Deutschland-Check June 2011
In the Deutschland Check of June 2011 scientists of the Institute for the German Economy Cologne evaluate the accelerated phasing out of nuclear energy and the amendment of the German law for renewable energies (EEG). The check-up was conducted by the Initiative for a New Social Market Economy (INSM) and the magazine WirtschaftsWoche.
Development of economic growth and employment
Economic development: Stunning first quarter
“German economy in excellent shape” was the comment of the new minister for economic affairs Dr. Philipp Rösler with regards to the recent figures on the real GDP in the first quarter of 2011, as published by the Federal Office of Statistics. Seasonally adjusted to the first quarter the real GDP grew surprisingly strong with 1.5 percent. In relation to the level of the previous year the growth amounted to 5.2 percent. This means that the heavy slump in economic performance, which was triggered by the most severe post-war recession yet, was already compensated for in the first quarter of 2011. Previous economic forecasts did not expect this to happen before the middle or the end of 2011. Moreover, the fact that the good result was mainly due to high domestic demand is especially gratifying. In particular, the rise in domestic demand can be traced back to investments in equipment and buildings. Consumer spending also rose and the economic recovery thus rests on a broad foundation and not on exports alone. It is hence not surprising that the foreign criticism of the “business model Germany” has fallen silent by now. Germany has become an economic engine in Europe and its imports also mean a rising demand in our neighboring countries. By now the Institute for the German Economy Cologne expects that the real GDP will rise by 3 ½ percent this year and grow just as fast as in the post-crisis year 2010.
However, the high growth rates of the first quarter, which were also favored by the need to make up for an early and harsh winter, will not be sustainable in the second quarter. This is also indicated by the developments of the labor market and the economic growth index in May. The upward trend of the labor market index lost a little momentum and the economic growth index even registered small losses.
The May results in detail:
In April, both partial indicators resulted in a rise of the labor market index. In May, however, the pace of development slowed down compared to previous months:
- For seasonal reasons, the number of the unemployed only shrunk by 8000 in May. That is the weakest increase since December 2010. Gratifying, however, is the fact that the total jobless count remains below the three million mark for the second time in a row.
- The dynamic of the development of officially registered open positions also took a hit in May. While the increase in April amounted to 13000 positions, there were only 2000 new open positions in May. Whether or not this only means a temporary slow-down of labor demand cannot be determined by reference to a single monthly figure. On the contrary: The fact that companies increasingly complain about a lack of skilled labor and report an increasing amount of disruptions in their production flows because of labor shortages suggests that the number of open positions is due to increase in the ensuing months.
- In May, the labor market index only increased by 0.6 points or 2.1 percent. The last increase of 1 percent had happened in February 2010. In the period that followed the dynamic of the index varied between 1 and 3 percent per month. Despite the slowdown the labor market retained its forward speed in May.
The good development of the German labor market during and after the heavy recession as well as the discussion on the increasing lack of skilled labor show that high unemployment does not have to be our fate and that full employment is within our reach. To lend weight to the goal of full employment this edition of the Deutschland Check expands the labor market index by a so-called target funnel (see figure). The target funnel is designed in such a fashion that an unemployment rate of between 3 percent (upper funnel edge) and 4 percent (lower funnel edge) is achieved by 2015 if the labor market index remains within the funnel. If the labor market index remains within the funnel the labor market would hence be geared towards full employment. Full employment is not achieved at an unemployment rate of zero. The natural fluctuations of a functioning labor market alone make the rate considerably higher. This is because a dynamic and flexible labor market is always in motion. Jobs are lost and new jobs are created. The question at what precise rate full employment is achieved has no exact answer and also changes over time. The target funnel accounts for this definitional inaccuracy since it specifies a range. The starting point of the tunnel was set to the watershed of the labor market index in July 2009. The development shows that the progression of the index ran narrowly below the lower funnel edge. In September 2009 a noticeable acceleration of the labor market set in. This resulted in a labor market index that ran within and at the upper edge of the target funnel since May 2010.
