10.6092/issn.1561-8048/15651
By helping to give birth to the establishment of NextGenerationEU and the Recovery and Resilience Facility, the German government made a U-turn in relation to the Covid-19 pandemic compared with its earlier austerity approach in the management of the Euro crisis. Opposition to the new European debt and transfer instruments has been silent and political leaders have integrated the additional grants into their planning processes concerning changing the country’s energy supply and expanding digitalisation. While the Recovery and Resilience Plan was assessed positively, some preconditions for implementing it still seem to be missing, such as better electricity and high-capacity broadband networks. The process of transforming the German economy structurally to be greener and more digitalised has, however, neglected the social implications. While a minor proportion of the RRP will be spent on strengthening social resilience, many vulnerable groups are not in the focus of the state’s activities. The EU’s conclusions in the 2019 Country Specific Recommendations are treated rather in economic than in social terms. A sustainable new growth model would need to tackle also long-standing problems such as the high external surplus, the low public investment rate, income inequality and the relatively high at-risk-of-poverty rate.
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Italian Labour Law e-Journal
European Semester
National Recovery and Resilience Plan: Germany
Text.Serial.Journal
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National Reports
2022-11-03
2022-10-19
2022-11-03
2022-11-03
ILLeJ
Björn Hacker
2022/11/03
10.6092/issn.1561-8048/15651
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National Recovery and Resilience Plan: Germany
https://illej.unibo.it/article/download/15651/14867
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    National Recovery and Resilience Plan                                         Italian Labour Law e-Journal
    Germany                                                                      Special Issue 1, Vol. 15 (2022)
    Björn Hacker                                 The NextGeneration EU in Action: Impact on Social and Labour
    bjoern.hacker@htw-berlin.de                                                                         Policies
                                                                                               ISSN 1561-8048
                                                                https://doi.org/10.6092/issn.1561-8048/15651




         National Recovery and Resilience Plan: Germany
                                            Björn Hacker
                                                 Abstract

     By helping to give birth to the establishment of NextGenerationEU and the Recovery and
     Resilience Facility, the German government made a U-turn in relation to the Covid-19 pandemic
     compared with its earlier austerity approach in the management of the Euro crisis. Opposition
     to the new European debt and transfer instruments has been silent and political leaders have
     integrated the additional grants into their planning processes concerning changing the country’s
     energy supply and expanding digitalisation. While the Recovery and Resilience Plan was assessed
     positively, some preconditions for implementing it still seem to be missing, such as better
     electricity and high-capacity broadband networks. The process of transforming the German
     economy structurally to be greener and more digitalised has, however, neglected the social
     implications. While a minor proportion of the RRP will be spent on strengthening social
     resilience, many vulnerable groups are not in the focus of the state’s activities. The EU’s
     conclusions in the 2019 Country Specific Recommendations are treated rather in economic than
     in social terms. A sustainable new growth model would need to tackle also long-standing
     problems such as the high external surplus, the low public investment rate, income inequality
     and the relatively high at-risk-of-poverty rate.

     Keywords: NextGenerationEU, Recovery and Resilience Plan, Germany, European Pillar of
     Social Rights, European Semester.




1. The German government and NGEU.

   Criticism of the NextGenerationEU (NGEU) package was silent in Germany after
Chancellor Angela Merkel (together with French President Emmanuel Macron) came up
with the initial idea for tackling Covid-19 crisis with a common European fiscal capacity. In
the negotiations between the Member States in 2020 it was not Germany, but the so-called
‘Frugal Four’ – Austria, Denmark, the Netherlands and Sweden – who argued against the
common debt and transfer instrument. German public opinion took the view that their


    Professor of European Economic Policy at University of Applied Sciences HTW Berlin.
    Björn Hacker                                                                     Italian Labour Law e-Journal
                                                                                    Special Issue 1, Vol. 15 (2022)
                                                                      The NextGeneration EU in Action: Impact on
                                                                                        Social and Labour Policies




insistence on pursuing the Euro-crisis path of helping countries with loans rather than with
grants was regarded as obstructive, hindering the Commission and Chancellor Merkel (as
well as the then President of the Council) to make a deal. An agreement was seen as crucial
given the sharp plunge in GDP in the second quarter of 2020 and the uncertainty about the
future course of the pandemic. Not everyone would go as far as the then German Minister
of Finance Olaf Scholz, who spoke of a ‘Hamilton moment’ for the EU.1 But unlike the
emphasis on the Member States’ own responsibility for their economic situation in the
financial crisis of 2008/09 and the subsequent Euro crisis, the last Merkel government knew
that the pandemic would require a bold and common European response.


2. The German RRP: an overview.

2.1. Timeline and amount requested.

   The initial idea for a European recovery fund to counter the recession caused by the
pandemic was jointly proposed by Macron and Merkel on 18 May 2020.2 After intense
negotiations between the Member States about the proposal, which was further developed
by the European Commission into the NGEU package, the two heads of state described the
agreement reached on 21 July 2020 as ‘exceptional’ and ‘historic’.3 For the German
presidency of the Council in the second half of 2020 it was important to consolidate this
diplomatic and political success by setting a positive example for other Member States by
bringing into force the Reform and Resilience Facility (RRF). Therefore, the cabinet adopted
a draft Reform and Resilience Plan (RRP) on 16 December 2020 and submitted it to Brussels
before the end of the German Council presidency. This draft RRP was a relatively short 45-
page document,4 which was amended in a consultation process with the European
Commission. The final RRP – now 1111 pages long plus annex – was adopted by the German
cabinet on 27 April 2021.
   Based on calculations made in 2020 (which will partly be revised in 2022) Germany can
receive up to 25.6 billion euros (€) net (€28 billion gross) of grants from the RRF. This is the
fourth highest amount after Spain (€69.5 billion), Italy (€68.9 billion) and France (€39.4



1 Dausend P., Schieritz M., ‘Jemand muss vorangehen’, interview with Olaf Scholz, in Die Zeit Online, 19 May 2020,
https://www.zeit.de/2020/22/olaf-scholz-europaeische-union-reform-vereinigte-
staaten?mode=recommendation&page=3.
2 Die Bundesregierung, Pressekonferenz von Bundeskanzlerin Merkel und dem französischen Präsidenten Emmanuel Macron,

