The latest data on GDP have highlighted that even Germany, the driving force of Europe, is feeling the brunt of the crisis. In fact, in the second quarter of 2014, GDP fell by 0,2% and the indicators on business and consumer confidence have strung together one negative signal after another. All aggravated by geopolitical tensions such as the crisis in Ukraine. Yesterday, German industrial production data rose much more than expected. According to many economists, it is a good indicator, together with other positive indicators of recent weeks, of a possible return of growth in Berlin in the third quarter of the year. Now we look at the trend of the euro-dollar exchange rate (1,2951 at yesterday's close) and at the weakening of the single currency which could revive German exports and Europe in general. The moves decided on Thursday by Draghi, including the further cut in rates and the purchase of Abs securities, gave another push to the euro and removed any alibi from Europe and the member states on reforms. But for the president of the German industrialists (BDI), Ulrich Grillo, interviewed by FIRSTonline on the sidelines of the Ambrosetti workshop at Villa D'Este, Draghi's package will not have a significant impact.
FIRSTonline – President. what do you think of Draghi's decisions?
GRILLO – It's not my role to comment on the ECB, but in any case I don't think this will have a consistent impact on investments. Interest rates have already been low for some time but companies need trust which depends on the right environment in which they operate and which geopolitical tensions are also affecting these days. Overall, I believe that this package will have a limited impact also because we must not forget that in Europe there are many people who have savings but who are not well remunerated with such low rates. Furthermore, in Germany we do not have any problems accessing credit as may be the case in France and Italy. So, I agree with this package of measures, but it may not be very useful for healthy German companies, while it can help southern European countries.
FIRSTonline – He doesn't seem satisfied.
GRILLO – It's not just a question of financial instruments, we need structural reforms and labor market flexibility, we must not place too much hope in these financial instruments. Germany's experience says that it's not just a matter of money but also of education. If you don't have the right skills and people, it's a problem. Europe must also be restructured with a view to flexibility of labor policies, as well as public administration and investment procedures.
FIRSTonline - Will the weakening of the euro be able to revive the recovery of exports and the European and German economy? At what level should the exchange rate settle?
GRILLO – You have to ask the market. I believe that we should not manipulate the euro/dollar exchange rate but that the result must depend on market dynamics. Of course, with a weaker euro it is easier to export, but a lower single currency also makes imports more expensive. Germany does a lot of exports but also a lot of imports and both these aspects need to be considered. If exports increase by 10% imports also increase by 9% because we have to buy the components for the production of the goods to be exported.
FIRSTonline – The economy is in stagnation, what reforms must Europe and Germany implement to return to growth?
GRILLO – In Germany in the last nine months we have had a Grand coalition which has emphasized some big social projects such as the reduction of the retirement age and the rent system. What we need now is to make the transition from spending to investing. And this is the same need that Europe has, which needs an integrated energy market that would allow savings of 50 billion euros, integrated broadband that would bring savings of 250 billion euros and infrastructure reforms. These are the elements needed to regain growth. More impetus in terms of strengthening competitiveness must be given by the European Commission and any reform should be monitored in terms of competitiveness.
FIRSTonline – What do you think of the debate on the German budget balance? Could it be sacrificed for growth?
GRILLO – Discipline is very important. It has helped Germany and in the long term it is the right tool, we also look at the results on growth in Spain. Instead of weakening discipline we need to reduce social spending and put this money into investment. In Germany we decided in the past to increase social spending and now some things should be changed but it is no longer possible to do so. For example, female workers can choose to stay at home to take care of their child by receiving their salary or make use of public facilities. But this is an excessive rule that does not encourage a return to work.
FIRSTonline – What do you think of Prime Minister Matteo Renzi?
GRILLO – I met Renzi twice and I had a very good impression. It is very ambitious but his words must be followed by actions, both Italy and Europe ask him. We cannot limit ourselves to launching a major reform every month. Then we need to act and it seems to me that it is already a bit late. Now he leads the European Semester, we hope he will be able to give momentum. If one of Germany, France, Italy is sick, the others also have problems. If Renzi is successful, Europe is also successful.
FIRSTonline – Did mini jobs work in Germany? Can they be exported to Italy?
GRILLO – Flexibility is an important aspect that has helped us especially in situations of volatility. We adopted mini-jobs already ten years ago and they helped us to achieve these results. They have been a good tool for us and they probably are for Italy too.
FIRSTonline -Germany is also a model when it comes to union participation on management boards.
GRILLO - Here I bring my direct example: I'm sitting on the Board of Directors of a company where union representatives are also present and this has allowed comparison over the years. I don't know if it can be exported but it's a good model thanks to the collaboration that has been established with the union groups who have become aware of the economic situation.
FIRSTonline – The economic crisis, however, has not spared Germany either, which has filed unreassuring GDP data.
GRILLO – After the 0,2% drop, growth estimates for the year are nonetheless optimistic and show a +1,5% GDP. We are optimistic but we must fight for this and we must also make investments and innovation. But it's not easy or obvious.