Economic growth index
(Annotation: The Ifo-Institute has adjusted the weighting of its index to the updated classification of economic sectors. The change is in effect since May 2011. Furthermore, the base year was changed from 2000 to 2005. Both changes are reflected in this report. Because of this revision the economic growth index, of which one quarter is comprised of the Ifo-Lage-Index, has undergone slight retroactive changes. However, the impact of this on previous valuations has been rather slight).
In May the economic growth index tended towards the negative:
- This is due to the recent developments at the stock exchanges. The DAX-Performance-Index downright collapsed in May. Between the end of April and the end of May the index lost 220 points or 2.9 percent. With 7294 points, however, it remains well above the 7000 point mark which it was able to surpass in January 2011 for the first time since May 2008.
- The Ifo-Lage-Index climbed by 0.3 percent in May. The recalculation (see previous annotation) resulted in a correction from +0.4 percent to 0 percent. In light of this the increase in May can be seen as a success. Companies still evaluate their business situation as decidedly good.
- The industrial production also developed rather weakly recently. For April, the Federal Office of Statistics reported a seasonally adjusted downturn of 0.6 percent. The prognosis for May provides for a small increase albeit without a strong dynamic.
- In total, the economic growth index lost 1.3 percent in May. The positive developments of the other two indicators – Ifo-Lage-Index and industrial production – were not able to compensate for the downturn of the DAX.
Looking at the five single indicators reveals an only marginally changed image of the two labor market indicators. The recalculation of the Ifo-Business Confidence-Index let to a slight decrease of the still positive Ifo-Lage-Index. Despite this measure, however, the Ifo-Lage-Index is still situated well above the pre-crisis level. The DAX-Performance-Index lost considerably more ground. Only the industrial production has not met its pre-crisis level yet.
Accelerated phasing out of nuclear energy – Main points of the cabinet
What is planned?
Due to the recent reactor incident in Japan and the public demand for a phasing out of nuclear energy the federal government plans to drastically reduce the lifespan of German nuclear power plants. The eight power plants that were preliminary shut down due to the moratorium in March are supposed to be shut down for good. One of the power plants is supposed to be kept as an emergency reserve until winter 2012/13. The remaining power plants are expected to be discarded gradually until 2022.
With this the federal government does a fundamental about-face as opposed to its original energy concept from fall 2010 which prolonged the life spans of nuclear power plants by 12 years. The change is not due to a material change of the power plants in Germany. Rather, it is the result of a new societal risk assessment after the events in Japan.
Other basic conditions of the original energy concept remain the same. The commitment to substantially increase the amount of renewable energies by the middle of this century stays untouched. Hence, only the medium-term developments towards this goal are changed. In order to achieve security of energy supplies the construction of power plants and wiring systems is due to be accelerated. Energy-intensive industries will receive up to 500 Million euro as compensation for rising energy prices in order to protect their competitiveness against energy policy decisions.
IW Cologne assessment: 1 out of 5 stars
The federal government bases its decision to end the use of nuclear energy faster than before on a changed risk assessment in the society. This change is mainly due to the disaster in Japan to which the federal government reacted by temporarily decommissioning eight reactors. In hindsight this decision seems like a preliminary fixing of the fate of the eight power plants in question and not as a starting point to an open and unbiased debate.
The value decision on how to deal with the factual residual risks of nuclear energy, which can be characterized as very improbable yet very harmful, can either be taken in favor or at the expense of the technology. However, technical requirements and ecological ramifications ought to be incorporated into the decision much more than the tight timeframe of the past weeks allowed for. The work of the ethics commission, for instance, had to be ended due to the time constraints before it was able to address various important questions.
Various aspects of the accelerated phase-out seem especially problematic:
- The eschewal of nuclear energy means higher costs, since energy will have to be provided by more expensive power sources and energy imports. These costs mean higher prices, lower fiscal revenues and also worsen the company results of the energy providers.