18 May 2020, https://www.bundesregierung.de/breg-de/suche/pressekonferenz-von-bundeskanzlerin-
merkel-und-dem-franzoesischen-praesidenten-emmanuel-macron-1753844.
3 Die Bundesregierung, Pressekonferenz von Bundeskanzlerin Merkel und Präsident Macron am 21. Juli 2020, 21 July

2020, https://www.bundesregierung.de/breg-de/suche/pressekonferenz-von-bundeskanzlerin-merkel-und-
praesident-macron-am-21-juli-2020-1770170.
4 Bundesministerium der Finanzen, Deutscher Aufbau- und Resilienzplan. (DARP) Entwurf. 13 December 2021,

https://www.bundesfinanzministerium.de/Content/DE/Downloads/Broschueren_Bestellservice/2021-01-
13-deutscher-aufbau-und-resilienzplan.html.

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    Björn Hacker                                                                Italian Labour Law e-Journal
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                                                                 The NextGeneration EU in Action: Impact on
                                                                                   Social and Labour Policies




billion).5 There was no discussion in Germany about asking for additional RRF loans because
the country enjoys extremely favourable refinancing conditions for government bonds on
capital markets. When submitting its final RRP on 28 April 2021 the government requested
a prefinancing sum of €2.25 billion, which is around 8.7 per cent of the average assigned to
Germany.
    The European Commission adopted a positive assessment of the German RRP on 22
June 2021, followed by approval by the Council on 13 July 2021. The prefinancing sum of
€2.25 billion was disbursed by the Commission on 26 August 2021.


2.2. Main reforms and investments.

   The German RRP lists six focus areas of investment activities (see Table 1). The two main
areas are climate policy and energy change (40.4 per cent of total) and the digitalisation of
the economy and infrastructure (21.1 per cent of total). This is in line with the Commission’s
priorities. Overall, Germany plans to invest around 42 per cent of total funding to support
the EU climate neutrality target in 2050 and 52 per cent to support the digital transition.
Both figures outstrip the EU-wide targets of 37 per cent (climate) and 20 per cent
(digitalisation). The high share of digitalisation resources is mirrored in many measures
throughout the RRP, not only in the respective field. The third biggest policy area for
investment and reform measures is the strengthening of a pandemic resilient health system
(16.4 per cent of total), followed by 12.5 per cent for modernising public services and tackling
investment bottlenecks. Some 5 per cent is reserved for digitalisation in education and
bringing up the rear is the reinforcement of social inclusion (4.6 per cent of total).

Table 1: Germany’s six policy areas for RRF funding
                                                            Allocated funds in
                                                                                Share     of                 total
           Investment/reform area                           billions  of  euros
                                                                                funding in %
                                                            (rounded)
    1.   Climate policy and energy change                    11.26               40.4%
    2.   Digitalisation of the economy and infrastructure 5.9                    21.1%
    3.   Strengthening of a pandemic resilient health system 4.56                16.4%
         Modernising public services and tackling
    4.                                                       3.52                12.5%
         investment bottlenecks
    5.   Digitalisation in education                         1.43                5.0%
    6.   Strengthening social inclusion                      1.26                4.6%
          TOTAL                                              27.95               100.00%
Source: Bundesministerium der Finanzen, Deutscher Aufbau- und Resilienzplan (DARP), 27 April 2021, 15–17,
https://bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Europa/DARP/deutscher-
aufbau-und-resilienzplan.html; and Bundesministerium der Finanzen, Monatsbericht Mai 2021, 7-12,



5  European Commission, Recovery and Resilience Facility: Maximum grant allocations (current prices), 2020,
https://ec.europa.eu/info/sites/default/files/about_the_european_commission/eu_budget/recovery_and_r
esilience_facility_.pdf.

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https://www.bundesfinanzministerium.de/Content/DE/Downloads/Broschueren_Bestellservice/monatsbe
richt-mai-2021.html.


   In the reform areas identified above, ten components with 40 measures and a total of 129
targets (‘milestones’) form part of the German RRP. As major financing projects with a
volume of more than €1.5 billion the RRP mentions measures to modernise hospitals
(Zukunftsprogramm) and the implementation of a law on public services digitalisation
(Onlinezugangsgesetz) with €3 billion each, as well as support for the shifting to electric cars
(Innovationsprämie) and further support to increase energy efficiency in residential buildings
(Bundesförderung für effiziente Gebäude), each obtaining €2.5 billion. Some €1.9 billion will be
invested in a programme for digitalisation and innovation in the car industry. And for two
out of three joint projects with France (Important Projects of Common European Interest,
IPCEI) to build production and transportation capacities for green hydrogen as well as to
develop electronics design and a new generation of processors some €1.5 billion is being
spent on each measure.6
   The anticipated economic impact of the RRF on German GDP is rather low. Based on
the draft version of the RRP the German Council of Economic Experts sees a short-term
stabilising function of 0.74 per cent of 2019 German GDP. The Council bemoans the fact
that around 80 per cent of the measures proposed by the government already form part of
older programmes, especially the national economic stimulus package from June 2020, and
that the scope of new financial resources remains unclear.7 The German Institute for
Economic Research (DIW Berlin) shares the assessment of low stimulus impact in the short
run (0.19 per cent by 2022 and 0.62 per cent by 2025), but calculates an additional GDP
increase of 1.89 per cent by 2040 because of the RFF measures. The investments and reforms
concerning digitalisation and the health system would have the most striking effect.8 It is
important to note that most of the projects benefit from co-financing by the federal
government.




