out  a 
vision  of  Europe  where  availability  and  take-up  of  very 
high  capacity  networks  enable  the  widespread  use  of 

products,  services  and  applications  in  the  Digital  Single 
Market. 

43 

90929496981001021041061081100001020304050607080910111213141516Index, 2008=100ManufacturingEnergyWater & wasteCommunicationsHousingTOTAL 
 
                                                           
                                                                                   
4.5. Investment 

Box 4.5.1: Investment challenges and reforms in Germany 

Section 1. Macroeconomic perspective  

Total  investment  in  Germany  proved  to  be  fairly  resilient  to  the  crisis.  Still,  non-residential  construction 
investment  is  stagnating,  leaving  an  accumulated  backlog  unaddressed  Investment  in  machinery  and 
equipment has picked up and reached pre-crisis levels but is yet to reach pre-crisis intensity (see Chapter 1 
and  Section 4.5).  Investment  in  housing  has  picked  up  since  2010  but  indications  are  that  it  still  needs  to 
catch  up  with  rising  housing  needs.  In  the  next  few  years,  housing  investment  is  expected  to  develop 
dynamically,  while  non-residential  construction  will  require  a  permanent  improvement  in  business 
confidence and the capacity to set up, plan and implement public investment projects. 

Section 2. Assessment of barriers to investment and ongoing reforms 

Barriers  to  private  investment  in  Germany  are  not  related  to  financing  constraints  (see  Section  4.2),  but 
rather to high regulatory burden and shortages of skilled labour. More ambitious liberalisation of regulated 
professions could spur investment in the affected sectors and in the wider economy (European Commission, 
2015b). 

 Main barriers to investment and priority actions underway: 

1. The relatively high level and complexity of corporate taxation and high tax administration costs remains  
a  key  barrier.  While  measures  have  been  taken  to  simplify  certain  areas  of  taxation,  enhance  tax 
administration  and  improve  conditions  for  venture  capital,  no  further  initiatives  have  been  taken  or  are 
planned to review corporate taxation or the local trade tax (Gewerbesteuer). 

2. As the labour market tightens, availability of skilled labour is becoming more of a binding constraint, in 
particular  for  medium-sized  enterprises.  Measures  that  reduce  disincentives  for  working  more  hours  (for 
people working in mini-jobs or second earners), along with a stronger focus on training and adult learning 
could considerably alleviate this constraint. 

3. Regulatory restrictiveness in the services sectors gives rise to low productivity and uncompetitive pricing 
which  affects  also  the  costs  and  performance  of  the  manufacturing  sector.  Limited  action  has  been 
announced with respect to further liberalizing professional services. 

4. The current design of the federal fiscal relations has been a barrier to public investment at municipal level. 
The scope for public investment tends to be narrowed by a mismatch between the available resources of the 
different  layers  of  government  and  their  individual  investment  responsibilities,  and  by  limited  revenue 
autonomy of federal states and municipalities. Several measures have been recently taken to improve public 
investment  conditions  at  municipal  level.  The  agreed  reform  of  federal  fiscal  relations  should  further 
increase investment possibilities at municipal level, even though it falls short of more fundamental changes 
in terms of increasing tax autonomy of federal states and municipalities.  

44 

Regulatory/ administrative burdenTaxationCSRPublic administrationCSRAccess to financePublic procurement /PPPsCooperation btw academia, research and businessJudicial systemFinancing of R&D&ICSRInsolvency frameworkBusiness services / Regulated professionsCSRCompetition and regulatory frameworkRetailEPL & framework for labour contracts ConstructionWages & wage settingDigital Economy / TelecomEducation EnergyLegend:TransportNo barrier to investment identifiedCSRInvestment barriers that are also subject to a CSRSome progressNo progressSubstantial progressLimited progressFully addressedPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
 
Business environment 

new  powers  could  help  advance  the  development 
of eGovernment services. 

environment 

Efforts to reduce the bureaucratic burden have 
had some effect but could still be strengthened, 
for  example  to  further  improve  conditions  for 
start-ups.  Germany  has  a  favourable  business 
environment  and  is  ranked  20th  out  of  190  in  the 
2018 World Bank Doing Business Review (World 
Bank  ,  2017).  While  most  sub-indicators  are  high 
in the ranking, disadvantages remain regarding the 
administrative  burden  for  starting  a  business  and 
for  registering  property.  Several  measures  have 
been  taken  over  the  last  years  to  improve  the 
business 
the 
administrative  burden  for  businesses,  including 
two laws to reduce red tape and the introduction of 
a ‘one-in, one-out’ rule to avoid a further increase 
in the administrative burden. Some measures have 
also  been  taken  in  recent  years  to  make  public 
procurement procedures simpler, more flexible and 
more  user-friendly.  However,  the  friendliness  of 
the  tax  system  for  private  investment  still  ranks 
low by EU-wide comparison. Small businesses and 
start-ups  would  particularly  benefit from  reducing 
inefficiencies  in  taxation  and  modernising  the  tax 
administration,  including  by  further  enhancing 
electronic services (European Commission, 2017f). 

reduce 

and 

Public administration 

the 

(European 

Commission, 

lowest  online 

is  not  using 

Germany 
the  potential  of 
eGovernment.  It  is  one  of  the  EU  countries  with 
interaction  between  public 
the 
authorities  and  citizens.  Only  19 %  of  Germans 
with  internet  access  use  eGovernment  services 
actively 
2017g). 
According  to  the  eGovernment  Monitor  2017 
(Initiative D21, 2017), the use of eGovernment and 
satisfaction  with  its  services  actually  decreased 
over 
last  year.  Currently,  eGovernment 
services are fragmented and not very user-friendly. 
Following  an  amendment  to  the  Basic  Law, 
adopted 
the  Federal 
Government  now  has  the  legislative  powers  to 
design access to the administrative services of the 
federal  and  Länder  authorities,  including  the 
the 
municipalities.  The  accompanying 
Act 
Online 
(‘Onlinezugangsverbesserungsgesetz’), 
stipulates 
that  the  Federal  Government,  Länder  and  local 
authorities must offer their administrative services 
online  within  five  years  and  make  them  easily 
accessible  via  a  linked  network  of  portals.  These 

in  December  2016, 

Improvement 

Access 

law  – 

Germany  is  lagging  behind  other  EU  countries 
in  deploying  and  using  eHealth.  While  almost 
half  of  the  population,  in  Estonia  and  Finland 
(49 %)  use  online  health  services  from  time  to 
time,  according  to  a  2017  Eurobarometer  survey, 
only  for  7 %  of  Germans  do  so.  (European 
Commission,  2017g)  This  corresponds  with  the 
comparatively 
low  adoption  of  eHealth  both 
among general practitioners and hospitals, an area 
in which Germany scored below the EU average in 
a  Commission  survey  (European  Commission, 
2013 
federal 
government’s  eHealth  law  of  2015  sets  inter  alia 
milestones for the deployment of a digital eHealth 
infrastructure  and  the  comprehensive  use  of  the 
electronic health card in all medical establishments 
as  from  mid-2018,  it  is  still  unclear  whether  this 
objective will be met. 

and  2014b).  Although 

the 

Public procurement* 

Higher  publication  rates  could  improve  the 
quality  of  services  and  allow  for  further 
efficiency gains. At 1.2 % of GDP, Germany has, 
for  years,  recorded  the  EU's  lowest  values  for 
contracts  published  under  EU  rules  (the  EU 
average is 4.25 % of GDP). In the health sector the 
incidence  of  non-publication  and  the  number  of 
cases  in  which  only  one  bid  is  received  are 
striking. Examples include the purchase of medical 
imaging  equipment  or  medicinal  products.  In 
general,  the  lack  of  data  is  a  problem.  The 
regulation  on  public  procurement 
statistics 
(‘Vergabestatistikverordnung’)  –  once  operational 
–  is  a  step  in  the  right  direction  to  improve  this 
situation.  

