09 August 2004

EZA 629

Germany; Labour Market Reform
OECD Report and German labour market reform – work in progress

SummaryAgenda 2010, Lisbon process and ECB policy The results of the reform debate in Germany will be closely monitored by the ECB. In line with the OECD recommendations and the Lisbon process agreed in 2000 they are meant to contribute to raise potential output – the OECD also raised this year’s growth forecast for Germany to 1.75% (mid point) – and lower inflation potential. They are, however, unlikely to have an immediate impact on ECB decision making. Current ECB policy is more determined by the eurozone’s low trend growth rate and sticky core inflation and inflation expectations. But the lag between the reforms being implemented and their impact on raising productivity and lowering the NAIRU (non-accelerating inflation rate of unemployment), will heavily depend on the institutional settings, i.e. fiscal reforms and wage setting as outlined by the OECD.

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© Graham Bishop