6  Bundesministerium der Finanzen, Deutscher Aufbau- und Resilienzplan (DARP), 27 April 2021, 15–17,
https://bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Europa/DARP/deutscher-
aufbau-und-resilienzplan.html.
7 Sachverständigenrat zur Begutachtung der wirtschaftlichen Entwicklung, Stellungnahme des Sachverständigenrates

zum DARP, 30 March 2021, 4ff.:
https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Europa/DARP/5-annex-
2-stellungnahme-nationaler-ausschuss-fuer-produktivitaet.pdf?__blob=publicationFile&v=4.
8 DIW Berlin, Quantitative und qualitative Wirkungsanalyse der Maßnahmen des Deutschen Aufbau und Resilienzplans

(DARP): Endbericht; Kurzexpertise im Auftrag des Bundesfinanzministeriums (fe 3/19), 2021, 14,
https://www.diw.de/de/diw_01.c.817155.de/publikationen/politikberatung_kompakt/2021_0168/quantitati
ve_und_qualitative_wirkungsanalyse_der_massnahmen___expertise_im_auftrag_des_bundes___nanzministe
riums__fe_3/19.html.

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     Björn Hacker                                                                  Italian Labour Law e-Journal
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                                                                    The NextGeneration EU in Action: Impact on
                                                                                      Social and Labour Policies




2.3 Impact of the reforms on labour and social affairs.

   It’s important to differentiate between the explicit and the implicit impact of RRP
measures on labour and social affairs. The implicit impact is enormous in terms of the
potential labour market effects. DIW Berlin estimates the creation of 230,000 new jobs as a
result of the investment and reform plans.9 This applies particularly to projects on climate
and energy change and digitalisation of the economy and infrastructure. There is no hint of
whether these new jobs will enjoy good working conditions, however.10
   Out of the 40 concrete measures envisaged in the German RRF, the federal programme
to set up a network for further education (€38 million), the establishment of competence
centres for teacher training (€0.2 billion) and equipping them with mobile digital devices
(€0.5 billion) or the abolition of investment bottlenecks might induce positive labour market
effects, although they would not be easy to measure. The digitalisation and modernisation of
hospitals (€3 billion) and public health services (€0.81 billion) would facilitate access to the
health system, while the implementation of a national education platform (€0.63 billion)
might help to foster access to learning and equal opportunities.11
   The most concrete measures in social affairs are those concerned with strengthening
social inclusion. In detail12:

(i) an investment programme on childcare financing 2020-21 (Kinderbetreuungsausbau) to
     support federal states and municipalities with 90,000 new day care places for children
     (€0.5 billion);
(ii) a ‘social guarantee’ that social security contributions will not exceed 40 per cent (surplus
     covered by federal budget and federal states);
(iii) a programme to support companies offering apprenticeships (Ausbildungsplätze sichern)
     (€0.73 billion);
(iv) a reform programme to tackle students’ learning lags as a result of the pandemic with
     extra training groups in schools (covered by federal budget);
(v) a digital pension overview to enhance individual pension information and planning (€34.3
     million).

   Except for the last measure on pensions the other four projects have a direct linkage to
the social consequences of the pandemic and try to address infants, pupils, trainees, single
parents and families on low disposable incomes. All of them belong to vulnerable groups hit
hard by the crisis. DIW Berlin regards the requirement of supporting social resilience as fully


9 DIW Berlin, nt. (8), 13.
10 DIW Berlin simplifies its social assessment with regard to the impact on employment by speaking of the
second pillar of the European Pillar of Social Rights (EPSR) and its Social Scoreboard as ‘dynamic labour
markets’ (ibid, p 7). In reality the second pillar is named ‘dynamic labour markets and fair working conditions’,
obviously beyond pure economic dynamism and with reference to disposable income and in-work poverty.
11 Bundesministerium der Finanzen, nt. (6), 15 ff.
12 Bundesministerium der Finanzen, nt. (6), 701 ff.



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achieved by these measures to strengthen social inclusion, as well as by the efforts to achieve
a pandemic-resilient health system.13


3. The social and labour dimensions of the RRP.

3.1 Evaluations by the Commission and the Council.

    On 22 June 2021 the Commission approved the German RRP. In a joint statement in
Berlin, Commission President Ursula von der Leyen and Chancellor Angela Merkel referred
primarily to the two main policy areas of climate protection and digitalisation. The
Chancellery press release cites the head of government as referring to future investments ‘in
hydrogen, microelectronics, the Cloud and IT’;14 while the Commission’s press release adds
the strengthening of economic and social resilience and mentions support for disadvantaged
groups and improving women’s labour market participation by expanding day-care services.
According to Commissioner for the Economy Paolo Gentiloni, these are ‘challenges that the
Commission has long recommended that Germany address’.15
    Overall, the Commission’s assessment of the German RRP was very positive. The highest
possible rating (A) is awarded on ten out of eleven assessment criteria; only the details and
depth of calculation on costing the projects are criticised and rated as only satisfactory (B).
The Commission welcomes the German RRP with its six priorities focussing on the green
and digital transitions. It describes it as a ‘comprehensive and adequately balanced response
to the economic and social situation, thereby contributing appropriately to all six pillars
referred to in Article 3 of the RRF regulation, taking the specific challenges and the financial
allocation of Germany into account’.16 The Commission calculates on the basis of a GDP
stimulus of between 0.4 and 0.7 per cent by 2026, which is in line with DIW Berlin estimates,
although only 135,000 new jobs are predicted.17
    Besides this labour market effect of the green and digital transitions, the planned measures
to strengthen social and territorial cohesion, health, economic and institutional resilience,
and also policies for the next generation (pillars 4 to 6 of the RRF) are assessed positively.
The German government is expected to contribute to social cohesion by, for example,
supporting schemes for apprenticeships and the education platform or additional childcare
places. Education measures are particularly important in fostering social cohesion, while the



13 DIW Berlin, nt. (8), 15 ff.
14  Die Bundesregierung, Green light to boost digitalisation and climate protection, 22 June 2021,
https://www.bundesregierung.de/breg-de/themen/europa-im-dialog/aufbau-und-resilienzplan-1934676.
15 European Commission, NextGenerationEU: European Commission endorses Germany's recovery and resilience plan,

Press Release, 22 June 2021, https://ec.europa.eu/commission/presscorner/detail/en/ip_21_3133.
16 European Commission, Analysis of the recovery and resilience plan of Germany, Brussels, 22 July 2021, SWD(2021)

163 final/2, 36:
 https://eur-lex.europa.eu/legal-content/CS/TXT/?uri=SWD:2021:163:REV1&qid=1626959016062.
17 European Commission, nt. (16), 46.



