Data collection template and questionnaire

Germany interest rates composite leading indicator from 1971

Date	12.02	01.03	02.03	03.03	04.03	05.03
	96.5	98.4	99.3	99.1	98.3	97.1
Y/Y %	10.6	9.5	7.4	5.0	1.1	-1.4

Copyright © SYZ & CO Bank 2001-03

Germany interest rates composite leading indicator from 1986

Date	12.02	01.03	02.03	03.03	04.03	05.03
	96.5	98.4	99.3	99.1	98.3	97.1
Y/Y %	10.6	9.5	7.4	5.0	1.1	-1.4

Copyright © SYZ & CO Bank 2001-03
Components

.	Germany business cycle		Germany industrial cycle		prices		labor market and costs		demand of capital		world business cycle		competitive environment
Date		Y/Y %		Y/Y %		Y/Y %		Y/Y %		Y/Y %		Y/Y %		Y/Y %
12.02	98.2	9.2	95.1	7.1	94.6	8.8	100.7	1.0	90.5	12.9	95.2	4.3	90.1	-4.5
01.03	102.0	12.6	95.4	7.5	99.3	8.5	103.7	3.3	91.9	15.5	97.8	5.0	87.6	-9.4
02.03	103.0	12.6	95.4	7.0	100.9	9.5	103.3	2.7	92.8	16.5	95.4	-3.6	86.7	-9.9
03.03	102.7	10.5	95.3	6.2	101.1	7.7	103.0	2.2	93.3	17.3	95.4	-5.3	85.9	-11.0
04.03	100.8	7.8nbsp;	95.0	3.3	98.5	3.1	103.1	2.1	93.0	19.4	95.6	-13.2	87.7	-8.4
05.03	100.6	6.4	95.1	3.2	97.0	1.1	102.8	1.9	92.1	17.4	96.5	-7.6	87.8	-8.4

Copyright © SYZ & CO Bank 2001-03
German business cycle

Copyright © SYZ & CO Bank 2001-03

Germany industrial cycle

Copyright © SYZ & CO Bank 2001-03

Prices

Copyright © SYZ & CO Bank 2001-03

Labour market and costs

Copyright © SYZ & CO Bank 2001-03

Demand of capital

Copyright © SYZ & CO Bank 2001-03

Competitive environment

Copyright © SYZ & CO Bank 2001-03

Source for all graphs above: http://www.fog-lights.ch/germany_interest_rates.html

Actual annual pay and labour costs per employee by sector, 2001
.	Gross wages and salaries	Employers' social security contributions	Total labour costs
Agriculture, forestry and fishing	EUR 17,100	EUR 3,600	EUR 20,700
Industry	EUR 32,800	EUR 7,600	EUR 40,400
Construction	EUR 23,100	EUR 5,500	EUR 28,600
Trade and transport	EUR 21,500	EUR 4,700	EUR 26,200
Financial, renting and business activities	EUR 27,400	EUR 6,000	EUR 33,400
Other public and private services	EUR 24,300	EUR 6,100	EUR 30,400
In total	EUR 25,900	EUR 6,000	EUR 31,900

Source: Federal Statistical Office 2002. Found in: http://www.eiro.eurofound.ie/2002/01/feature/DE0201201F.html

Development of collectively agreed and actual pay, total labour costs and unit labour costs, 1992-2001*
Year	Collectively agreed pay	Actual pay per employee	Consumer prices	Total labour costs per employee	Unit labour costs
1992	11.0%	10.4%	5.0%	10.5%	6.4%
1993	6.5%	4.4%	4.5%	4.1%	3.8%
1994	2.9%	2.0%	2.7%	3.0%	0.5%
1995	4.6%	3.2%	1.7%	3.6%	2.1%
1996	2.4%	1.4%	1.4%	1.3%	0.2%
1997	1.5%	0.3%	1.9%	0.8%	-0.7%
1998	1.8%	1.0%	1.0%	1.0%	0.2%
1999	3.0%	1.4%	0.6%	1.2%	0.6%
2000	2.4%	1.6%	1.9%	1.2%	-0.2%
2001	2.1%	1.8%	2.5%	1.6%	1.2%

* Increases against the previous year.

Source: WSI Collective Bargaining Archive (column 2); Federal Statistical Office (columns 3-6). Found in: http://www.eiro.eurofound.ie/2002/01/feature/DE0201201F.html

How well does the macroeconomic policy of the Member State reflect the economic circumstances of the region? Answer in terms of judgements on the appropriateness of the principal instruments of policy, i.e. the interest rate, the fiscal policy stance and the development of wages and prices.
The factors outlined above vary according to the economic situation of the Länder, so in low unemployment regions, the current policy may be justified, but not in more high unemployment regions. In addition even previously prosperous regions seem to be having problems at the moment.

