The Chair of Economic Wise Men Monika Schnitzer on the value of forecasts in a world where everything is always different, the state as savior, a challenging year 2023 and the men in the Council of Wise Men.

Professor Schnitzer, if you look at the economic situation from a helicopter perspective: The stock exchanges have avoided the crash, energy prices are falling again and inflation could peak. Did everything go well again?

Monika Schnitzer: Things will only go well if people adapt to the situation. Energy prices are gradually falling because savings are being made on the one hand and supply is being adjusted on the other. Liquid gas arrives, the storage tanks are full. That reduces the uncertainty. And that puts pressure on the price. But of course there are risks.

When we bought gas, we exaggerated again. Gas tankers are nacelling off the coast and are not unloaded because they do not want to sell their gas at the lower price. In some countries, the capacity for liquid gas has already been exhausted.

Schnitzer: The accusation goes in the wrong direction. If Germany had held back when buying gas, the trouble would have been even greater. We saw it back then with vaccines. In the beginning, the federal government didn’t buy everything at any price, and the criticism was great.

Prof. Monika Schnitzer has been the Chair of the Advisory Council since October 2022, of which she has been a member since April 2020 and which advises the Federal Government on economic issues. She is Professor of Comparative Economic Research at the Ludwig-Maximilians-University Munich (LMU). She received her doctorate and habilitation from the University of Bonn and was a visiting professor at Boston University, MIT, Stanford University, Yale University, University of California, Berkeley, and Harvard University. From 2006 to 2009 she was Dean of the Faculty of Economics at the LMU. In July 2022 she received an honorary doctorate from the Faculty of Economics and Social Sciences at Kiel University.

However, other countries are accusing us of raising the price and emptying the market.

Schnitzer: I can understand that. A better agreement in the EU would have been good.

What is your growth forecast for the coming year?

Schnitzer: Minus 0.2 percent. This is a significant discrepancy to our spring forecast. At that time we still expected an increase of 3.4 percent. We had expected that the supply chains would continue to relax and that this would contribute to growth. But then the energy crisis and war slowed us down.

Other economists assume worse forecasts.

Schnitzer: We have already included the third quarter of 2022 and that went better than expected. That’s why our forecast is currently slightly more positive than that of others.

What are forecasts actually worth if everything always turns out differently than you think?

Schnitzer: Forecasts are important in order to be able to plan, for example the federal budget and how high the expected tax revenue will be. But a lot has changed. In our spring forecast, we had not yet factored in a decline in Russian gas imports. Price increases yes, but no delivery failures. That turned out differently. We have now had two massive crises in a row that no one foresaw. First Corona, with lockdowns, the health problems, the supply bottlenecks – and then the war of aggression in Ukraine with its consequences.

Are we really at a turning point? The disputes with Russia didn’t just fall out of the sky. And the truth is that energy has been far too cheap up until now.

Schnitzer: In public perception, this turning point is definitely there. After the fall of the Wall, most people in Germany had the impression that the antagonism between East and West had been overcome and that we would grow together. We deliberately expanded our trade relations. Perhaps the wish was the father of the thought. Otherwise we would not have reaped this peace dividend and saved on defense, for example. Were we really naïve? Possibly. In any case, there were not many warning voices.

For example, Donald Trump has warned about defense and Nord Stream 2.

Schnitzer: Trump wasn’t that long ago. And it was easy to suspect that he was primarily interested in selling US liquid gas.

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If you were to rate the federal government, what grade would you give it for its energy policy?

Schnitzer: I don’t give grades.

All right – how do you rate the federal government’s energy policy?

Schnitzer: There were some good and quick decisions. It was quickly switched to LPG. Purchasing was set in motion in no time at all, mobile LNG terminals were procured and the construction of the infrastructure was initiated. I hope that this speed is now also a model for what we have to achieve in the energy transition. We need faster processes to also expand renewables. Allowing objections, for example for each new construction phase, is too tedious. They should be decided in one step, as is now the case with the construction of the LNG terminals.