- Rising electricity rates endanger the production of energy-intensive industries in Germany. The moratorium itself increased the wholesale electricity price by more than 10 percent. Energy-intensive basic industries, which operate on the international market, will not be able to pass these price increases along to their customers. It is unclear, whether the suggested compensation for additional costs will be paid in addition to or set against the compensation for additional costs due to the emissions trade.
- The necessary acceleration of the construction of fossil-fueled power plants and energy grids is desirable, but not in sight. The realization of projects that are necessary to secure electricity supply seems rather unclear and is no reliable basis for an accelerated phase-out of nuclear energy.
- With the accelerated dispensation with nuclear energy, more and more fossil fuels are being used. This is contradictory to the climate protection goals of the federal government and will mean rising CO2 costs for the industry segment.
- The disconnection of German nuclear power plants will not remain without consequences for the European neighboring countries. Due to cross-border markets the wholesale price for electricity and CO2 will also rise in these countries. This will also mean the reduction of foreign generative reserves since those are now needed for the electricity production of German customers. With this the risks of an accelerated phase-out are being passed on to neighboring countries.
- Compared with the energy concept of fall 2010 the new energy policy is not based on a calculated scenario with explicit estimates of any follow-up costs. A real cost-benefit analysis cannot be done in this fashion.
Positive, on the other hand, is the announcement of the federal government that it will try to prevent excessive burdens for energy-intensive companies. Whether it is actually possible to protect the competitiveness of this sector in spite of the accelerated phasing-out of nuclear energy will depend on the specific arrangement of possible compensations.
2.Revision of the law for renewable energies (EEG), bill for a reorganization of the legal framework for the promotion of renewable energies (17.05.2011)
What is planned?
The EEG is evaluated on a regular basis and adapted to new developments and framework conditions within the energy industry. The next EEG-amendment is due to become law on 1.01.2012. It mainly focuses on three developments. The most important provisions:
(1) Renewable energies (EE) are supposed to be marketed directly on the energy exchange. The price signal of the market is supposed to play the relevant part for the development of renewable energies. Especially fluctuating renewable energies, such as wind or solar power are supposed to be much more integrated into the power market in this fashion.
(a) Introduction of a market premium
The market premium covers the difference between the sales revenue of EEG-electricity sold directly on the energy exchange and the EEG-remuneration. The facility operator can opt for such a premium instead of the statutorily-guaranteed EEG-remuneration. Additional costs that result from direct marketing (e.g. for trade participation or prognoses) are considered with regards to the specific technology.
(b) Adaption of the green energy privilege
In the case of direct marketing and up to 2ct/KWh, power supply companies don’t have to pay the EEG-levy if they supply more than 50% of their energy by means of renewable energies (green energy privilege). In the future, the green energy privilege can only be utilized if at least 25% of the energy is made up of fluctuating energy sources.
(c) Introduction of a capacity component for biogas plants
In order to produce need-based electricity the additional power of a biogas plant is reimbursed with 130€ per KW and year in the case of direct marketing. The additional power is determined on the basis of the occupancy rate of the plant.
(2) The technology specific compensation rates, more specifically their structures are adapted to the developments of the EE-sector. The main cost drivers of the EEG are photovoltaics (PV) and biomass. The adaptations for these technologies are hence considered in greater detail.
Due to the unexpectedly high increase in PV-facilities, the compensation rates for photovoltaics are being reduced even before the amendment becomes operative. Likewise, the annex dependent annual degression (breathing cap) is being accelerated before the amendment comes into effect. Additionally, it is planned to introduce a biannual adaptation of the degression with the amendment in 2012. PV-facilities are also included in the feed-in management of grid operators.
The compensation will be reduced by 10 – 15% on average. Especially small facilities are affected by this. The degression will be increased from 1 to 2% percent. Various bonuses will be cut. At the same time new exceptions and bonuses are in the works. The liquid manure bonus introduced in 2009 will be cut in half for every facility that was built before 2009.
(3) Energy-intensive companies are supposed to keep their international competitiveness despite the costs of the EEG. The particular compensation regulation exempts energy-intensive companies partially from the payment of EEG-levies on used electricity.