A smarter use of public procurement could also 
encourage innovation. Despite the introduction of 
a  centre  of  excellence  for  innovative  public 
procurement in 2013, only limited progress seems 
to  have  been  made  at  federal  and  regional  level 
towards  encouraging  innovation  through  public 
procurement.  The  fact  that  67 %  of  contracts  are 
still awarded on the basis of the lowest price offer 
may also be an obstacle to innovation. 

45 

 
 
4.6.   SECTORAL POLICIES 

Innovation,  venture  capital,  entrepreneurial 
activity and digital economy*  

Research and Innovation 

Germany is one of the EU’s innovation leaders, 
but  in  a  context  of  slow  productivity  growth 
and negative demographic trends, the challenge 
is  to  secure  its  competitive  position  at  the 
forefront  of  research  and  innovation.  With 
2.94 %  of  GDP  in  2016,  Germany  has  the  3rd 
highest  R&D  intensity  in  the  EU,  but  there  are 
significant  disparities  at  regional  level.  There  has 
been a consistent upward trend in total public and 
private R&D expenditure in the last decade. While 
business  R&D  intensity  increased  by  0.3 pps. 
between 2007 and 2016, public R&D intensity rose 
by only 0.2 pps. A more ambitious R&D intensity 
target  of  3.5 %  was  proposed  by  the  Expert 
Commission on Research and Innovation.  

research 

Over  the  last  few  years  Germany  has  taken 
measures to further strengthen its already solid 
research and science base, but there is scope for 
scientific  excellence  to  improve.  Germany  has  a 
solid science base, supported by initiatives such as 
the Pact for Research and Innovation, which funds 
science  and 
the  Higher 
Education  Pact,  which  supports  higher  education 
the 
institutes 
Excellence Strategy, a successor programme to the 
Excellence 
tenure-track 
programme  to  support  young  scientists.  However, 
Germany currently ranks only 8th in the EU on the 
key  indicator  reflecting  scientific  excellence. (46) 
This suggests there is scope for further progress. 

in  providing  quality  education; 

Initiative; 

institutes; 

and 

the 

Though  overall  cooperation  between  public 
research  institutes  and  firms  is  strong,  SMEs 
still  face  challenges  in  benefiting  from  it. 
Germany's  policies  to  encourage  science-business 
cooperation (e.g. the Fraunhofer Society) are often 
taken  as  examples  of  worldwide  best  practice. 
However, the country's high scores on the relevant 
indicators (47),  are  often  the  result  of  strong 

(46)  The proportion of the country's scientific publications that 
rank among the top 10 % most cited scientific publications 
worldwide. 

(47)  With  a  volume  of  public  R&D  financed  by  business 
enterprises  representing  0.12 %  of  GDP  in  2014  (EU 
average:  0.052 %),  Germany  ranks  first  among  EU 
countries.  It  ranks  3rd  in  public-private  scientific  co-
publication  as  a  share of  the  total  number of  publications, 
with 3.5 % in 2015 (EU average: 2.8 %). 

cooperation  between  mainly  large  manufacturing 
companies  and  public  research  institutes.  As 
regards the rate of cooperation between SMEs and 
academia  or  research  institutes,  Germany  scores 
only  slightly  above  the  EU  average,  according  to 
the Community Innovation Survey 2014. 

investment 

sectors,  particularly 

in  R&D  has  been 
Private 
increasingly  concentrated  in  large firms and  in 
medium-high tech manufacturing. While overall 
business  expenditure  on  R&D  shows  strong 
growth  rates,  R&D  has  become 
increasingly 
concentrated  in  large  firms  and  in  medium-high-
tech  manufacturing 
the 
automotive  sector.  While  SMEs'  R&D  intensity 
has  remained  static  over  the  past  decade  (Graph 
4.6.1),  the  R&D  intensity  of  large  companies  has 
increased  considerably 
(KfW,  2017b;  ZEW, 
2017c).  SMEs'  expenditure  on  R&D  at  0.17 %  of 
GDP  is  also  much  lower  than  the  EU  average  in 
2015 (0.30 %). Political discussion has returned to 
considering  tax  incentives  for  business  R&D, 
which,  if  appropriately  designed,  could  foster 
R&D  investment  also  in  young  and  innovative 
firms. 

Employment in fast-growing firms in innovative 
sectors (48)  has  fallen,  as  has  the  share  of 
innovative  firms  and  entrepreneurship  overall. 
The  latest  data  show  that  the  proportion  of  total 
jobs  for  which  high-growth  innovative  firms 
account  has  fallen  and  that  Germany's  score  is 
below  the  EU average. (49)  Similarly,  the  share  of 
innovative  businesses  as  a  percentage  of  the  total 
has  fallen,  although  it  continues  to  be  the  highest 
in  the  EU  (50)  (KfW,  2017b;  ZEW,  2017c). 
Moreover,  though  there  are  some  very  dynamic 
start-up environments in large cities such as Berlin, 
the  overall  trend  in  entrepreneurship  is  negative. 
This  applies  to  all  sectors,  including  knowledge-

(48)  Number  of  employees  in  high-growth  enterprises  (HGEs) 
in  the  50 %  most  innovative  sectors,  as  a  share  of  total 
employment  for  enterprises  with  10  or  more  employees. 
HGEs  are  defined  as  enterprises  with  an  average  annual 
growth  in  employees  greater  than  10 %  a  year,  over  a 
three-year  period,  and  with  10  or  more  employees  at  the 
beginning of the observation period. 

(49)  The  share  of  employment  in  fast-growing  enterprises  in 
innovative sectors fell from 5.9 % in 2012 to 4.5 % in 2014 
(EU average: 4.8 %). 

(50)  According 

the  Community 

Innovation  Survey, 
to 
ten  employees  or  more 
innovative  enterprises  with 
accounted for 79 % of the total in 2010, falling to 67 % by 
2014  (whereas  the  EU-average  share  fell  from  53 %  in 
2010 to 49 % in 2014). 

46 

 
 
                                                           
                                                           
4.6. Sectoral policies 

intensive  ones.  The  firm  birth  ratio (51)  has  been 
declining  in  recent  years,  falling  from  9.2 %  in 
2008 to 7.1 % in 2015, well below the EU average 
of  9.6 %.  The  negative  trends  observed  may  be 
explained  in  part  by  the  favourable  labour  market 
situation,  with  good  job  opportunities  making 
entrepreneurship  less  attractive.  However,  these 
downward trends might also reflect the first effects 
of an ageing population. Demographic trends may 
have  an  increasing  impact  on  entrepreneurial 
activity  in  the  coming  years,  including  on  the 
transfer of existing businesses.  

Graph 4.6.1:  Business expenditure on R&D (BERD) 

performed by SMEs 

capital  gains  (see  also  Section  4.1).  To  encourage 
more  investment  in  the venture  capital  market,  an 
important  milestone  was  achieved  in  2017  in 
providing investors with an exit option. ‘Deutsche 
Börse  Network’  provides  support  to  SMEs  which 
are  considering  going  public,  and  a  new  SME 
stock  market  segment,  ‘Scale’,  was  launched  in 
March 2017, replacing the previous entry standard. 

leaders.  Seed  and  early 

However,  the  venture  capital  market  remains 
less  developed  compared  to  other  international 
innovation 
stage 
financing has recovered since the beginning of the 
financial  crisis  in  2008.  However,  at  0.03 %  of 
GDP in 2016, it falls well below the levels in other 
EU  countries  such  as  Ireland  (0.08 %),  Finland 
(0.04 %),  and  below 
(0.05 %)  and  Sweden 
international  competitors  such  as  the  US  (Graph 
4.6.2). 

Graph 4.6.2:  Venture capital investment (market statistics) 

in 2016 

(1)EU: The values were estimated by DG Research and 
Innovation. (2)ES, LU, NL, RO, SI, UK: Beaks in series  
Source: Eurostat 

Entrepreneurship and access to finance  

activity, 

entrepreneurial 

A  number  of  measures  have  been  taken  to 
strengthen 
and 
especially to attract  private  investments  in  risk 
capital. A law was passed to extend the use of loss 
carry-forwards,  which  can  be  relevant  to  young 
and innovative companies. Moreover, an ‘ERP/EIF 
growth  facility’  co-investment  fund  of  EUR  500 
million  was  launched  in  March  2016  to  support 
later-stage  financing  of  innovative  companies. 
Following a detailed evaluation in 2016, the scope 
of the INVEST programme was further widened in 
June 2017 and now includes an exit grant of 25 % 
of  capital  gains  to  compensate  for  taxation  of 

(51)  Births  of  enterprises  as  a  percentage  of  the  population  of 

active enterprises. 

