Structural reforms on the
Goods, Services and Capital
Markets in Germany in 2003
Nr.: 524
DOKUMENTATION
October 2003
A publication of the Federal Ministry of
Economic an Labour (BMWA), 10119 Berlin
– Public Relations section LP4 –
ISSN 0342-9288 (BMWA-Documentation)
www.bmwa.bund.de
Structural Reforms on the Goods,
Services and Capital Markets
in Germany in 2003
Sixth National Report
pursuant to the Conclusions of the
Europian Council at Cardiff
on 15/16 June 1998

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
I. Structural Reforms on the Goods and Services Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1. Integration into the single European market and
the global economy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.1 Dismantling barriers in the cross-border flow of goods,
services and capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.2 Implementation of single market directives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2. Policy for boosting competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1 Competitive situation in selected industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.2 Competition policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.3 Reducing subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.4 Tax policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.5 Efficiency of the public sector, reducing bureaucracy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.6 Public procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.7 Facilitation of business start-ups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.8 Reform of the craft trades statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3. Opening network markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.1 Telecommunications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.2 Post . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.3 Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.4 Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.5 Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4. Strengthening the knowledge-based society. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.1 Research, development and innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.2 Information society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.3 Training and further training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5. Environmental policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.1 Objectives and market-economy instruments in the field
of environmental protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.2 Measures aimed at achieving the goals of the European Strategy
for Sustainable Development (Göteborg) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
II. Structural Reforms on the Financial and Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Annexe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Content
6
Introduction
Enhancing the flexibility of the markets
through structural reforms is the focus of the
Federal Government’s economic strategy for
stimulating growth and employment. The programme
for this is the “Agenda 2010“, which
the Federal Chancellor presented before the
German Bundestag on 14 March 2003. The
measures contained therein greatly step up in
a major way the pace of structural reforms in
Germany. The “Agenda 2010” will introduce
substantive reforms which extend far beyond
the area of goods and services markets and
which constitute important components of the
Federal Government’s strategy for lowering
incidental wage costs. At the same time, it will
play a full part in bringing the country closer
to achieving the objective that was formulated
in Lisbon on 24 March 2000, namely to make
the European Union “the most competitive and
dynamic, knowledge-based economic zone in
the world” by the end of this decade.
The major elements of Agenda 2010 are:
3 Structural reforms on the labour market,
inter alia, by
– Limiting the period during which unemployment
benefit may be drawn to 12 or 18
months (for persons under or over 55 years
of age, respectively);
– Combining unemployment and social
welfare benefits;
– Improving additional earning options for
transfer recipients;
– Modifying protection against dismissal;
– Introducing an optional redundancy
scheme where redundancy notices are
issued for operational reasons;
– Limiting the welfare choices to the criteria
of age, period of employment, any obligations
in respect of providing maintenance,
and severe disability of the employee, where
redundancy notices are issued for operational
reasons;
– Reorganising the Federal Institute for Employment
into a modern service provider on the
labour market: structural changes in the organisation
and control of the Federal Agency,
further development of the labour administration
into a customer-oriented service provider
with up-to-date management structures.
– Stepping up integration and job placement
activities.
New, targeted incentive mechanisms, together
with more efficient placement, will play their
part in boosting employment and reducing
unemployment.
3 Basic reform of the health system,
inter alia, by
– Introducing more options for persons insured
on a voluntary basis in terms of insurance
cover and financing;
– Removing drugs that are only available on
prescription from the reimbursement
requirement;
– Approving the drug mail-order business and
additional ownership of up to three branches
per pharmacy;
– Removing or limiting the reimbursement of
travelling expenses, death benefit, maternity
benefit, artificial insemination, sterilisation
and visual aids from the range of benefits
provided by the statutory health insurance
scheme;
– Higher percentage additions;
– Removing dentures from the statutory
health insurance scheme (from 2005);
– Financing the sickness benefit solely via the
insured (from 2006).
These measures will ensure that there is greater
transparency and competition in the healthcare
system. They will guarantee sustainable
funding and will make medium-term cuts in
premiums possible.