(a) Reduction of requirements for the usage of the particular compensation regulation.
Implementation of a floating component
The particular compensation regulation (partial exemption from the payment of EEG-levies for energy-intensive manufacturing industries) can now be made use of starting from a consumption rate of 5 GWh instead of the previous 10 GWh. Due to the floating component, companies will have to pay EEG-levies for 100% of their used energy starting at 5 GWh, but only for 10% of their used energy starting at 10 GWh.
IW Cologne assessment: 1 out of 5 stars
- The market integration of renewable energies is decisive for a long-term withdrawal from the support system. This goal has a high priority. The optional market premium is designed in such a fashion that facility operators benefit from a change from feed-in compensation to direct marketing if they are able to obtain a price on the energy exchange that lies above the average price. The possibility to return to EEG-compensations at all times involves the danger of bandwagon effects. Inducements for long-term investments into direct marketing technologies, such as storage technologies do not exist.
- The green energy privilege is not technology specific. Its utilization is especially lucrative for technologies with low EEG-compensations. Direct marketing of expensive EEG-technologies, such as photovoltaics only becomes profitable at high EEG-levies. Then, however, bandwagon effects are to be expected for the cheaper EEG-alternatives. To be sure, the exemption on EEG-levies was limited to 2 ct/KWh and a minimum amount of 25% of fluctuating EEG-energy in order to keep possible bandwagon effects at bay. This however, reduces the appeal of direct marketing via the green energy privilege.
- The capacity premium is not tied to the condition that the “additional capacity” has to be used for flexible energy generation. This also involves the danger of bandwagon effects. The capacity premium is also accompanied by exemption clauses for biogas plants. Their impact is hard to predict.
- A well-designed market premium and the cancellation of the green energy privilege provide incentives for direct marketing and avoid bandwagon effects. This would also simplify the EEG and reduce bureaucratic expenditures. The capacity premium should be abandoned.
- The early compensation cutbacks as well as the accelerated annex dependent degression were important steps in adapting the compensation structure of the EEG to the developments in the PV-sector. The introduction of the degression for periods of less than one year ensures that new developments can be addressed quickly. Even so, no further degression step is planned for an annex of above 7500 MW. In case of an extremely high annex, there is no limit on financial support. Due to the increased importance of PV for the stability of the electricity grid (high growth in installed capacity), the participation of PV-facilities in the feed-in management makes sense.
- The compensation cutbacks correct the over-funding of the biomass. The heightened degression also makes new facilities cheaper. While the simplified compensation structure is a good approach, it is counteracted by new regulations. Introduced, for example, will be a proportional compensation (according to used materials) and new raw material compensation classes (biodegradable waste, certain residual timber assortments). Thus, the complexity of the former compensation structure will only be reduced marginally. The liquid manure bonus is ill-designed. A facility operator only receives the bonus if the proportion of liquid manure reaches 30% and then for the entire electricity production. This does not set an incentive for a (desired) high proportion of liquid manure, but for a liquid manure ratio of 30 percent. While the halving of the liquid manure bonus decreases the negative consequences, it does not get to the root of the problem.
- A cap on the support would not only make sense for PV, but for all EEG-technologies. This could be done by steps such as an unlimited degression or a maximum amount of annual output that is eligible for grants each year. This could help confine the costs of the expansion of renewable energies. The liquid manure bonus, as it is now, should be abandoned.
- The floating introduction of the special compensation regulation stabilizes the costs for energy-intensive manufacturing industries and removes the leap at the threshold of 10 GWh. In this, however, the amendment proposal falls short of its goals. There is for example, a remaining step at the threshold between a partially- and a fully-benefited company (100 GWh). This provides an incentive to abandon energy-efficient measures if such steps would jeopardize the status of full-benefits of a company. While it is planned to include an obligation to realize energy savings potentials it remains unclear how this obligation will be implemented.