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                                                            The NextGeneration EU in Action: Impact on
                                                                              Social and Labour Policies




Commission sees ‘a more limited contribution from social measures’.18 Many projects have
the potential to boost territorial cohesion by helping less developed areas to benefit, for
example, in the construction and energy sectors. The digitalisation of the health sector might
also reduce regional differences. Social resilience would be strengthened mainly through the
digitalisation of education. This would also promote social inclusion, as would the tackling
of specific disadvantages. In this connection, the Commission mentions19:

(i) the acquisition of skills at a young age in order to mitigate socio-economic disadvantages
     before school age is reached with the announced 90,000 childcare places in nurseries and
     kindergartens;
(ii) catch-up efforts for pupils behind in their studies (often from vulnerable or migration
     backgrounds) as a result of the pandemic in order to avoid compounding effects; such
     efforts would include additional training groups, other learning support and an
     apprenticeship initiative;
(iii) income and job effects on low-wage earners as a result of capping social security
     contributions;
(iv) the promotion of gender equality by enabling women to return to work more quickly
     and work more hours after maternity and parental leave with improvements in early
     childhood education and care.

   The Commission gives a very general assessment of the impact of the German RRP on
young people (‘are expected to have more opportunities’) and criticises the fact that certain
focus groups are neglected, such as older people and people with disabilities. The lack of
ambition with regard to gender equality is also criticised.20 These gaps in the RRP are all the
more remarkable, as the Covid-19 crisis has not done too much damage to the German
labour market, but ‘is likely to increase social vulnerability’, especially with regard to the risk
of poverty and equal opportunities.21 Nevertheless, these aspects do not lead to a formal
admonition. The proposal for a positive assessment on the German RRP was adopted by the
Economic and Financial Affairs Council on 13 July 2021.


3.2 European Pillar of Social Rights and the Social Scoreboard.

    In the German RRP the European Pillar of Social Rights (EPSR) is mentioned quite early
(p 14) in a table presenting an impact analysis by DIW Berlin (cf Section 2.3). It shows that
the objectives of the 20 EPSR principles are part of every one of the ten components of the
six focus areas proposed by the German government, least realised in ‘modernising the public
services’ and most realised in ‘strengthening social inclusion’ and ‘strengthening a pandemic-

18 European Commission, nt. (16), 35.
19 European Commission, nt. (16), 25 and 34–36.
20 European Commission, nt. (16), 25 ff. and 36.
21 European Commission, nt. (16), 6–10.



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resilient health system’. Based on this analysis, the RRP explains that the government
supports the development and strengthening of the EPSR and that the proposed projects
will have a positive impact on implementing its principles. Especially the measures to support
the disadvantaged or groups particularly affected by the pandemic would have a positive
impact on implementing the EPSR. Early childhood care, support for pupils, the
apprenticeship initiative and the digital pensions overview are mentioned in relation to
strengthening social resilience in all three chapters of the EPSR. Support for dynamic labour
markets and digitalisation of health services and hospitals would also be relevant in relation
to the EPSR.22
    Later, the EPSR is mentioned only occasionally in the RRP chapter on ‘strengthening
social inclusion’, in relation to the fact that the components of the RRP would contribute in
particular to all EPSR principles in its first chapter ‘equal opportunities and access to the
labour market’, and that the digital pension information would contribute to principle No 15
‘Old-age income and pensions’.23 Of course other principles are affected as well, such as No
9 ‘Work–life balance’, No 11 ‘Childcare and support for children’, No 16 ‘Health care’ and
No 20 ‘Access to essential services’. It is obvious that the EPSR objectives of the pillar’s first
chapter are relatively easy to fulfil and compatible with other economic goals, while most of
the principles in the second chapter ‘Fair working conditions’ and the third chapter ‘Social
protection and inclusion’ are not touched on. This mirrors a conflict known from the
European Semester between budgetary and competition-oriented policies, on one hand, and
a desire to strengthen the social dimension, on the other.24
    The analysis carried out by DIW Berlin on behalf of the German Ministry of Finance uses
the Social Scoreboard to name five social policy groups, in which the country ranges below
the EU average: lifelong learning, gender gaps in employment, income inequalities, poverty
reduction, and access to health services. The study mentions the following among vulnerable
groups exposed to the social consequences of the pandemic: parents (especially mothers),
children from families with low socio-economic status, employees in exposed sectors, the
low qualified and low-wage earners.25 These aspects have only partly been taken up in the
RRP, as we have seen.
    In its own assessment the Commission shares the positive picture that the German
government paints in its RRP for implementing the EPSR principles. Although the financial
resources earmarked for social inclusion are relatively low, it is supposed that ‘Germany’s
relatively good results on the Social Scoreboard are expected to be reinforced by the plan’.26
The Commission praises the fact that Germany has ‘few’ employment and social challenges,
its ‘well developed social protection system’ and the fact that the RRP ‘addresses a multitude
of employment and social challenges’ relevant to implementing the EPSR, adding: ‘Still, some


22 Bundesministerium der Finanzen, nt. (6), 44.
23 Bundesministerium der Finanzen, nt. (6), 730 and 770.
24 Hacker B., A European Social Semester? The European Pillar of Social Rights in Practice, ETUI Working Paper,

Brussels, 2019.05, 2019, 56 ff.
25 DIW Berlin (2021), nt. (8), 8 ff.
26 European Commission, nt. (16), 47.



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indicators such as early school leaving and persons not in education, employment or training
(NEET) have been deteriorating lately and hence the measures of the recovery and resilience
plan mentioned above are particularly welcome.’27


3.3 Consideration of the Country-Specific Recommendations.

     With regard to labour and social affairs the Country Specific Recommendations (CSR)
2019 call for the following28:
(i) to ‘focus on investment-related economic policy on education; research and innovation;
     digitalisation […] and affordable housing, taking into account regional disparities’;
(ii) to ‘shift taxes away from labour to sources more supportive for inclusive and sustainable
     growth’;
(iii) to ‘reduce disincentives to work more hours, including the high tax wedge, in particular
     for low-wage and second earners’;
(iv)to ‘take measures to safeguard the long-term stability of the pension system, while
     preserving adequacy’;
(v) to ‘strengthen the conditions that support higher wage growth, while respecting the role
     of the social partners’;
(vi) to ‘improve educational outcomes and skills levels of disadvantaged groups’.