3 Safeguarding the funding of the pension
system, inter alia, by
– Delaying the pension adjustment until
1 July 2004;
– Reducing the fluctuation reserve of the
pension funds;
– Full payment of the contribution towards
long-term care insurance by the pensioners.
This is intended to ensure that the contribution
rate to statutory pension insurance remains
stable in 2004 at 19.5%. Also, a “sustainability
factor” is being included in the pension adjustment
formula which takes account of the ratio
of contribution payers to pensioners.
3 Strengthening entrepreneurship and supporting
start-up entrepreneurs, inter alia, by
– Introducing new types of business start-up
for the unemployed;
– Freeing start-up entrepreneurs from bureaucratic
burdens (e.g. simplified bookkeeping
duties for small businesspeople);
– Introducing innovative forms of support via
the Mittelstandsbank, e.g. subordinated loans
in the “Capital for Employment and Training”
programme, securitising credit risks;
– Exempting start-up entrepreneurs from the
compulsory contributions to the Chambers
of Crafts and Chambers of Industry and
Commerce during the first four years.
These measures will make it easier for small
and medium-sized companies to adjust to
structural change. They have already led to a
new wave of small and medium-sized business
start-ups (63,000 “self-start-ups” (“Ich-AGs”)
since the beginning of 2003).
3 Reform of the craft sector, inter alia, by
– Abolishing the mandatory master craftsman’s
requirement in 65 out of 94 craft
trades (“non-hazardous” occupations);
– Self-employment after ten years of professional
experience (“long-standing journeyman”)
without a Master Craftsman’s Certificate,
even in “hazardous” occupations;
– Master Craftsman’s Certificate as a voluntary
quality certification;
– Extended and facilitated access to the
master craft examination (period as a journeyman
no longer required).
Via this reform, the Federal Government is
strengthening competition in the craft sector
and consumer sovereignty. Business start-ups
in the craft sector will once again become
attractive and German craft trades statutes
will meet European standards. Ultimately, this
will bring higher employment and less competition
from the black economy to the German
craft sector as a whole.
The reform of the craft sector is part of a comprehensive
Federal Government initiative to
reduce unnecessary bureaucracy. The envisaged
measures include the modernisation of
the wage tax procedure, the simplification of
the rules on fees for architects and engineers,
and the reform of vocational training.
Overall, the “Agenda 2010” reforms will markedly
improve the economic conditions for
growth and employment. They will create
scope for increased investment in science and
research and will put Germany on the path
towards higher growth again. With these
reforms, the Federal Government is paving the
way for the modernisation of the economy
and the welfare state.
This “Sixth National Report” continues the
proven practice of providing regular reports on
the progress made in respect of structural reforms
on the goods, services and capital markets.
It describes the reforms, measures and
initiatives that have been implemented during
the period under review (i.e. since last year’s
report came out) and provides a perspective
on important projects that are planned for the
near future. It makes specific reference to the
recommendations made in respect of Germany
in the “Broad Economic Policy Guidelines”
insofar as they concern reforms on the goods
markets—in line with the topics addressed by
the Cardiff Reports. A summary of the recommendations
with references to corresponding
passages in the Report may be found in the
Annexe.
As in past years, the associations of industry
and the trade unions were involved in the preparation
of the Report. However, as it stands,
the Report reflects only the Federal Government’s
views.
7

I. Structural Reforms on the Goods
and Services Markets
10 The German economy is strongly integrated
into the global economy and the single European
market. This is reflected, for instance, in
the foreign trade indicators: in 2002, Germany’s
export ratio (the share of gross domestic product
accounted for by merchandise and service
exports), at 35%, was the same as in the previous
year. Of all of the goods and services exported
from Germany in 2002, roughly 55%
went to EU Member States. The corresponding
figure for imports from other EU Member
States, which accounted for a total of 32% of
gross domestic product, was 53% (cf. Figure 1).
Global trade and foreign investment have, for
some time now, been an important foundation
for growth, employment and prosperity in
Germany. The degree of openness of the German
economy has steadily increased during
the past ten years (cf. Figure 2). In the meantime,
every third job in Germany is dependent
on foreign trade. According to Deutsche Bundesbank1
calculations, since the mid-1990s, the
German economy has won back a tangible
share of the world trade that it had previously
lost, thanks to an improvement in its competitiveness.
