The impact of Germany’s minimum wage reform, under which a minimum salary of 8.50 euros an hour will be introduced if a coalition of Chancellor Angela Merkel’s Christian Democrats (CDU) and the Social Democrats (SPD) goes ahead, has been underestimated, according to various observers.
The reform is part of a package put together by the coalition, which also includes retirement at 63 for those who worked for 45 years and a “mothers’ pension” – more money for all women who have raised children, when they retire.
“I think it’s grossly underrated how big a deal [the minimum wage] is,” Michael Leister, senior interest rates strategist at Commerzbank, told a panel discussing Germany’s election results in London.
There is currently no minimum wage in Germany where, especially in the poorer East, some workers are earning as little as one euro per hour.
Germany’s minimum wage reform will mean unit labour costs in the country will be pushed up, reversing a trend that has helped the eurozone’s powerhouse boost exports.
But, Leister pointed out, this will be a good thing for the rest of the eurozone, particularly for the periphery countries, as their unit labour costs increased rapidly before the crisis, rendering them uncompetitive by comparison with Germany.
Now the two areas of the single currency will come closer in terms of competitiveness, he said.
“[Germany’s minimum wage reform] will allow the euro area in general to be a homogenous place,” Leister said. “Internally, the eurozone will become more competitive. But this will mean a weaker euro and a less competitive Germany.”
‘CAN THEY AFFORD IT?’
For the longer term, the coalition’s reforms will create problems, other experts warn.
Andreas Krautscheid, a member of the board of the Association of German Banks and a former CDU leader in North Rhine-Westphalia, said that Germany’s minimum wage reform was “a trophy for the social democrats,” but pointed out that details such as who will benefit and when it will come into effect were still unclear.
“It’s a big problem for East Germany: can they afford it? We doubt it,” he said.
He called the proposal to allow retirement at 63 for those with more than 45 years of work a “very expensive” one and noted that the mothers’ pension was not paid by contributions therefore it would mean an extra 6.5 billion euros would have to come out of the existing pension funds.
“It’s a time bomb,” Krautscheid said.
“The result of this contract [between the CDU and the SPD] is too much money put into consumption and not enough in investment, research, education.”
In the real estate sector, the coalition’s plans bring “bad news for investors,” according to Stefan Altenschmidt, a partner at legal advice firm Luther.
The coalition has agreed a plan to control the pace of rent increases. Rents on newly-let properties cannot be more than 10 percent above the average price level in the region where the property is located.
Over the long term, Germany will have to welcome more workers from abroad because its population is ageing fast and the country will need about six million new workers 12-13 years from now, Krautscheid warned.
“Germany has to become an immigration country. It has to prepare for that,” he said.