   This is a fairly comprehensive set of recommendations linked to the labour market and
social affairs as things stood before the pandemic. The Commission (and later the Council
adopting the Recommendations) identified some structural problems in Germany. Taxes on
labour and especially social security contributions are too high to promote more
employment. This creates problems particularly for women and people with migrant
backgrounds wishing to participate fully in the labour market. Joint income taxation for
married couples (so-called Ehegattensplitting) discourages women from working more hours.
The share of low-paid workers (22.5 per cent in 2017) is above the EU average. Real wage
growth is modest, while collective bargaining has been declining further, and housing is less
affordable. People with migrant backgrounds make up a high proportion of early school
leavers and experience difficulties in finding an apprenticeship. Children of low-skilled
parents have a very high risk of social exclusion. For pensioners, the level of the public
pension benefit ratio is expected to fall to 37.6 per cent in 2040.29




27 European Commission, nt. (16), 47 and 50 ff.
28 European Commission, Recommendation for a Council Recommendation on the 2019 National Reform Programme of
Germany and delivering a Council opinion on the 2019 Stability Programme of Germany, Brussels, 5 June 2019, COM(2019)
505 final, 8, https://eur-lex.europa.eu/legal-content/DE/ALL/?uri=COM%3A2019%3A505%3AFIN.
29 European Commission, nt. (28), 5–7.



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   The 2020 CSR – in the shadow of the pandemic – added the following recommendations
to these challenges30:

(i) to ‘strengthen the resilience of the health system, including by deploying eHealth services’;
(ii) to ‘focus investment on […] digital infrastructure and skills, housing, education and
     research and innovation’.

   This focus is explained by the lack of preparedness of the German health sector for the
pandemic, the danger of reduced income for vulnerable groups and unevenly distributed
socio-economic consequences as a result of the crisis. The labour market and the education
system were prone to leave people behind because of their lack of technological progress,
which poses a challenge in particular to disadvantaged pupils and students with vulnerable
socio-economic and migrant backgrounds.31
   The German government sees its RRF as being in line with these recommendations. The
‘social guarantee’ stabilises social security costs at a maximum of 40 per cent, while support
schemes for childcare places, training courses for students and more apprenticeships would
address disadvantaged groups. Digital pension information would help citizens to optimise
their decisions on employment and retirement provision. Digitalisation projects would
respond to demands in the educational and health sectors.32 This view is widely shared by
the Commission, which also notes that ‘further efforts are needed in the coming years on
several reform areas’, mentioning the high taxes on labour, the disincentives to work for
second earners (mostly women), and the challenge to ensure sustainability and adequacy of
the pension system.33 Additional aspects of the 2019 and 2020 CSR not touched by the
German RFF are the challenges regarding affordable housing and better conditions for
higher wage growth, for example, by stopping the decline of collective bargaining
agreements.


4. Lessons from the previous crisis.

4.1 Recommendations in the context of the in-depth reviews.

   Germany has been monitored each year since the 2014 European Semester cycle by an
in-depth review to identify and assess the severity of macroeconomic imbalances. This is
because of the country’s high current account surplus, mirroring its high export share of
goods, services and capital, but lower import share. Since implementation of the

30 European Commission, Recommendation for a Council Recommendation on the 2020 National Reform Programme of
Germany and delivering a Council opinion on the 2020 Stability Programme of Germany, Brussels, 20 May 2020,
COM(2020) 505 final, 8:
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52020DC0505.
31 European Commission, nt. (30), 5–7.
32 Bundesministerium der Finanzen, nt. (6), 21–30.
33 European Commission, nt. (16), 36 ff.



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     Björn Hacker                                                                  Italian Labour Law e-Journal
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                                                                    The NextGeneration EU in Action: Impact on
                                                                                      Social and Labour Policies




Macroeconomic Imbalance Procedure Scoreboard in 2011 this surplus has remained above
the permissible 6 per cent benchmark. The surplus peaked at 8.6 per cent in 2015 and has
been declining, albeit slowly, ever since. Although external trade contracted during the
pandemic, German exports remained strong. The surplus decreased from 7.6 per cent in
2019 to 7.1 per cent in 2020, but quickly grew again to 7.4 per cent in 2021. It is expected
that there will be another decline to 6.4 per cent in 2022 in view of the high energy prices
and trade disruptions following the war in Ukraine.34
    Already before the pandemic the Commission was criticising the high current account
surplus. While there was careful optimism in the alert reports in 2019 and 2020 on growing
public investments, the 2022 in-depth review criticises its slow pace and its level below the
EU average for two decades, ‘resulting in underinvestment, notably at the local level, and has
dented the quality of public infrastructure’.35 During the pandemic, household and corporate
savings increased further, which poses a threat to new investment challenges in
decarbonisation and digitalisation. The Commission recommends boosting investments by
tackling bottlenecks and by using government savings to a greater extent.
    Regarding social and employment policies, the 2022 in-depth report mentions the
investment needs in education, recalling that Germany’s public spending in this area, at 4.7
per cent of GDP, remains below the EU average (5 per cent in 2020). Investing in early
childhood education and care, all-day schools and universities would help disadvantaged
groups to achieve better educational outcomes, therewith up-skilling the labour force,
promoting growth and contributing to social inclusion.36 Furthermore, the report discusses
income inequality in Germany as an important reason for the high household saving rates,
citing data from 2018 suggesting ‘that 40% of German households with the lowest income
have overall negative or around zero saving rates, and the high average saving rate is driven
in particular by the highest income groups – with the 10% of the population with the highest
income providing for 54 to 65% of total savings […]’.37 In this light it is confirmed that taxes
on labour are too high in Germany and there exist disincentives for certain groups (among
others, married women) to work more hours. The Commission welcomes the planned
increase of the minimum wage to €12 per hour from October 2022 onwards (an increase of
25 per cent) and encourages the German government to work on the tax wedge with the
following aim: ‘Policies that increase disposable incomes particularly among low- and middle-
income households, which have an above-average propensity to consume, could help
external rebalancing, while also fostering more inclusive growth’.38




34 European Commission, In-depth review for Germany in accordance with Article 5 of Regulation (EU) No. 2011/1176
on the prevention and correction of macroeconomic imbalances, Brussels, 23 May 2022, SWD(2022) 629 final, 4, see:
https://ec.europa.eu/info/sites/default/files/economy-
finance/germanyswd_2022_629_1_en_autre_document_travail_service_part1_v1.pdf.
35 European Commission, nt. (34), 5.
36 European Commission, nt. (34), 21.
37 European Commission, nt. (34), 5.
38 European Commission, nt. (34), 6.