The amount of foreign direct investment in
Germany also shows the strong international
1. Integration into the single European market
and the global economy
* Exports and imports of goods and services
Source: Exports, imports, GDP: Eurostat, New Cronos, August 2003:
Source: Exports, imports to/from EU: Deutsche Bundesbank, Balance of payments by region, July 2003
10%
13%
15%
18%
20%
23%
25%
0
1997
40
80
120
160
200
240
280
320
360
400
billions Euro
1998 1999 2000 2001 2002
Exports* to the EU:
share of Germ. GDP – right axis
Imports* from the EU – left axis
Imports* from the EU:
share of Germ. GDP – right axis
Exports* to the EU – left axis
1) Cf. Deutsche Bundesbank: Monatsbericht (Monthly Report)
November 2002, p. 40 ff
Figure 1: Germany’s foreign trade integration with the EU 1997–2002
integration of the Germany economy (cf. Table
1). According to the OECD (Organisation für
Economic Cooperation and Development), in
2002, Germany was the second largest2 recipient
of foreign direct investment in the OECD,
with a figure of US$ 38 billion. This means that
direct investment in Germany rose, bucking
the international trend. German direct investment
abroad, on the other hand, continued to
fall to US$ 25 billion, in line with the trend in
the OECD that has been ongoing since 2000.
The stock of foreign direct investment in Germany
at the end of 2001 amounted to 7 469
billion, 7 336 billion (71.6%) of which came
from other EU Member States.
The importance of foreign participating interests
for the German economy and, conversely,
the turnover generated by companies with a
German participating interest abroad becomes
clear when seen in relation to the volume of
foreign trade: the annual turnover generated
by foreign companies with a German participating
interest in 2001 was around 7 1,347
billion, which was just under 85% higher than
German exports of goods and services (7 727
billion). The turnover generated by companies
with a German participating interest in the
other EU Member States, at 7 554 billion, was
around 38% higher than Germany’s corresponding
volume of exports to the other EU
countries. The turnover generated by German
participating interests in the USA, which
amounted to 7 377 billion, was around five
times higher than Germany’s exports to the
USA in the same year (2001).
The Federal Government will also continue to
support the German economy’s integration
with Europe and the world, and to use its policy
of reform to help to strengthen the competitiveness
of German companies.
11 Figure 2: Degree of openness of the German economy
Exports and imports as a % of actual GDP
2) Luxemburg is a special case because of the holding companies
domiciled there and is not included in the ranking.
70
65
60
55
50
45
40
47.3
46.4
44.3
46.5
48.3
49.9
54.1
57.2
60.1
65.1
67.0 66.9
1991 1992 1993 1994 1995 19961 997 1998 1999 2000 2001 2002
Source: Federal Statistical Office
12
1.1 Dismantling barriers in the cross-border
flow of goods, services and capital
The Federal Government firmly supports the
efforts made by the Commission of the European
Union to make material progress in the
negotiations that are part of the new round of
WTO talks under the so-called “Doha Development
Agenda”. Because of the German economy’s
strong export focus, the Federal Government’s
trade priorities are: negotiations on
improved market access for industrial products
and liberalisation of the trade in services. Following
the collapse of the 5th WTO Ministerial
Conference in Cancún, Mexico (10–14 September
2003), an internal debate process is taking
place within the EU regarding the subsequent
steps that are to be taken in respect of the
WTO talks. The Federal Government’s view is
that a speedy resumption of the multilateral
negotiations is essential.
The objective of the WTO negotiations on services,
which began at the start of the year 2000,
is to achieve a higher and more balanced level
of liberalisation overall in all the WTO Member
States. In Germany, the initial offer tabled by
the EU has been coordinated with all the
parties affected (ministries, federal states, Bundestag,
NGOs). In addition to extending sectoral
liabilities (e.g. for postal/courier services,
environmental, legal, financial and transport
services), it specifically provides for improvements
to services provided on a temporary
basis by foreign individuals (so-called Mode 4).