Source: Invest Europe, Eurostat. 

lack  of  sufficient  scale-up  capital 

The 
is 
considered  to  be  an  impediment  to  the  growth 
of  domestic  start-ups.  Most  efforts  in  Germany 
have  been  focused  on  supporting  early-stage 
financing.  The  availability  of  later  rounds  of 
financing  at  the  capital-intensive  scale-up  phase, 
on  the  other  hand  (later  stage  venture  capital  and 
growth  financing)  is  still  very  subdued  and  is 
considered a constraint on the growth of domestic 
start-ups  (EFI,  2017).  The  main  reason  for  this  is 
the  scarcity  of  sufficiently  large  amounts  of 
finance  and  of 
large  venture  capital  funds. 
Initiatives to encourage institutional investors such 
as  insurance  companies  to  invest  in  this  market 

47 

0.00.10.20.30.40.50.6EU(1)FIDKSENLUKDE% of GDP20072015IEFISEFRESLVEEDKDEUK0.000.020.040.060.080.100.120.1420072016200720162007201620072016200720162007201620072016200720162007201620072016% of GDPSeed plus start-upLater stage 
 
                                                           
 
4.6. Sectoral policies 

replied  that  they  lacked  skilled  employees.  There 
were  55 000  open  ICT  positions  in  October  2017 
(BITKOM, 2017). Skills shortages have become a 
major obstacle to the digitisation of the economy. 

To  help  SMEs  catch  up  with  digitisation,  the 
government  is  extending  a  network  of  SME 
competence  centres.  The  main  purpose  of  the 
centres is to inform SMEs about the potential that 
digitisation  offers.  The  centres  support  SMEs  in 
testing advanced technologies and in training staff. 
Since  July  2017,  the  support  programme  ‘go 
digital’ has been providing consultancy services to 
SMEs  all  over  the  country.  Digital  hubs  are 
promoting  closer  cooperation  between  start-ups, 
SMEs, industry, science and administration. 

Competition in product and services markets* 

is  still  a  high 

industries.  In  Germany, 

level  of  regulatory 
There 
in  Germany,  especially  as 
restrictiveness 
regards  business  services  and  administrative 
formalities 
for  cross-border  provision  of 
services.  Churn  rates  in  key  business  services 
sectors such as legal, accounting, architectural and 
engineering  activities  in  Germany  are  below  the 
EU  average,  while  gross  operating  rates  in  these 
sectors  are  above  the  EU  average,  suggesting 
lower  competitive  pressures.  Because  of  services’ 
role  as  intermediate  inputs,  lower  regulation  of 
services  increases  productivity  in  downstream 
service-intensive 
this 
applies  particularly  to  manufacturing,  where  the 
share of services in the value chain is estimated at 
35.9 %.  So  far,  no  far-reaching  reform  measures 
have  been  taken  to  stimulate  competition  in 
business services. Germany introduced two limited 
legislative  changes  in  2017.  First,  after  expiry  of 
the transposition period for Directive 2013/55/EU, 
Germany adopted a law to transpose these rules for 
patent  agents  as  well.  Secondly,  the  law  on  tax 
advisors  (‘Steuerberatungsgesetz’)  was  amended 
in  line  with  the  ECJ  ruling  in  case  C-342/14  to 
ensure transparency and legal certainty, especially 
as  regards 
tax  consultancy 
services  by  companies  established  in  another 
Member State. 

the  provision  of 

Providers  of  collaborative  economy  services 
face  uncertainty  in  Germany.  The  absence  of  a 
federal policy strategy, the divergent policies taken 
by  the  German  Länder  and  multiple  court  rulings 
the 
legal  uncertainty  for  actors 
lead 

in 

to 

could  help  bridge  this  gap.  Recently,  support  for 
developing  venture  debt 
in  Germany  was 
introduced into the political debate, with a view to 
providing an alternative source of capital for start-
ups.  

Skill  shortages  have  become  the  main  obstacle 
to  innovation,  especially  for  SMEs.  Exacerbated 
by the adverse demographic trend, skills shortages 
have  become  a  major  obstacle  for  companies. 
According  to  the  2017  DIHK  Innovation  Report 
(DIHK, 2017), 82 % of businesses report shortages 
of skilled people as an obstacle to their innovation 
activities.  This  is  a  particular  problem  for  SMEs. 
According  to  the  DIHK  report,  other  obstacles  to 
business  innovation  include  the  administrative 
the 
burden 
development  and  use  of  chemicals,  for  example) 
and  the  lack  of  broadband  internet,  an  obstacle 
reported  by  65 %  and  58 %  of  businesses 
respectively. 

procedures 

approval 

(for 

or 

Digital economy 

German  businesses,  particularly  SMEs,  are 
adapting  slowly  to  digitisation.  Any  business 
missing out on digital opportunities will be unable 
to  sustain  the  competitive  pressure  from  more 
highly  digitalised  rivals.  ‘Industrie  4.0’  is  a 
national  strategic  initiative  introduced  by  the 
German  government.  It  aims  to  drive  digital 
manufacturing forward, brings together all relevant 
stakeholders and provides policy recommendations 
and  practical  guidance  to  further  support  and 
accelerate  the  adoption  of  technology  at  company 
level. Digital economy business models frequently 
provide  a  starting  point  for  innovative  start-ups. 
10-249 
Medium-sized 
employees) are, however, slow adopters, and 29 % 
of  them  have  a  low  level  of  digitisation.  Only 
5.3 % of German SMEs, for example, use big data 
analytics, compared with almost 10 % of European 
SMEs  (European  Commission,  2017h).  Some 
sectors  are  a  long  way  behind  with  digitisation, 
particularly  the  health  sector.  Many  firms  are 
unaware  of  the  potential  benefits  of  digitisation 
(Federal  Ministry  for  Economic  Affairs  and 
Energy, 2017c). Another reason why businesses do 
not  invest  more  in  new  digital  business  models  is 
the  lack  of skilled  personnel.  In 2016 SMEs  were 
asked what was preventing them from digitalising 
their  business.  67  %  replied  that  there  was  a  lack 
of  ICT  skills  in  their  workforce,  while  55 % 

companies 

(with 

48 

 
4.6. Sectoral policies 

Deutsche  Bahn  offering  transport  services.  The 
Court underlined the need for these accounts to be 
published,  to  ensure  external  transparency  in  the 
use of public funds.  