Results of a survey among employees on the subject of additional health insurance premiums and their effect on competition
Since the introduction of the Gesundheitsfond (health fund) on January 1st, 2009 all members of statutory health insurances pay the same premiums. The implementation of uniform contribution rates is supposed to spur competition among the health insurances. Before, the insurance providers were able to determine their rate of contribution individually. When money was tight, the insurances just increased the rates of contribution in order to be able to absorb the costs of a potential emergency. A health insurance that operates economically is able to refund its insurants the money it previously received from the health fund. A health insurance that is not economical has to levy additional contributions. Since January 1st, 2011, a uniform contribution rate of 15.5 percent is in place. The employer’s contribution was fixed to 7.3 percent. The employee’s contribution momentarily amounts to 8.2 percent. Furthermore, statutory health insurances with loss-making economic management are now able to levy additional employee contributions independent of their income, on their own and with no upper limit. The health insurances are merely required to fix the amount of the additional premium as a lump-sum and not on a percentage basis. In the context of a short survey, 1000 employees were asked their opinion on the topic of additional premiums in the middle of May 2011.
Specific questions were:
- Are you statutorily or privately insured?
- Are you momentarily paying an additional premium to your statutory health insurance?
- Have you ever switched health insurances, because of additional premiums?
- At what rate of monthly additional premiums would you probably switch health insurances?
Some statutory health insurances promise their insurants not to levy additional premiums this year. According to the IW-Arbeitnehmervotum (IW employee vote), the majority of statutorily insured employees will not have to pay additional premiums this year.
- At least one quarter of statutorily ensured employees has already been guaranteed that they will not have to pay any extraordinary costs this year.
- Only a little more than one quarter of all statutorily insured employees expect that they will have to pay additional monthly premiums this year. Among them were 18 percent who already pay additional premiums. The remaining nine percent were already informed by their health insurances that additional payments will become due within the year.
- At the same time, two fifth of the employees declare that their statutory health insurance has not levied any additional premiums yet and also did not announce any plans that it was willing to do so.
Only a minority of insurants has switched their health insurance because of additional premiums thus far.
The majority of the workforce has not decided to switch health insurances because of additional premiums so far. Nevertheless, employees often plan to switch if they already have to pay additional premiums this year or expect such obligations in the near future.
- Only 13 percent have switched health insurances so far. Of those 13, eleven percent have switched to another statutory health insurances while the remaining two percent have opted for a private insurance.
- Momentarily, five percent of the employees plan to switch health insurances.
- For six percent, the topic does not matter since they have already been privately insured for quite some time.
The picture of statutorily insured employees looks quite similar to that of the entire workforce. With 14 percent, statutorily insured employees only switched to other statutory health insurances a little more often than the aggregate of all employees.
Merely every tenth statutorily insured employee, who already pays an extraordinary, monthly contribution, has switched health insurances due to additional premiums. Within this group, however, every fifth employee is considering to switch. Among employees who have already been informed by their health insurances that additional premiums will be due in 2011, every fifth has switched health insurances in the past and every tenth is considering this step.
Every fifth employee, who has been guaranteed by his or her health insurance that no additional premiums will be levied this year, has switched to this insurance due to additional contributions levied at another statutory health insurance.
Employees, who are insured at a statutory health insurance, which does not plan to levy additional premiums this year or has even guaranteed this, rarely consider switching health insurances.
Additional monthly premiums are acceptable up to 19 euro.
On average, statutorily insured employees only consider switching health insurances if the monthly extra premium exceeds 19 euro. Up to this amount, employees want to remain faithful to their respective health insurance.
- Employees who already pay additional premiums or have to expect such measures within the year are willing to pay more than 19 euro before switching health insurances. On average, their pain barrier lies at 24 euro per month.
- Employees who have been guaranteed that no additional premiums will be due this year are only willing to switch health insurances if their additional premiums would exceed an average of 14 euro.
The initiative wants to renew the social market economy of Ludwig Erhard and adjust it to globalization, demographic change and the knowledge society. The INSM stands for a social system of freedom and responsibility.