The offer also contains a range of new liabilities
in the area of professions. It makes provision
for extending liabilities, inter alia, in respect
of legal services as well as for architects,
landscape architects and engineers. The EU
offers regarding Mode 4 are confined to highlyqualified
experts and are to include numerical
limits in order to protect national labour
markets (details are still to be decided). The
changes and liberalisation obligations which
the EU proposal on services makes provision
for are in line with the legal situation that
already exists in Germany, i.e. no reforms or
statutory amendments are required in order
to implement them.
1998 1999 2000 2001
218 298 506 469
122 185 373 336
56.0 62.1 73.7 71.6
301 398 520 628
149 197 268 298
49.5 49.5 51.5 47.5
of which EU
as %
of which EU
in %
Foreign direct investment in Germany
German direct investment abroad
Table 1: Direct investment: stock at year’s end (Euro billions)
Source: Deutsche Bundesbank, Kapitalverflechtung mit dem Ausland, May 2003
1.2 Implementation of single market directives
A functioning single market is of major importance
if the competitiveness of the European
economy is to be strengthened. This in turn
requires correct and timely transposition into
national law of European directives. In Stockholm
in March 2001, the European Council
(EC) set the Member States the target of reducing
the implementation deficit to 1.5% by
the spring of 2002. According to current figures,
2/3 of the Member States have not met
this target. The implementation deficit in Germany
rose slightly from 3% (Internal Market
Gazette, May 2003) to 3.3% (as of July 2003).
The overall implementation deficit in all the
Member States has risen to 2.8%. Germany
continues to be midway up the ranking list of
all the Member States.
The control mechanisms for ensuring that
deadlines are met are clearly defined in Germany.
Implementing directives within the
prescribed period is a prime concern of the
departments that are dealing with this area in
Germany. The implementation deficit can be
explained both by the complexity of EU legislation
and by the particular constitutional
situation in Germany (allocation of legislative
powers to the Federal Government and the
federal states; the constitutional requirement
of a specific enactment, which, in some cases,
prohibits “simplified” implementation by
means of an ordinance).
13
14 2.1 Competitive situation in selected industries
In economic terms, 2003 has been marked out
as a difficult year. Nonetheless, German industry
has so far managed to increase its production
in 2003 by 1.2%. However, the year as a
whole is expected to be little better than static.
In the area of plant and equipment expenditure,
which has been falling since the end
of 2000, there are signs that a trend reversal
has already set in. After a strong seasonallyadjusted
rise at the end of 2002, it again rose
slightly in the first quarter of 2003. As a result
of increasing replacement demand as well as
more favourable global and domestic sales
prospects, a further recovery is to be expected.
Job cuts in the manufacturing sector continued
in 2002. The exceptions were the chemical industry,
vehicle manufacturing, the optics and
medical industry as well as measurement and
control engineering. These industries again
recorded employment growth. It is expected
that there will again be a marked increase in
the level of production in the economy as a
whole in 2004. In 2003 and 2004, the German
economy’s competitiveness in terms of employee
remuneration, productivity and—collectively—
unit labour cost trends should once
again improve by international comparison.
There were positive trends in some industries
again:
3 The German automotive industry generated
a turnover of 7 202 billion in 2002. German
automobile manufacturers are successful in
international competition. This is reflected
in the steadily increasing export ratio, which,
in 2002, rose to 71%. The fact that German
automobile manufacturers are increasingly
shifting their production abroad underlines
the German automotive industry’s international
competitiveness. The German automotive
industry invested around 7 40 billion,
including reinvested profits, abroad during
the period from1999 to 2002. The high level
of competitiveness of the German automotive
industry is based on its outstanding
product quality and image as well as its
product portfolio for all global markets.
3 With a turnover of 7134 billion and around
500,000 employees, the German chemical
industry is Europe’s largest chemicals producer.
Germany is also by far the biggest
chemicals exporter in Europe. The German
chemical industry accounts for just under
7.5% of total chemical sales worldwide. The
chemical industry in Germany is characterised
by small and medium-sized companies.
Over 80% of chemical companies have fewer
than 250 employees.