Energy, resources and climate change* 

production 

in  Germany 

The  adaptation  of  electricity  networks  to 
renewables 
is 
progressing, but at a slow pace, and significant 
investment  in  transmission  and  distribution 
grids  remains  outstanding.  Substantial  delays  in 
carrying  out  many  projects  have  occurred  due  to 
delays  in  planning  procedures,  the need  to further 
promote 
the  synchronisation  of  network  and 
renewables  development,  as  well  as  outstanding 
decisions  in  relation  to  network  development  and 
investment expected to be made with the network 
development  plan  in  2019.  These  delays  have 
resulted  in  considerable  costs  for  German  and 
European  electricity  networks  and  electricity 
markets.  Market  intervention  by  system  operators 
remains significant, although both redispatch costs 
and feed-in management measures (curtailment of 
2016 
renewable 
compared  to  2015:  EUR  220  million  redispatch 
costs  (2015:  EUR  412  million),  EUR  373  million 
for feed-in management measures (2015: EUR 478 
million). 

generation) 

decreased 

in 

as 

current 

countries, 

the  borders.  The 

The  lack  or  shortage  of  north-south  internal 
lines  constrain  the  trade  in  electricity  with 
cross-border 
neighbouring 
relevant domestic congestions tend to be pushed 
to 
congestion 
management and price-zone definition in Germany 
and  in  Central  Europe  do  not  always  address 
limiting  cross-
congestion  appropriately, 
border  flows  of  electricity.  While  the  bilateral 
agreement  between  Germany  and  Austria  and 
Germany and Denmark, respectively, on an interim 
solution  to  this  problem  is  a  step  in  the  right 
direction,  further  discussions  with  neighbouring 
countries  are  needed  if  the  agreement  is  to  be 
implemented smoothly. 

thus 

collaborative  economy  (see  Box  4.6.1  for  further 
details).  For  example,  the  Berlin  legislation  on 
short-term  accommodation  services  has  been 
in  several  (partly)  pending  court 
challenged 
proceedings.  This  has  caused  doubt  on  whether 
and  how  to  apply  the  rules.  In  the  passenger 
transport  sector,  certain  services  were  prohibited 
by  court  decisions;  but  appeals  were  brought 
before  the  Federal  Court  which  requested  a 
preliminary  ruling  regarding  compliance  with 
Union law. 

as 

both 

regards 

Germany  displays  a  high  level  of  regulatory 
restrictiveness 
retail 
establishments  and  retailers'  daily  operations. 
Restrictive  spatial  planning  rules  in  some  Länder 
are  having  a  negative  impact  on  retail  market 
dynamics,  hampering  the  establishment  of  certain 
retail  formats  which  offer  a  wider  range  of 
complementary  products  (Holland  van  Gijzen 
Advocaten, 2016). 

Railways 

train 

distribution 

The  market  share  of  new  entrants  in  the  long-
distance  passenger 
services  market 
remains  below  1 %.  One  of  the  key  factors 
hindering  market  entry  is  the  restricted  access  to 
channels.  The  German 
ticket 
Monopolies  Commission  recommends  that,  since 
using  the  distribution  channels  of  Deutsche  Bahn 
AG  is  crucial  for  its  competitors,  the  company 
should  not  be  allowed  to  refuse  unilaterally  to 
cooperate  on  tariffs  and  ticket  sales  (German 
Monopolies Commission, 2017). In addition, high 
track  access  charges  result  in  very  high  operating 
costs of railway undertakings.  

In  June  2017, 

The  existing  legal  framework  may  also  be 
impeding  competition. 
the 
European  Court  of  Justice  found  that  Deutsche 
is 
Bahn's  accounting  rules  are  such 
impossible 
the 
prohibition on transferring public funds earmarked 
for  infrastructure  management  to  the  branch  of 

to  monitor  compliance  with 

that 

it 

49 

 
4.6. Sectoral policies 

Box 4.6.1: Collaborative economy 

The  German  government  encourages  a  broad  discussion  on  digital  economy  and  platforms.  It  launched  a 
'Digital Strategy 2025' in 2016, and in 2017 published a 'White Book on Digital Platforms', which presents 
practical  proposals  for  "digital  governance".  Although  a  number  of  measures  and  projects  have  been 
initiated,  these  efforts  have  not  yet  translated  into  a  strategy  on  the  collaborative  economy,  which  could 
generate  opportunities  for  citizens,  as  users  of  new  and  innovative  services  or  as  micro  entrepreneurs,  as 
well as for traditional service providers in terms of new business channels. 

Currently, policy and regulation differ because of the federal system considerably across regions and cities, 
for example regarding short-term accommodation and passenger transport. In Berlin, regional legislation de 
facto  prohibits  all  use  of  residential  property  for  any  other  purposes  than  long-term  housing.  As  of  the 
second time, renting out more than 50% of a property for a period of less than two months is subject to prior 
authorisation. Exceptions are possible but are subject to strict criteria (e.g. an equivalent property has to be 
made  newly  available  to  the  property  market  or  the  host's  personal  livelihood  is  directly  at  risk).  Also  in 
Munich, short-term rental of entire properties is subject to authorisation, namely where more than 50% of 
the main residence is rented out, or the property is rented out for longer than eight weeks in a calendar year. 
This  could  be  the  case  where  less  than  50%  of  the  property  is  rented  out  for  a  maximum  period  of  eight 
weeks per year. In the field of passenger transport, services may only be provided as 1) traditional taxi, 2) 
hire cars with drivers, or 3) non-profit ridesharing. Due to the level of restrictiveness in the first category, 
collaborative  economy  services  would  mostly  be  offered  as  hire  cars  with  drivers.  There  is  no  maximum 
number  of  licences.  However,  even  if  all  criteria  are  met,  local  authorities  can  still  deny  the  license  on 
various grounds (including the protection of local taxi trade). 

The German Monopoly Commission already in 2014 expected particular economic and efficiency gains in 
the  taxi  market.  A  recent  Commission  Study  on  passenger  transport  (European  Commission,  2016a) 
suggests that so far only 2-3 % of mediated taxi rides were set up via smart-phone apps. This represents only 
0.4 % on the entire taxi market and indicates further potential.  

in 

the  highest 

Retail  electricity  prices  in  Germany  remain 
among 
the  EU,  despite 
competitive  wholesale  markets  and  falling 
wholesale  prices.  Although  wholesale  prices  are 
relatively low (about 25 % below the EU average) 
and falling (-23.4 % between 2013 and 2016), and 
despite  competitive  retail  markets  with  high 
switching rates, household electricity prices rose in 
the same period by 1.9 %, to 29.8 cents/kwh. This 
is  about  45 %  above  the  EU  average.  Prices  on 
wholesale markets fell by 3 % on spot markets and 
by  12  %  on  future  markets.  The  decoupling  of 
developments on the German wholesale and retail 
consumer 
hamper 
markets 
participation  through  demand-side  flexibility,  e.g. 
through  more  real-time  electricity  contracts.  The 
activation  of  such  services  requires  price  signals 
from  the  wholesale  market  to  be  passed  on  to 
consumers, 
to 
scarcities in the market.  

incentivise 

to  react 

active 

could 

them 

to 

The huge discrepancy between developments in 
the  wholesale  and  the  retail  sector  can  be 
explained  by  the  large  shares  of  taxes  and 
levies,  with  exemptions  of  some  sectors,  for 

example from the renewable surcharge. At 53.6 
%  of  the  household  electricity  price,  taxes  and 
levies are substantially higher than the EU average 
(36  %)  imposing  on  households  both  the  costs 
resulting  from  support  schemes  for  generation 
capacity  and  the  exemptions  of  energy  intensive 
sectors.  

Germany  is  not  on  track  to  reach  its  national 
indicative energy efficiency targets by 2020. Up 
to 2015, energy-intensity decreased in parallel with 
the  EU  average.  However,  there  appears  to  be  a 
considerable  risk  that  Germany  will  not  meet  its 
target. It needs to make considerable further efforts 
to  reduce  energy  consumption  in  the  run-up  to 
2020. 

the  German  Federal  Government 
While 
adopted  a  National  Action  Plan  on  Energy 
Efficiency, further measures to improve energy 
efficiency in transport have untapped potential. 
to 
Germany's  efficiency  policies  are  subject 
continuous  review,  also 
the 
light  of 
development of a national energy and climate plan 
on  which  Germany  is  advanced.  Germany  has 

the 

in 

50 

 
4.6. Sectoral policies 

the 

launched  a  ‘green  paper’  process,  designed  to 
the  ‘efficiency  first’  principle,  and 
establish 
involving  stakeholders.  Given 
increased 
urbanisation and population density of urban areas 
in  Germany,  and  since  the  share  of  collective 
passenger  transport  has  increased  only  slightly, 
measures to promote public transport - as opposed 
transport  -  could 
to 
represent  a  fresh  opportunity  for  more  energy-
efficient transport. 

individual,  fossil-fuelled 

Germany has made  substantial efforts to  make 
its  building  stock  more  energy-efficient.  Since 
the  political  push  to  decarbonise  the  economy, 
Germany  has  set  a  comprehensive  regulatory  and 
policy  framework.  Between  2006  and  2016, 
4.6 million  dwellings  were  either  refurbished,  or 
designed and built to be energy-efficient. 

track 

to  meet 

Germany  appears  on 
its 
Europe2020  renewable  energy  target.  With  a 
renewables  share  in  final  energy  consumption  of 
14.8 % in 2016, Germany was above its indicative 
trajectory  of  11.3 %  for  2015-2016  and  3.2 
percentage  points  below  its  2020  target  of  18 %. 
Germany  aims  to  increase  the  proportion  of 
electricity  from  renewable  sources  in  its  energy 
mix from 32.2 % in 2016 to 40-45 % in 2025 and 
55-60 %  in  2035.  A  revised  renewable  energy 
sources  act  adopted  in  July  2016  (Erneuerbare 
Energien  Gesetz,  EEG  2017)  governs  the  support 
system for most renewable electricity generation in 
Germany.  Among  other  things,  the  new  law 
stipulates that levels of support for more renewable 
energy projects must be determined by competitive 
auctions. 

