Fuest illustrates growing influence of Germany’s think-tanks

Clemens Fuest wishes for a different approach to energy policy
Clemens Fuest: nuanced

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Clemens Fuest is the head of Mannheim-based ZEW, one of Germany’s most highly regarded think-tanks. In April 2016, he will become the head of Munich’s Ifo, another think-tank.

To many, the phrase think-tank translates into something vague: a body set up to steer the debate on public policy and whose influence is hard to measure.

In countries such as the UK, with a central bank and a government free to set economic policy in the national interest, that view fits. But in Germany, where the introduction of the euro has at times appeared to reduce the role of the central bank to that of a glorified research institute, think-tanks take on an altogether more meaningful role.

The reduction in power of Germany’s economic institutions to set policy at home, a natural consequence of currency union, levels the playing field for influence in economic decision-making. It was the man whom Mr Fuest will succeed at the Ifo, Hans-Werner Sinn, who led German criticism of the European Central Bank’s efforts to heal the eurozone’s economy through programmes of mass government bond buying.

While Mr Fuest’s status as a research economist in both the UK and Germany has propelled him to prominence, he is not as well known as Mr Sinn, who has become a media fixture in recent years.

“Hans-Werner Sinn is clearly the most influential economist in Germany at the moment,” says Mr Fuest. “It makes no sense at all to try to imitate him, so I have my own style and will continue being myself and do it the way I do now. At the same time, the institute is successful and I will of course try to build on that success.”

In Mr Fuest’s view, there are two ways to ensure academic research becomes influential. One is to publicise the research, the other — a channel with which he is perhaps more familiar — talking directly to politicians. “My experience is that most politicians are very open to discussions and advice, if it’s communicated in the right manner. That doesn’t mean they always follow that advice, but I think that’s perfectly legitimate.”

Germany’s economic institutions may have found themselves hamstrung domestically, but the intellectual current in the country now extends beyond its borders in a way it did not before the creation of the euro. The most obvious example is the fiscal straitjacket that the eurozone, partly at Germany’s insistence, has forced on Greece, Cyprus, Portugal and Ireland.

On the ECB, Mr Fuest’s views are more nuanced than those of Mr Sinn. While he shares the view that the central bank may have overstepped its mandate at times, he is adamant that ECB president Mario Draghi must act in the interests of the eurozone as a whole.

“It is not the mandate of the ECB to pursue either German or French economic interests, but those of the eurozone as a whole,” he says.

“There is no democratic control of monetary policy. There is a high degree of independence and that means that the ECB needs to be very, very careful to stay within its mandate.”

He believes the ECB mishandled the Greek crisis by extending some €90bn in loans to Greek banks through sanctioning so-called Emergency Liquidity Assistance from the Bank of Greece throughout the recent turmoil.

“It was bad policy. If they had stopped ELA in February or March, which would have been perfectly justified, [Greek prime minister Alexis] Tsipras would have been willing to negotiate and come to a deal much earlier,” he says.

“My concern is that the ECB has given in too easily to those who want it to manage the euro crisis. By interpreting its mandate more restrictively it could have prevented part of the damage that has been done in Greece.”

Closer to home, Mr Fuest is scathing about the Energiewende, “energy turnround” policy, an attempt to move Germany towards greater reliance on renewable energy. He calls the policy is “utterly disastrous”.

He adds: “If you look at the objectives — security of energy supply, environmental issues and affordable prices — the policy fails in all these dimensions.”

The policy mirrors the EU’s much criticised common agricultural policy of the 1960s and 1970s, he says, by providing expensive subsidies that clash with market forces. “We have massive entrenched lobby groups. The wind-oriented north is fighting the solar-oriented south for subsidies. It’s like butter and wine in the old days in Europe.”

“If I could have one wish for changing economic policy in Germany, perhaps that’s it: completely restart and think differently about energy policy.”

He views the failure of Energiewende as emblematic of a broader inability of the government to encourage innovation and entrepreneurship. And while Germany remains one of the strongest economies in the eurozone, Berlin is in danger of succumbing to complacency.

“If you look at the current government and political debate, there is this danger of complacency and of being too optimistic about the situation of the German economy.”

He adds: “The current government is just focused on income redistribution policies such as rent regulation or minimum wages. It doesn’t think hard enough about growth, in particular domestic growth.”

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