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     Björn Hacker                                                               Italian Labour Law e-Journal
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                                                                 The NextGeneration EU in Action: Impact on
                                                                                   Social and Labour Policies




4.2 Country Specific Recommendations 2022.

     The 2022 CSR for Germany integrate the 2019 and 2020 CSR (see above), which have
remained relevant during the course of the European Semester and the implementation of
the RFF plans.39 The recommendations concentrate on budgetary and economic as well as
on energy policy aspects, but are rather silent on social issues. From the demands identified
in the 2019 and 2020 cycles, the Commission again mentions the following40:
(i) to improve ‘tax incentives to increase hours worked’;
(ii) to ‘safeguard the long-term sustainability of the pension system’.
     In the social sphere the following is added:
(i) to ensure ‘targeted support to households and firms most vulnerable to energy price hikes
     and to people fleeing Ukraine’.
     The Commission recommends ‘a fiscal policy aimed at achieving prudent medium-term
fiscal positions’, although expectations for reducing the government deficit (1 per cent of
GDP in 2023) and debt (64.5 per cent of GDP in 2023) are positive. Supporting measures
in response to rising energy costs might last longer than expected. It is bemoaned that some
of the instruments are not targeted, such as the increase in commuter allowance and the
reduction of energy tax on fuel. Reducing energy dependency on fossil fuels and energy
imports from Russia, as well as increasing energy efficiency are becoming the most pressing
policy objectives. This is in line with the green transformation of the economy outlined in
the RRP. Digitalisation as its second big policy field remains important as well. The CSR
2022 adds the necessity to expand high-capacity broadband and 5G, neither of them covered
in the RRP. The complaint about the labour tax wedge and its adverse incentives for low-
and middle-income earners and second earners is not new. The CSR sees this as in line with
stronger work incentives necessary for ensuring the sustainability of the pension system. The
state-subsidised private pension scheme (Riester Rente) is openly criticised. In particular, low-
income earners will experience insufficient retirement savings without a pension reform.41
     In the Commission’s 2022 Country Report on Germany there is more information about
the challenges identified in Brussels, going beyond the positive assessment of the RRF in
2021. While the approach to climate, energy and digital change remains the right one, the
Commission sees additional challenges ahead: ‘These include in particular, improving
framework conditions for investing in the green and digital transitions[,] boosting education
and skills, improving the tax mix, addressing inequalities and preparing the pension system
for an ageing society.’42 One year after accepting the German RRP, some requirements for


39 European Commission, Recommendation for a Council Recommendation on the 2022 National Reform Programme of
Germany and delivering a Council opinion on the 2022 Stability Programme of Germany, Brussels, 23 May 2022,
COM(2022) 606 final, 2:
https://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=COM%3A2022%3A606%3AFIN&qid=1518252661475.
40 European Commission, nt. (39), 11.
41 European Commission, nt. (39), 5–10.
42 European Commission, 2022 Country Report – Germany, Brussels, 9 June 2022, SWD(2022) 606 final/2, 8,

https://ec.europa.eu/info/files/2022-european-semester-country-report-germany_en.

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     Björn Hacker                                                                    Italian Labour Law e-Journal
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                                                                      The NextGeneration EU in Action: Impact on
                                                                                        Social and Labour Policies




fulfilling its objectives and milestones seem to be missing. Planning structures remain low
and investment bottlenecks persist. Given the state of the electricity network and the low
coverage of high-capacity broadband networks, as well as qualified labour shortages, the
green and digital transitions are in danger.43
    Regarding the social agenda, progress on implementing the 2019 and 2020 CSR is assessed
as ‘limited’ in most fields.44 This is even more problematic given the recent deterioration in
social indicators in the Social Scoreboard. Unlike one year ago, when only two indicators out
of 14 ranged below the EU average, Germany now has eight out of 16 indicators below the
EU average. The Social Scoreboard values from 29 April 2022 have worsened in seven
categories compared with the previous year’s data, which have been the basis for assessing
the RRP. There is only progress on three indicators, while three others remain unchanged.45
Germany’s social situation is far below the EU average on the indicators: early leavers from
education and training, the income quintile ratio, the disability employment gap and housing
costs are overburdening the population. Also below the EU average are individuals’ level of
digital skills, being at-risk-of-poverty or social exclusion for the whole population as well as
for children, and the proportion of children below three years of age in formal childcare.
These critical indicators are to be found in the EPSR’s first and third chapters, whereas all
indicators in the second chapter perform at the EU average or better. In its 2022 Country
Report the Commission worries especially about the social vulnerabilities for women, low-
qualified people, people with disabilities, early school and training leavers, children affected
by poverty or social exclusion and low-income earners.46 These implicit warnings in the social
sector have found their way into the draft 2022 CSR only to a very peripheral degree.