Tesla set up a factory in Grünheide in no time at all. So it works.

Schnitzer: Tesla took a risk. If it hadn’t gotten the permits, the factory would have had to be dismantled. It is not set for companies to act in this way. But acceleration procedures for construction projects have already been agreed in the coalition agreement. Climate protection before species protection is such a principle that can accelerate building for the energy transition.

How do you rate the federal government’s social policy – ​​especially the new citizen’s allowance?

Schnitzer: It’s good that a new name was found here. It would also be good to abolish the priority given to placement in work. For stable employment, it is more important that people learn something and, if not available, get a degree. Raising the additional earnings limit is also good. If young people earn additional income in a community of need such as a family, this was previously deducted one to one. As a result, the incentive to work was significantly reduced. All in all, I think that the basic income, as negotiated in the mediation committee between the government and the opposition, is reasonable.

Employers can pay an inflation compensation premium. Some do it, others don’t. Does that fuel injustice?

Schnitzer: The idea is to create an alternative to tariff increases that would otherwise be necessary. It’s about one-off payments instead of permanent wage increases. And that is the right tool to keep inflation in check. Employers who cannot afford both will find it difficult to retain their employees. This can be observed, for example, in gastronomy. If the companies can’t pay better in the situation, they really don’t have a business model anymore.

What do you think of the gas price brake?

Schnitzer: Gas prices have risen massively. If utilities were to pass this on to their customers one-for-one, their bills would triple or even quintuple. Anyone who previously had nothing left to save will not be able to pay these prices. In this respect, the gas price brake is necessary. It has also been possible to maintain the incentive to save because only 80 percent of consumption is covered. It has not been possible to only give the brakes to those who really need them and not to the others.

What were your suggestions?

Schnitzer: For example, postponing the reduction of the cold progression. Because this relieves the burden on middle and high incomes in particular. And the lower rather less. This measure costs us an amount in the double-digit billions, which we can only finance through debt. A soli for energy could also help, which depends on income and is clearly limited in time as long as the gas price brake is in force.

How do you rate the Federal Government’s labor market policy? The companies complain about a shortage of workers.

Schnitzer: The federal government must make immigration easier. To this end, it should make it easier, or even better, abolish the equivalency checks for qualifications for non-regulated professions. The job promise should be decisive. If someone can’t do everything, they’ll be retrained, or the job just doesn’t fit. We see that with the so-called Western Balkans rule, which works well. People from there can enter without an equivalency check. A job offer is enough. They earn good wages here and have permanent jobs.

Does the state as permanent savior damage the social market economy?

Schnitzer: It is obviously correct that the state coordinates in a crisis and supports those who are in need through no fault of their own. For companies that are being helped, I see things differently. Companies have to take precautions themselves. For example, they need to diversify supply chains. If they don’t, it can’t be at the public expense. Some companies will no longer have a functioning business model even after the crisis because energy prices will be too high for them. It therefore makes no sense to support them now.

The economists regularly submit a complex report, the effect of which is manageable. What role are you playing?

Schnitzer: We document and evaluate the overall economic situation: What are the adjustments to get on the right track? What development variants are there, what options do we have? Of course, our proposals are not all accepted one-to-one, it has to be evaluated politically. That’s completely natural. But we are heard. And many discussions do not take place in public, but behind closed doors.

You are the first woman to lead the five economic wise men. There are now several. Do you have a different approach than your male colleagues?

Schnitzer: We are a completely new group. Before that it was a well-established team with well-established routines. Now there are four new casts in a short time. We have to find ourselves as a team first. What unites us, however, is that we look at the scientific evidence and argue less according to specific school opinions. We approach the issues pragmatically and are able to reach agreement beyond ideology.

Are women more pragmatic than men?

Schnitzer: I also know pragmatic men.

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