The former head of the European Stability Mechanism (ESM) Klaus Regling has warned Germans they will be facing unforeseen losses of wealth and prosperity.
In an interview with newspaper Handelsblatt today, the German economist urged the Federal German Government to consider far-reaching reforms. Otherwise, he said, the country may face a historic loss of economic wellbeing.
The severe downturn, he added, will void a core principle of German society: “The promise that our children will be off better in economic terms than their parents probably cannot be kept anymore.
“Even if the economy starts to grow a bit more strongly again, the disposable real income of German will probably decrease in the future.”
Regling is concerned that may cause frustration and put pressure on the German democracy: “I worry that many people will turn away from politics or vote for populist parties.”
According to the economist, an ever larger part of Germany’s economic output was eaten up by factors such as defence, social security and environmental charges.
“The next generation will probably be able to spend less on consumption than the previous one,“ he said. ”And that is something we have not yet experienced in Germany, but also in other industrialised countries.”
The only way out, according to Regling, would be a reform package of historical dimensions: “We need as comprehensive a bundle of measures as we have never seen in the history of the Federal Republic.”
This would include the abolition of holidays, increased focus on full-time rather than part-time work, as well as increasing the tax burden on married couples – as the current tax-averaging system for spouses would encourage women to stay at home rather than work.
Regling added Germans would have to work longer to keep the pension system financeable.
To keep health insurance costs manageable, he proposed higher co-payment by insured persons and suggested Germany should abolish continuation of payment from the first day of sick leave.
Regling added he was optimistic such far-reaching reforms were possible: “The citizens are ready for difficult steps if they feel the burdens are shared fairly.”
He was the managing director of the European Stability Mechanism (ESM) between 2012 and 2022. He also served as the CEO of the European Financial Stability Facility (EFSF) during that time.
ESM and EFSF were established as a response to the sovereign debt crises in Greece and other Eurozone countries with the goal of stabilising the common currency.