The German macroeconomic policy did not have positive effects on the economic circumstances of the country and the Länder (esp. Eastern Länder here esp. the construction sector and the high unemployment rate (twice as high as in the rest of the Republic)), as the economic growth has over a long period been extremely low. Thus, structural change and economic competitiveness is hampered. The constantly high level of non-wage labour costs enduringly hampers job creation and economic growth. Also the increase in actual pay per employee in some years only covered the increase in consumer prices, so that private consumption could not be stimulated. Even national tax reforms, which are still ongoing, could not change the bad economic performance. Germany faced a sharp tax decline and tax estimates for 2002 and 2003 had to be revised downwards and thus the general government deficit has reached 3.6% of GDP in 2002. This sharp tax decline and the high number of persons receiving social benefit payments, which are financed exclusively by the communes/municipalities, thus worsens the financial situation of these lower tiers of government in Germany. The planned advanced start of the second step of the tax reform (1 January 2004) will impact the situation of the Länder and communes/municipalities insofar as it is supposed to offer relief to the tense financial situation of the German communes communes/municipalities with the so called municipal finance reform (‘Gemeindefinanzreform’), which was actually foreseen for 2005. This reform focuses on the areas

• 
  enlargement of the basis for the trade tax (supposed increase: 3,9 bn. €)
  
  • 
    extension on freelancers, such as lawyers, etc.
    
  • 
    extension of the calculation base for trade tax to more independent factors of calculation such as tenures, rentals, leasing fees, interests etc.
    
• 
  tax burden on SME to be reduced.⁵⁸⁷
  

Nevertheless, Länder politicians emphasise that the advancement of the tax reform will also negatively impact on the financial situation of the municipalities as it will offer also other tax relieves, which will reduce communal budgets (e.g. cuts in state aid for hard coal to co-finance tax relieves will negatively impact on Nordrhein-Westfalen).

Also the Agenda 2010 is supposed to strengthen the financial situation of the communes with the merger of unemployment and social benefit, which will then be covered by the Federal budget via the Federal Employment Service (‘Bundesanstalt für Arbeit’). Relief is supposed to make up several (ca. 7) bn. €. Part of this relief is already foreseen to increase child care facilities at regional level.

For meeting the targets of the Stability and Growth pact, the Federal government in March 2002 set up a national stability pact with the Länder, which aims at guaranteeing the obedience to budget discipline by the all state levels. The change of the act on budgetary principles adopted in December 2001, which was necessary because of the reform of the financial equalisation system, imparts a procedure for the domestic implementation of the European Stability and Growth Pact and thus transfers responsibility in this sector also to the Länder. The different state levels thus “…agreed in particular that the expenditure of the Federal Government for 2003 and 2004 should be cut by an average of 0,5 % a year. The Länder and municipalities will restrict the annual growth in their expenditure to an annual average of 1 % in the two years. The Financial Planning Council expressly confirmed this policy in November 2002. The Federal Government, the Länder and the municipalities agree on the shared objective of cutting the overall budget deficit to back below 3 % of GDP in 2003 and on presenting a balanced state budget by 2006.” ⁵⁸⁸

As inflation is rather low in Germany (1.4% in 2002: expected to fall to 1.3% in 2003 and 1.2% in 2004) the real interest rates remain below the Euro area average. Nevertheless, the recent decrease in interest rates could support economic growth by a possible increase of consumption.

The stimulation of economic growth will depend largely on domestic stimuli. “However, domestic impulses are likely to remain weak, because, as a result of the prolonged three-year stagnation and the strong fall in stock market values, many companies need to consolidate their balance sheets before being able to embark on major investment programmes. The situation is aggravated by rising levels of bad debt and losses in the German financial sector, which limit its lending capacity, in particular to small and medium-size enterprises. As a result, an economic recovery in Germany is likely to again lag behind those of other European countries.”⁵⁸⁹

2 Public expenditure
For those central government policies which have an identifiable regional incidence, supply data on the amount spent in each region. Please try to construct a table showing flows by policy area and by region for a recent ‘benchmark’ year and for an earlier year (five to ten years previously).

[Note: Typically, national policies with an identifiable regional incidence will include areas such as social protection, infrastructure development and education. It is recognised that there will not be a meaningful breakdown of the likes of defence or overseas aid spending.]

Most public expenditure for national policies have also an identifiable regional incidence even if the impact of those policies sometimes cannot be related to a special regional action or target plan. Federal public expenditure thus covers different aspects that influence regional development. Most important areas are budget headings for economic development, infrastructure, agriculture and education/research.⁵⁹⁰ Nevertheless, given the multitude of public expenditure implications one single table is hard to be constructed.