Germany  is  expected  to  miss  its  nationally  set 
emissions  reduction  target  for  2020  by  4 pps. 
Germany  has  set  itself  the  target  of  cutting 
greenhouse  gas  emissions  by  40 %  between  1990 
and  2020.  Thus,  the  Climate  Action  Programme 
2020  and  the  NAPE  were  developed.  In  2016, 
emissions  were  estimated  at  27.3 %  below  1990 
levels.  A  projection  report  submitted  under  the 
Regulation 
Mechanism 
Monitoring 
(Projektionsbericht  2017)  concluded  that  current 
(as of July 2016) and planned policies do not yield 
the  required  additional  emissions  reduction  by 
2020,  as  the  results  of  the  planned  measures  are 
expected  to  materialise  only  after  2025.  As  a 
result, emissions in 2020 are expected to be 36 % 
below 1990 levels. 

the 

(e.g. 

agricultural, 

Germany is expected to miss its EU 2020 Effort 
Sharing  Decision  (ESD)  target.  EU  law  requires 
a reduction in greenhouse gas emissions in sectors 
that  are  not  covered  by  the  EU  Emission  Trading 
System 
residential, 
commercial,  transport,  and  waste  management 
sectors)  by  14 %  between  2005  and  2020. 
Preliminary  data  indicates  that  Germany  reached 
its  Effort  Sharing  Decision 
target  for  2016. 
However,  Germany’s  projection  report  indicates 
that,  under  current  policies, 
the  2020  ESD 
emission  reduction  target  will  be  missed  by  a 
margin of 3.3 pps. 

The  transport  sector  is  expected  to  achieve 
relatively  limited  emission  reductions.  Under 
current  policies,  Germany’s  projection  report 
concludes that emissions in the transport sector are 
expected  to  fall  by  1 %  between  2005  and  2020. 
As total emissions in Germany are expected to fall 
faster  over  the  same  period,  transport  sector 
emissions  as  a  proportion  of  total  emissions  in 
Germany are expected to rise to 20 % (an increase 
of  3 pps.)  Despite  efforts  to  support  and  increase 
the use of electric vehicles in Germany, the target 
of 1 million electric cars on German roads by 2020 
is unlikely to be met. 

Despite  an  ambitious  policy  approach  and  the 
various  measures  already  in  place,  there  is  a 
risk  that  Germany  will  miss  its  own  resource 
productivity  objectives.  As  early  as  2002,  the 
sustainable 
Federal  Government  adopted  a 
development strategy which included the objective 
of  doubling  German  resource  productivity  by 
2020, compared with 1994. The latest figures show 
that improvements in resource productivity during 
the  last  five  years  suggest  that  the  indicator  will 
just  reach  60 %  of  the  set  goal  (Federal  Ministry 
for 
the  Environment,  Nature  Conservation, 
Building and Nuclear Safety, 2015). 

Emissions  of  several  air  pollutants  are  above 
legal  limits  and  water  pollution  remains  a 
serious  concern.  Despite  significant  emission 
reductions  in  recent  years,  total  emissions  for 
nitrogen  oxides,  volatile  organic  compounds  and 
ammonia  are  above 
the  current  ceilings  for 
acceptable  levels.  Nitrogen  oxide  limits  are  being 
exceeded partly as a result of pollutants emitted by 
diesel  vehicles.  Over 
last  years,  newly-
registered diesel passenger cars did not perform as 
aimed  at  by  regulators  as  some  of  them  were 

the 

51 

 
4.6. Sectoral policies 

equipped  with  software  that  disactivated  built-in 
powerful  emission-reduction  technologies  while 
the  cars  were  in  normal  use.  The  economic  costs 
related  to  air  pollution  are  estimated  to  include 
27 million working days lost each year because of 
illness,  with  associated  costs  to  employers  of 
EUR 3 500 million/year,  and  healthcare  costs  of 
(European 
above  EUR  240-466 million/year 
Commission,  2017i).  There 
is  evidence  of 
significant  unsolved  water  pollution  problems 
caused  by  nitrates,  especially 
in  areas  with 
intensive farming. In the long term this will lead to 
higher  costs  for  water  treatment.  Experts  estimate 
that the  consumer  price  will  rise  by  at  least 32  % 
per  year  to  ensure  that  drinking  water  meets 
sufficiently 
standards 
(Umweltbundesamt, 2017). 

quality 

high 

52 

 
ANNEX A  

OVERVIEW TABLE 

Commitments 

2017 country-specific recommendations (CSRs) 

CSR1:  While  respecting 
the  medium-term 
objective,  use  fiscal  and  structural  policies  to 
support  potential  growth  and  domestic  demand 
as well as to achieve a sustained upward trend in 
investment.  Accelerate  public  investment  at  all 
levels  of  government,  especially  in  education, 
research  and  innovation,  and  address  capacity 
infrastructure 
and  planning  constraints  for 
investments. Further improve the efficiency and 
investment-friendliness  of 
tax  system. 
Stimulate  competition  in  business  services  and 
regulated professions. 

the 

…use  fiscal  and  structural  policies  to  support 
potential  growth  and  domestic  demand  as  well 
as  to  achieve  a  sustained  upward  trend  in 
investment. 

Summary assessment (52)  

Germany  has  made  limited  progress  in  addressing 
CSR 1  (this  overall  assessment  of  CSR 1  does  not 
include  an  assessment  of  compliance  with  the 
Stability and Growth Pact): 

  Limited  progress  has  been  made  in  achieving  a 
sustained upward trend in investment. The public 
investment  share  of  GDP  for  2017  remained 
largely  unchanged  compared  to  the  two  years 
before. 

  June  2017:  The  federal  government  decided  to 
invest  additional  funds  in  transport  infrastructure 
in 2018. 

(52)  The following categories are used to assess progress in implementing the 2017 country-specific recommendations (CSRs): 

No progress: The Member State has not credibly announced nor adopted any measures to address the CSR. This category covers a 
number  of  typical  situations,  to  be  interpreted  on  a  case-by-case  basis  taking  into  account  country-specific  conditions.  They 
include the following: 
 

no  legal,  administrative,  or  budgetary  measures  have  been  announced  in  the  national  reform  programme,  in  any  other 
official  communication  to  the  national  Parliament/relevant  parliamentary  committees  or  the  European  Commission, 
publicly (e.g. in a press statement or on the government's website);  
no non-legislative acts have been presented by the governing or legislative body;   
the Member State has taken initial steps in addressing the CSR, such as commissioning a study or setting up a study group 
to analyse possible measures to be taken (unless the CSR explicitly asks for orientations or exploratory actions). However, 
it has not proposed any clearly-specified measure(s) to address the CSR. 

 
 

Limited progress: The Member State has: 

 
 

 

announced certain measures but these address the CSR only to a limited extent; and/or 
presented legislative acts in the governing or legislative body but these have not been adopted yet and substantial further, 
non-legislative work is needed before the CSR is implemented;  
presented non-legislative acts, but has not followed these up with the implementation needed to address the CSR. 