4.3 Politicisation of the NGEU process.

   Since the period in which the German government led the austerity management of the
euro-crisis from 2010, a lot has changed in the country’s economic debates.47 There are
several reasons for this turn of events. First, the Commission under the presidency of Jean-

43 European Commission, nt. (42), 8–11.
44 European Commission, nt. (42), 25.
45 It is important to note that between 2021 and 2022 the Social Scoreboard was enhanced with three new

indicators (the disability employment gap, the excessive burden of housing costs and being at risk of poverty
or social exclusion for children), while another was replaced (net earnings of a full-time single worker). While
in the latter case Germany belonged among the best performers, the country shows poor results for the three
new indicators. The Commission has added changes in the statistical methodology and suggested caution in
interpretating the figures, see nt. (42), 43.
46 European Commission, nt. (42), 42 ff.
47 In line with the surprising turn from conditionality to fiscal transfers in the EU, cf. Heise A., Die Aufbau- und

Resilienzfazilität und Covid-19 oder: Wie die EU aus Fehlern lernt, in ZÖSS-Discussion Papers, April 2021,
https://www.wiso.uni-hamburg.de/fachbereich-sozoek/professuren/heise/zoess/publikationen/zoess-
discussion-papers/dp-84-heise-aufbau-und-resilienzfazilitaet-der-eu.pdf; Watzka S., Watt A., The Macroeconomic
Effects of the EU Recovery and Resilience Facility, IMK Policy Brief, 98, October 2020, https://www.imk-
boeckler.de/de/faust-detail.htm?sync_id=9110.


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     Björn Hacker                                                                      Italian Labour Law e-Journal
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                                                                        The NextGeneration EU in Action: Impact on
                                                                                          Social and Labour Policies




Claude Juncker put an end to ‘pure’ austerity by making the use of the Stability and Growth
Pact more flexibly and by turning attention away from budget issues to growth and
investments, as well as to employment and social inclusion (not to mention initiating the
EPSR). The IMF was very critical in its evaluation of the austerity approach and its own
involvement in the conditionalities of the rescue umbrellas. Receiving credit lines as financial
assistance from the European Stability Mechanism (ESM) implemented in 2012 and its
precursors was possible only by agreeing on an adjustment programme focused primarily on
budgetary issues. With the idea of working towards better terms of trade and reducing public
debt in order to please the capital markets, countries in crisis radically cut public spending,
for example, investments and social benefits. The devastating effect of cutting demand
during an economic downturn produced negative economic and social effects not only in
the mainly southern European countries affected by euro-crisis management, but also for
their solvent northern European trade partners. The need for common European responses
to crises that, to boot, do not exacerbate the socioeconomic situation and cut established
trade flows became apparent for Germany in the migration crisis and in the Brexit
discussions not long after the euro-crisis began to calm down in 2015.
    Turning away from discussing what other countries might do better, new political debates
arose around neglected investment policies in Germany. These include the important car
industry with its emissions scandal and failure to keep up with competitors such as Tesla in
relation to electrification; but also the public sector, with its failure to keep infrastructure up
to date and tackle structural transformation in the face of climate change, digitalisation and
globalisation. In a rare show of unity the DGB trade union confederation and the BDI
industry confederation jointly demanded a public investment initiative of €450 billion over
the course of ten years, especially in municipal infrastructure, education, the railway system,
broadband technology and carbon dioxide reduction.48 When the pandemic hit Europe in
early spring 2020, the need for investment instead of an austerity agenda, as well as for a
European instead of merely a national approach was obvious, even for many hawkish
economists and politicians.49
    It is speculative, but maybe because of this new unity in the economic policy debate the
government held consultations on the RRP at a low level. The DGB, the BDI, the
Confederation of German Employers’ Associations (BDA) and the United Services Trade
Union (ver.di) were invited to a meeting to discuss the general alignment of the RRP in
November 2020. They were also asked to comment on the draft report, along with the main
welfare and environmental associations. While the final report states that these actors were
‘closely involved’ in the process of drafting the RRP, the relevant associations have described
this as only partially true. In a written statement, the DGB complained that the social partners


48 BDI, BDI und DGB verlangen ambitionierte Investitionsoffensive der öffentlichen Hand, 18 November 2019,
https://bdi.eu/artikel/news/bdi-und-dgb-verlangen-ambitionierte-investitionsoffensive-der-oeffentlichen-
hand/.
49 Cf. an overview on the main lines of discourse on the euro-crisis in Germany, Hacker B., Koch C.M., Reform

discourses on the Euro zone. Continuity, expansion or roll-back in the German debate, Friedrich-Ebert-Stiftung, Berlin,
December 2016, http://library.fes.de/pdf-files/id/ipa/13000.pdf.

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                                                                       The NextGeneration EU in Action: Impact on
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were not involved properly; the Environmental Action Germany (DUH) objected that there
was no consultation with environmental associations beyond two video conferences; and the
German Association for Public and Private Welfare complained that it had not been given
sufficient time to prepare a position paper.50 The same resentment was voiced by the federal
states (Länder). In a resolution in the Bundesrat, they vented their anger by declaring
‘emphatically’ that the government had not responded to their request to be involved in the
process of drafting the RRP. Accordingly, and ‘regretfully’, they noted that regional
perspectives on the far-reaching transformation processes had not been properly
represented.51
   In general, the various associations’ written statements welcomed the RRF initiative.
Besides their involvement in the process there are some suggestions on how to improve the
projects integrated in the draft version. While these partly amend some details, as the BDA
did the apprenticeship programme,52 there is also some sharp criticism of the social aspects.
The German Red Cross (DRK) complained that vulnerable groups and non-profit actors
had been neglected.53 The German Association for Public and Private Welfare did not see
enough effort to strengthen social inclusion.54 Finally, the DGB expressively noted a
government ‘warning’ against lopsided structural reforms intended to make labour markets
more ‘flexible’ and social security systems more ‘market efficient’. The DGB recalled that the
CSR from 2019 (see above) entailed many related points that could have been used as social
RRF projects. The RRP would do better to consider the country’s social problem areas as
identified by the EPSR, such as precarious employment, wage dumping, the gender pay gap
or growing inequality.55


5. Conclusions.

    There has been social progress in Germany. The government has also used the funds
allocated within the framework of the NGEU plan to strengthen social resilience. One