 
 

Some progress: The Member State has adopted measures:  
that partly address the CSR; and/or  
that address the CSR, but a fair amount of work is still needed to address the CSR fully as only a few of the measures 
have  been  implemented.  For  instance,  a  measure  or  measures  have  been  adopted  by  the  national  Parliament  or  by 
ministerial decision, but no implementing decisions are in place. 

Substantial progress: The Member State has adopted measures that go a long way towards addressing the CSR and most of them 

have been implemented. 

Full implementation: The Member State has implemented all measures needed to address the CSR appropriately. 

53 

 
 
                                                           
 
 
 
 
 
 
 
A. Overview table 

  August  2017:  Additional 

funding  of 
Investment  Promotion  Fund 

the 
Municipal 
for 
modernizing  school  buildings  including  digital 
infrastructure. 

Accelerate  public  investment  at  all  levels  of 
government, especially in education … 

…research and innovation,   

  Limited  progress  has  been  made  in  increasing 
public expenditure on education and no additional 
measures have been taken in this regard. Despite 
more  spending  by 
the  Federal  Government, 
expenditure on education as a proportion of GDP 
at  the  level  of  general  government  has  remained 
stable  in  recent  years  and  well  below  the  EU 
average. Overall public and private education and 
research  expenditure  has  increased  only  slightly 
in  recent  years  and  may  have  fallen  short  of  the 
national target of 10 % of GDP. 

  The  reallocation  of  financial  responsibilities 
between  the  state  and  the  federal  levels  can 
somewhat  improve  the  availability  of  funding  at 
the  state  level  where  direct  responsibility  for 
investment lies. 

  June 2017: The base law was modified to adjust 
the  allocation  of  responsibilities  and  funding 
between the state vs the federal level, from 2020. 

  Limited  progress  has  been  made  in  increasing 
public  expenditure  on  research  and  innovation 
and  no  additional  measures  have  been  taken  in 
this  regard.  Despite  some  nominal  increases, 
public  expenditure  on  R&D  has  remained  at 
around  0.9 %  of  GDP  in  recent  years  and  total 
public and private expenditure remained at around 
2.9 % of GDP in 2015 and 2016.  

  Some progress has been made: 

and 

… 
constraints for infrastructure investments. 

capacity 

address 

and  planning 

  Spring  2017:  To  support  public  investment  on 
agency 
the 
municipal 
("Partnerschaft  Deutschland  –  Berater  der 
öffentlichen  Hand  GmbH")  did  take  up  its 
operational work in 2017. 

service 

level, 

Further  improve  the  efficiency  and  investment-
friendliness of the tax system. 

  No  progress.  No  additional  measures  have  been 
taken  to  improve  the  efficiency  and  investment-
friendliness of the tax system. Implementation of 
measures  taken  in  the  past  is  on-going.  On  1 
January  2017  most  provisions  of  the  Act  on  the 
Modernisation  of  Taxation  Procedures  became 

54 

 
 
 
 
 
 
 
 
 
A. Overview table 

and 

automated 

effective  (Federal  Law  Gazette  I  2016  no.  35,  p. 
1679).  It  has  the  potential  to  enhance  the  role  of 
IT 
relieving 
administrative  and  compliance  burden  of  tax 
administrations  and  taxpayers.  It  is  too  early  to 
assess  the  actual  impact  of  the  new  law.  Its  full 
roll-out will stretch over a period of six years. 

procedures 

Stimulate  competition  in  business  services  and 
regulated professions 

  Limited  progress  has  been  made  regarding 
measures  to  stimulate  competition  in  business 
services and regulated professions. 

CSR2: Reduce disincentives to work for second 
earners  and  facilitate  transitions  to  standard 
employment.  Reduce  the  high  tax  wedge  for 
low-wage earners. Create conditions to promote 
higher  real wage  growth,  respecting  the  role  of 
the social partners. 

Reduce disincentives to work for second earners  

…facilitate transitions to standard employment 

Reduce  the  high  tax  wedge  for  low-wage 
earners 

Germany  has  made  limited  progress  in  addressing 
CSR 2: 

  Limited  progress  has  been  made  in  reducing 
disincentives  to  work  for  second  earners  and 
facilitate  transition  to  standard  employment.  The 
Act  for  Combating  Tax  Avoidance  was  adopted 
in  June  2017  and  entered  into  force  as  of  1 
January  2018  (Federal  Law  Gazette  I  p.  1682). 
Tax  brackets  IV/IV  become  the  standard  tax 
bracket for married couples. Further work is also 
done  to  raise  awareness  of  the  factor-based 
method. 

  Limited  progress.  No  further  measures  were 
taken - though the law on temporary agency work 
and  work  contracts  entered  into  force  in  April 
2017,  after  its  adoption  autumn  2016.  This 
provides  equal  pay  after nine  months  of working 
in  the  sector  and  the  introduction  of  a  maximum 
transitional  period  of  18  months  after  which 
temporary  agency  workers  must  be  hired  by  the 
company  

  Limited  progress  has  been  made  with  reducing 
the high tax wedge for low-wage earners, that was 
due  to  the  good  economic  situation,  without 
further  specific  action.  In  October  2017,  it  was 
decided to reduce the supplementary contribution 
rate  to  the  regular  health  insurance  system  by 
0.1 pp to 1.0 %, from 2018. In November 2017, it 
to  reduce  employee's  pension 
was  decided 

55 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview table 

contributions  by  0.1 pp  to  18.6 %  from  2018,  a 
small  decrease  due  to  higher  revenues  in  the 
currently  good  economic 
situation,  not  a 
structural  change.  Measures  reducing  the  tax 
wedge  in  general  were  adopted  in  2016  and 
force  on  1 January 2017  and 
entered 
into 
1 January 2018.  These 
successive 
comprise 
tax-free  basic  and  child 
in 
increases 
allowances, 
the 
child 
supplementary  child  allowance,  as  well  as 
measures  to  contain  the  fiscal  drag,  from  which 
low wage earner benefit below average. 

the 
the 

benefit 

and 

Create  conditions  to  promote  higher  real  wage 
growth,  respecting 
the  social 
partners. 

the  role  of 

  Limited progress regarding promoting real wage 

growth. 

  May  2017:  The  federal  government  adopted  an 
ordinance, setting out minimum wages for agency 
workers, following up on earlier rules, with entry 
into force from June 2017.  

setting 

  July  2017:  The  federal  government  adopted  an 
out  minimum  working 
ordinance 
conditions including minimum wages in the long 
term care sector, updating the existing regulation, 
with entry into force from November 2017. 

Europe 2020 (national targets and progress) 

Employment  rate  of  the  population  aged  20-64 
years: 77 % 

79.1 % in the year ending September 2017. 

Employment  rate  of  the  population  aged  55-64 
years: 60 % 

69.7 % in the year ending September 2017. 

Employment rate of women: 73 % 

75.0 % in the year ending September 2017. 

R&D target: 3.0 % of GDP  

2.94 % (2016) 

Germany  is  close  to  reaching  its  target,  but  only 
small  progress  in  2016:  R&D  intensity  increased 
slightly  from  2.92 %  of  GDP  in  2015  to  2.94 %  in 
2016  (the  third  highest  in  the  EU).  In  2016  R&D 
intensity in Germany was composed of 0.94 % public 
expenditure and 2 % business expenditure. 

National  greenhouse  gas  emissions  (GHG) 
target:  
-14 % in 2020 compared to 2005 (in sectors not 

According to the latest national projections submitted 
to  the  Commission  and  taking  into  account  existing 
measures,  the  non-ETS  greenhouse  gas  emissions 
between  2005 and 2020  are expected  to decrease  by 

56 

 
 
 
 
 
 
 
 
 
 
A. Overview table 

included in the EU emissions trading scheme) 

10.7 %.  This  means  that  the  target  is  expected  to  be 
missed by a margin of 3.3 pps. 

2020  renewable  energy  target  in  gross  final 
energy consumption: 18 % 

With  a  share  of  energy  from  renewable  sources  in 
gross  final  energy  consumption  of  14.8 %  in  2016, 
Germany  is  on  track  to  meet  its  2020  renewable 
energy target.  

2020  Energy  efficiency,  indicative  national 
2020 targets: 

Since  2005,  Germany  decreased  its  primary  energy 
consumption by 6.8% to 296 Mtoe in 2016.  

  276.6 Mtoe (primary energy consumption); 

  194.3 Mtoe (final energy consumption). 

Over  the  same  period,  final  energy  consumption 
decreased by 1.1% to 216 Mtoe in 2016. 

Early school leaving target: <10 %. 

Tertiary  education  target:  40 %  (EU  2020)  or 
42 % (national target). 

At 10.2 % in 2016, Germany is close to the European 
target  and  to  the  national  target  and  below  the  EU 
average of 10.7 %. 

Germany is continuing to increase tertiary attainment 
which  now  stands  at  33.2 %  but  remains  below  the 
EU average of 39.1 % and the EU target of 40%. The 
national target of 42% includes contrary to EU target 
ISCED level 4 and has thus been met. 

Target for reducing the number of people at risk 
of  poverty  or  social  exclusion,  expressed  as  an 
absolute  number  of  people:  20 %  reduction  in 
the  number  of  long-term  unemployed  by  2020 
as  compared  with  2008  (i.e.  reduction  by 
320 000 long-term unemployed). 

The  number  of  long-term  unemployed  people  (LFS 
definition)  was  723 000  in  2016,  this  represents  a 
reduction of 923 000, around 57%, since 2008.  

Germany  has  already  met  the  national  Europe  2020 
poverty target. 

57 

 
 
 
 
ANNEX B  

MACROECONOMIC IMBALANCES PROCEDURE SCOREBOARD 

Table B.1: 

The MIP Scoreboard for Germany (AMR 2018) 

Flags: b: Break in series. 
1) This table provides data as published under the Alert Mechanism Report 2018, which reports data as of 24 Oct 2017. Please 
note that figures reported in this table may therefore differ from more recent data elsewhere in this document. 2) Figures 
highlighted are those falling outside the threshold established in the European Commission's Alert Mechanism Report.  
Source: European Commission 2017, Statistical Annex to the Alert Mechanism Report 2018, SWD(2017) 661. 

58 

Thresholds201120122013201420152016Current account balance, % of GDP 3 year average-4%/6%5.8 6.2 6.6 7.1 7.6 8.1 Net international investment position% of GDP-35%23.2 28.5 34.5 40.9 48.6 54.4 Real effective exchange rate - 42 trading partners, HICP deflator3 year % change±5% (EA) ±11% (Non-EA)-4.8 -9.0 -1.8 -0.4 -2.1 -2.6 Export market share - % of world exports5 year % change-6%-9.0 -16.2 -12.1 -8.6 -2.5 2.8 Nominal unit labour cost index (2010=100)3 year % change9% (EA) 12% (Non-EA)5.7 2.7 5.9 7.0 5.6 5.2 House price index (2015=100), deflated 1 year % change6%1.4 1.9 2.1 2.2 4.1 5.4 Private sector credit flow, consolidated% of GDP14%1.6 1.3 2.0 0.5 3.0 3.8 Private sector debt, consolidated% of GDP133%102.5 101.8 102.9 99.4 98.7 99.3 General government gross debt% of GDP60%78.6 79.8 77.4 74.6 70.9 68.1 Unemployment rate3 year average10%6.8 6.1 5.5 5.2 4.9 4.6 Total financial sector liabilities, non-consolidated1 year % change16.5%2.9 3.3 -6.2 4.5 2.9 5.2 Activity rate - % of total population aged 15-643 year change in pp-0.2 pp1.4b0.9 0.9b0.4b0.4 0.3 Long-term unemployment rate - % of active population aged 15-743 year change in pp0.5 pp-1.1b-1.1 -1.0 -0.6 -0.4 -0.6 Youth unemployment rate - % of active population aged 15-243 year change in pp2 pp-1.9 -3.1 -2.0 -0.8 -0.8 -0.7 External imbalances and competitivenessInternal imbalancesEmployment indicators 
 
 
 
 
 
ANNEX C  

STANDARD TABLES 

Table C.1: 

Financial market indicators 

1) Latest data Q3 2017.. Includes not only banks but all monetary financial institutions excluding central banks 
2) Latest data Q2 2017. 
3) As per ECB definition of gross non-performing debt instruments 
4) Quarterly values are not annualised 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

59 

201220132014201520162017Total assets of the banking sector (% of GDP)(1)298.3266.4266.1251.8247.9239.7Share of assets of the five largest banks (% of total assets)33.030.632.130.631.4-Foreign ownership of banking system (% of total assets)(2)4.14.14.44.47.17.1Financial soundness indicators:(2)              - non-performing loans (% of total loans)(3)1.71.82.52.01.81.6              - capital adequacy ratio (%)17.418.717.317.918.118.4              - return on equity (%)(4)1.11.32.51.72.20.9Bank loans to the private sector (year-on-year % change)(1)1.10.51.32.33.74.1Lending for house purchase (year-on-year % change)(1)1.92.02.43.53.73.9Loan to deposit ratio(1)82.580.179.278.478.579.1Central Bank liquidity as % of liabilities--1.11.01.11.6Private debt (% of GDP)101.8102.999.498.799.3-Gross external debt (% of GDP)(2) - public49.745.848.842.638.334.8    - private41.441.141.141.941.140.7Long-term interest rate spread versus Bund (basis points)*0.00.00.00.00.00.0Credit default swap spreads for sovereign securities (5-year)*32.714.912.77.711.58.1 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
C. Standard tables 

Table C.2: 

Headline Social Scoreboard indicators 

The Social Scoreboard includes 14 headline indicators, of which 12 are currently used to compare Member States 
performance. The indicators "participants in active labour market policies per 100 persons wanting to work" and 
"compensation of employees per hour worked (in EUR)" are not used due to technical concerns by Member States. Possible 
alternatives will be discussed in the relevant Committees. 
(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from 
severe material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI).       
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks.       
(3) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2018.       
(4) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).       
(5) Average of first three quarters of 2017 for the employment rate and gender employment gap.  
Source: Eurostat 

60 

201220132014201520162017 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)10.59.89.510.110.3:Gender employment gap (pps)10.59.69.18.78.28.0Income inequality, measured as quintile share ratio (S80/S20)4.34.65.14.84.6:At-risk-of-poverty or social exclusion rate1 (AROPE)19.620.320.620.019.7:Young people neither in employment nor in education and training (% of population aged 15-24)7.16.36.46.26.7:Dynamic labour markets and fair working conditions†Employment rate (20-64 years)76.977.377.778.078.679.0Unemployment rate2 (15-74 years)5.45.25.04.64.13.8Gross disposable income of households in real terms per capita3 (Index 2008=100) ::104.1105.2106.7:Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction433.734.033.233.534.8:Children aged less than 3 years in formal childcare24.028.027.525.932.6:Self-reported unmet need for medical care1.61.61.60.50.3:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):::67.068.068.0 
 
 
 
 
 
 
 
 
C. Standard tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator       
(1) Long-term unemployed are people who have been unemployed for at least 12 months.       
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.       
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(4) Impact of socio-economic and cultural status on PISA (OECD) scores.  Values for 2012 and 2015 refer respectively to 
mathematics and science.       
(5) Average of first three quarters of 2017, unless for the youth unemployment rate (annual figure).  
Source: Eurostat, OECD 