50 Biegon D., Stellungnahme des Deutschen Gewerkschaftsbundes zum Entwurf des Deutschen Aufbau- und Resilienzplans
(DARP), in DGB, 15 February 2021, https://www.dgb.de/downloadcenter/++co++e7c8b2bc-714f-11eb-
a1a2-001a4a160123; Deutsche Umwelthilfe, Deutscher Wiederaufbauplan verpasst Chance für Klimaschutz und
Biodiversität, 26 April 2021, https://www.duh.de/presse/pressemitteilungen/pressemitteilung/deutscher-
wiederaufbauplan-verpasst-chance-fuer-klimaschutz-und-biodiversitaet/; Deutscher Verein, Stellungnahme der
Geschäftsstelle des Deutschen Vereins für öffentliche und private Fürsorge e.V. zum Entwurf des Deutschen Aufbau- und
Resilienzplans (DARP) in der von der Bundesregierung beschlossenen Fassung vom 16. Dezember 2020, 5, 19 February 2021,
https://www.deutscher-verein.de/de/download.php?file=uploads/empfehlungen-stellungnahmen/2021/dv-
5-21_aufbau-und-resilienzplan_darp.pdf.
51 Bundesrat, Entwurf des Deutschen Aufbau- und Resilienzplans (DARP). Beschluss des Bundesrates, Drucksache

106/21 (Beschluss), 5 March 2021, 2, https://www.bundesrat.de/drs.html?id=106-21%28B%29.
52 BDA - Die Arbeitgeber, Bundesregierung mit sozialpolitischen Aspekten des Deutschen Aufbau- und Resilienzplans

(DARP) auf gutem Weg, 12 February 2021:
https://www.agv-vers.de/fileadmin/doc/covid19/AR_2021_09_Anhang_C_DARP_Stn_BDA.pdf.
53 DRK, Stellungnahme des Deutschen Roten Kreuzes zum Entwurf des Deutschen Aufbau- und Resilienzplans (DARP), 22

February 2021, https://drk-wohlfahrt.de/uploads/tx_ffpublication/DRK_Stellungnahme_DARP.pdf.
54 Deutscher Verein, nt. (50), 3.
55 DGB, nt. (50), 5–7.



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     Björn Hacker                                                                    Italian Labour Law e-Journal
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                                                                      The NextGeneration EU in Action: Impact on
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cannot accuse the last Merkel government of failing to include labour and social aspects in
Germany’s RRP. Creating jobs by shaping the green and digital transformations is a top
priority. This is absolutely in line with the European policy agenda, as well as with the
country’s acknowledged structural deficits. The digitalisation projects represent 52 per cent
of the total amount spent in the ensuing years and also reach into policy areas such as health
care, education and social security. This and a number of other projects have helped to
strengthen social resilience. The government has tried not to overlook the groups most
affected by the Covid-19 crisis, including students, parents, apprentices and low-wage
earners.
    The scope of policy projects dedicated to social inclusion, not to mention the amount
expended on them are fairly low, however. Not all vulnerable groups have been taken into
consideration, a fact that has been criticised by the DGB and welfare associations, as well as
the European Commission. Older people, women in the labour force, people with
disabilities, migrants, tenants and employees with precarious jobs are mentioned in this
context. The German RRP contains no special social projects to boost their resilience and
inclusion. Interestingly, the Commission’s criticism was raised only very cautiously in the
assessment of the RRP in 2021. It seems that it was distracted by Germany’s priorities and/or
relatively good results on the Social Scoreboard at the time (cf. chapter 3.2). It should also
be mentioned that the integration of social actors in drafting the reform plans cannot be
judged positively for Germany.56
    In fact, the German RRP has only partially taken on board the outline of a new growth
model from the 2019 CSR: major efforts are planned in relation to the structural
transformation of the economy, but the social dimension has to some extent been left by the
wayside. Even though the 2022 CSR do not pick up on this point formally, the 2022 in-depth
review and the Country Report do not mince their words in scrutinising whether the
preconditions have been put in place for developing a greener, digitalised and more resilient
economy in Germany (cf. chapter 4.1 and 4.2). The country’s path dependencies seem to be
very strong as regards its external surplus, which could be tackled by a more ambitious public
investment agenda, also by integrating missing social aspects into the RRP.57 Increasing the


56 This contradicts the effusive assumption of a ‘socialisation’ of the European Semester via the RRF. Cf.
Vanhercke B., Verdun A., The European Semester as Goldilocks: Macroeconomic Policy Coordination and the Recovery and
Resilience    Facility,    in    Journal    of    Common Market      Studies,    60,     1,    2022,      204–223,
https://onlinelibrary.wiley.com/doi/epdf/10.1111/jcms.13267.
57 See Hanesch W. and Gerlinger T., ESPN Thematic Report: Social protection and inclusion policy responses to the

COVID-19 crisis. Germany, European Commission - Directorate-General for Employment, Social Affairs and
Inclusion, Brussels, 2021, 38–42, https://ec.europa.eu/social/BlobServlet?docId=24606&langId=en.
Hanesch W. and Gerlinger T. do not expect a transformation of the social protection system after the pandemic
and identify gaps also in the national responses to the pandemic, especially as regards better policies for
precarious workers, the self-employed, minimum income recipients and other people at risk of poverty. Cf.
Dauderstädt M., Wirtschaftsprogramme gegen die Pandemiekrise – Deutschland im internationalen Vergleich, in
Wirtschaftsdienst, 101, 5, 2021, 1–7, available at:
https://www.wirtschaftsdienst.eu/pdf-download/jahr/2021/heft/5/beitrag/wirtschaftsprogramme-gegen-
die-pandemiekrise-deutschland-im-internationalen-vergleich.html. Dauderstädt M. argues in the same vein,

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 Björn Hacker                                                                        Italian Labour Law e-Journal
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                                                                      The NextGeneration EU in Action: Impact on
                                                                                        Social and Labour Policies




disposable incomes of low- and middle-income households, diminishing the relatively high
risk of poverty and focusing better on the whole range of disadvantaged groups would help
to accelerate the transformation agenda, balance the European economy and enable a
sustainable growth model.


Copyright © 2022 Björn Hacker. This article is released under a Creative Commons
Attribution 4.0 International License




criticising the failure to prioritise the socially deprived and a coherent investment strategy for the economy after
the pandemic in the national programmes to counter the crisis.

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