61 

Labour market indicators201220132014201520162017 5Activity rate (15-64)77.277.677.777.677.9:Employment in current job by durationFrom 0 to 11 months12.912.112.012.212.4:From 12 to 23 months9.09.28.88.99.0:From 24 to 59 months15.315.516.215.915.3:60 months or over60.460.860.760.659.9:Employment growth* (% change from previous year)1.20.60.80.91.31.5Employment rate of women(% of female population aged 20-64)71.672.573.173.674.575.0Employment rate of men (% of male population aged 20-64)82.182.182.282.382.783.0Employment rate of older workers* (% of population aged 55-64)61.663.665.666.268.669.8Part-time employment* (% of total employment, aged 15-64)25.826.626.526.826.726.7Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)13.813.413.113.213.212.8Transition rate from temporary to permanent employment(3-year average)40.636.132.929.1::Long-term unemployment rate1 (% of labour force)2.42.32.22.01.71.6Youth unemployment rate (% active population aged 15-24)8.07.87.77.27.16.8Gender gap in part-time employment36.437.637.137.337.136.7Gender pay gap2 (in undadjusted form)22.722.122.322.0::Education and training indicators201220132014201520162017Adult participation in learning(% of people aged 25-64 participating in education and  training)7.97.98.08.18.5:Underachievement in education317.7::17.2::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)31.832.931.432.333.2:Variation in performance explained by students' socio-economic status416.9::15.8:: 
 
 
 
 
 
 
 
 
 
 
C. Standard tables 

Table C.4: 

Social inclusion and health indicators 

*  Non-scoreboard indicator 
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.  
(2) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay 
their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone. 
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation. 
(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months. 
(5) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59. 
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard.Source: Eurostat, OECD 

62 

201220132014201520162017Expenditure on social protection benefits* (% of GDP)Sickness/healthcare9.39.59.69.7::Disability2.22.22.22.3::Old age and survivors11.010.910.910.9::Family/children3.13.13.13.2::Unemployment1.11.11.11.0::Housing0.60.60.60.6::Social exclusion n.e.c.0.20.20.20.3::Total27.427.727.727.9::of which: means-tested benefits3.33.33.43.5::General government expenditure by function (% of GDP, COFOG)Social protection18.818.918.718.9::Health6.87.07.17.1::Education4.24.34.24.2::Out-of-pocket expenditure on healthcare (% of total health expenditure)13.913.212.712.5::Children at risk of poverty or social exclusion (% of people aged 0-17)*18.419.419.618.519.3:At-risk-of-poverty  rate1 (% of total population)16.116.116.716.716.5:In-work at-risk-of-poverty rate (% of persons employed)7.88.69.99.79.5:Severe material deprivation rate2  (% of total population)4.95.45.04.43.7:Severe housing deprivation rate3, by tenure statusOwner, with mortgage or loan0.50.50.30.70.2:Tenant, rent at market price3.53.03.63.23.8:Proportion of people living in low work intensity households4 (% of people aged 0-59)9.99.910.09.89.6:Poverty thresholds, expressed in national currency at constant prices*1077210544104541086211169:Healthy life years (at the age of 65)Females6.97.06.712.3::Males6.77.06.811.4::Aggregate replacement ratio for pensions5 (at the age of 65)0.50.50.50.50.5:Connectivity dimension of the Digital Economy and Society Inedex (DESI)6::62.166.969.171.5GINI coefficient before taxes and transfers*50.551.751.6:50.8:GINI coefficient after taxes and transfers*28.529.730.7:29.5: 
 
 
 
 
 
 
 
 
 
C. Standard tables 

Table C.5: 

Product market performance and policy indicators 

(1) The methodologies, including the assumptions, for this indicator are shown in detail at: 
http://www.doingbusiness.org/methodology. 
(2) Average of the answer to question Q7B_a. '[Bank loan]: If you applied and tried to negotiate for this type of financing over 
the past six months, what was the outcome?'. Answers were scored as follows: zero if received everything, one if received 
most of it, two if only received a limited part of it, three if refused or rejected and treated as missing values if the application is 
still pending or if the outcome is not known. 
(3) Percentage population aged 15-64 having completed tertiary education. 
(4) Percentage population aged 20-24 having attained at least upper secondary education. 
(5) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail at:  http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm 
(6) Aggregate OECD indicators of regulation in energy, transport and communications. 
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans). 

63 

Performance indicators2010201120122013201420152016Labour productivity (real, per person employed, year-on-year % change)Labour productivity in industry12.571.83-0.34-1.113.881.522.53Labour productivity in construction5.602.10-0.98-1.161.900.451.44Labour productivity in market services-0.611.852.531.470.440.081.33Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in industry-11.80-0.343.634.00-2.120.880.43ULC in construction-5.200.794.672.820.753.261.46ULC in market services2.381.112.650.913.143.201.77Business environment2010201120122013201420152016Time needed to enforce contracts(1) (days)394.0394.0394.0394.0459.0479.0499.0Time needed to start a business(1) (days)14.514.514.514.514.510.510.5Outcome of applications by SMEs for bank loans(2)0.550.490.280.170.580.350.38Research and innovation2010201120122013201420152016R&D intensity2.712.802.872.822.872.922.94General government expenditure on education as % of GDP4.404.304.204.304.204.20naPersons with tertiary education and/or employed in science and technology as % of total employment42414343444445Population having completed tertiary education(3)23242525232424Young people with upper secondary level education(4)75767677777778Trade balance of high technology products as % of GDP0.350.591.051.050.900.97naProduct and service markets and competition200320082013OECD product market regulation (PMR)(5), overall1.801.411.29OECD PMR(5), retail3.382.882.71OECD PMR(5), professional services3.032.822.65OECD PMR(5), network industries(6)1.871.331.27 
 
 
 
 
 
 
 
 
 
 
C. Standard tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 prices) 
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR) 
          Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR) 
          Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR) 
          Waste intensity: waste (in kg) divided by GDP (in EUR) 
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP   
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP 
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change) 
Real unit energy cost: real energy costs as % of total value added for the economy 
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 EUR)  
Real unit energy costs for manufacturing industry excluding refining : real costs as % of value added for  manufacturing 
sectors 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP 
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000–100 000 GJ; figures 
excl. VAT. 
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste 
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP 
Proportion of GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG emissions 
(excl land use, land use change and forestry) as reported by Member States to the European Environment Agency. 
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value 
added (in 2010 EUR) 
Transport carbon intensity: GHG emissions in transport activity divided by gross value added of the transport sector 
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels 
Aggregated supplier concentration index:  covers oil, gas and coal. Smaller values indicate larger diversification and hence 
lower risk. 
Diversification of the energy mix: Herfindahl index covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels 
* European Commission and European Environment Agency 
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators) 

64 

Green growth performance201120122013201420152016MacroeconomicEnergy intensity kgoe / €0.120.120.120.110.110.11Carbon intensity kg / €0.340.340.350.330.32-Resource intensity (reciprocal of resource productivity)kg / €0.510.490.490.490.460.45Waste intensity kg / €-0.14-0.14--Energy balance of trade % GDP-3.6-3.6-3.4-2.8-2.0-Weighting of energy in HICP%12.3012.5512.4011.9411.7810.36Difference between energy price change and inflation %7.03.63.2-1.6-5.5-5.0Real unit of energy cost% of value added10.510.49.99.9--Ratio of environmental taxes to labour taxesratio0.100.100.090.090.09-Environmental taxes% GDP2.22.12.12.01.91.9Sectoral Industry energy intensity kgoe / € 0.100.100.100.090.090.09Real unit energy cost for manufacturing industry excl. refining% of value added12.912.812.412.2--Share of energy-intensive industries in the economy% GDP10.4510.6110.4510.5010.38-Electricity prices for medium-sized industrial users€ / kWh0.120.130.140.160.150.15Gas prices for medium-sized industrial users€ / kWh0.040.040.050.040.040.03Public R&D for energy % GDP0.030.040.050.050.040.04Public R&D for environmental protection% GDP0.020.020.030.030.030.03Municipal waste recycling rate%63.065.263.865.666.766.1Share of GHG emissions covered by ETS*%51.651.551.151.450.350.0Transport energy intensitykgoe / €0.560.560.550.570.590.60Transport carbon intensitykg / €1.421.401.411.441.51-Security of energy supplyEnergy import dependency%61.961.562.761.861.963.5Aggregated supplier concentration indexHHI13.913.815.015.218.1-Diversification of energy mixHHI0.240.240.250.240.240.25 
 
 
 
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deutschen  Wirtschaft: 

Innovationsverhalten 

der 

Indikatorenbericht 

zur 

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