These figures document the major significance
of the industrial sector for the German economy
even though the importance of the services
sector is set to increase in the long term.
With its policy of enhancing competition and
entrepreneurial freedom, the Federal Government
is underpinning the international
competitiveness both of industry and of the
services industry.
2.2 Competition policy
On 4 March 2003, the Federal Government
introduced the draft bill containing key points
for reforming the Law against Restraints of
Competition. The central focus of the reform is
amending German law to comply with European
competition law. The review of anti-competitive
agreements will be debureaucratised
and the application of antitrust law will be
simplified. In so doing, the current high level
of protection of competition in Germany must
be maintained and strengthened. In addition
to the amendment of German laws so that
they comply with European competition law,
other competition concerns are taken into
2. Policy for boosting competitiveness
consideration as part of the amendment to the
Law against Restraints of Competition. These
include, in particular, a more effective structure
for the code of procedure in respect of the
merger control exercised by the Federal Cartel
Office as well as ministerial exception. In this
regard, it is a matter especially of avoiding
investment disincentives caused by unreasonable
procedural delays. However, legal protection
against decisions by competition authorities
in compliance with constitutional requirements
must not be restricted. The reform of the
Law against Restraints of Competition is to enter
into force on 1May 2004, at the same time
as the new EU Cartel Procedure Ordinance. On
7 May 2003, the Federal Government approved
the draft bill of a reform of the Law against Unfair
Competition. This liberalises current German
legislation governing integrity and adapts
it to the present-day requirements of consumers
and companies. The draft bill provides
for, inter alia, the complete abolition of the
Ban on Special Events (current Section 7 of the
Law against Unfair Competition). Like current
legislation, the amended Law against Unfair
Competition will also be oriented to the socalled
“three-pronged protection” (equal protection
of consumers, fellow competitors and
public interests). It is planned that the amended
Act will enter into force in early 2004.
The Federal Cartel Office’s budget for 2003
amounts to 715.29 million. The main focus of
the Federal Cartel Office’s work is merger control
(a total of 1,584 new registrations in 2002),
followed by fine proceedings, abuse proceedings
and injunction proceedings (190 new proceedings
in 2002) and the legalisation of cartels
(108 new registrations in 2002).3
2.3 Reducing subsidies
In the past few years, the Federal Government
has had marked success with its policy of targeted
reductions in subsidies. The subsidies
paid out by the Federal Government will fall
from 7 22.8 billion in 2001 to 7 22.3 billion in
2004 (cf. Figure 3), corresponding to a reduction
of 2.3%. During the period under review,
without taking into account exceptions in the
context of the ecological tax reform, the
Federal Government’s subsidies even decline
by 7 1.9 billion or 10.1% from 718.5 billion to
7 16.7 billion. The reason for this is the marked
reduction in financial assistance provided by
the Federal Government: during the period
from 2001 to 2004, it decreases by a good 26%
from around 7 9.5 billion to 7 7.0 billion.
Moreover, the medium-term financial plan provides
for a reduction in financial assistance to
7 5.4 billion by 2007. By contrast, the revenue
shortfall resulting from tax concessions during
the reporting period covered by the19th Subsidy
Report (2001–2004) is, however, increasing.
This shows the ongoing need for action in the
area of tax subsidies.
In connection with the 2004 budget and bringing
the 2005 phase of the tax reform forward
to 2004, the following measures for reducing
subsidies and measures akin to subsidies are
planned:
– The home owner’s allowance is to be phased
out at the end of 2003. The Federal Government
intends to allocate 25% of the funds
that are saved specifically to a subsidy programme
aimed at facilitating infrastructural
improvements in cities.
– From 2005, a clear limit will be placed on
subsidies for agricultural diesel fuel.
– In future, the depreciation of movable assets
is to be only on a pro rata temporis basis
during the year of purchase.
– A definite limit will be placed on the standard
distance allowance.
15
3) Details of the cases handled by the Federal Cartel Office may
be found in its latest activity report (reporting period: 2001/2002)
at www.bundeskartellamt.de.
16 – The average rate method of tax computation
for farmers who do their own bookkeeping
will be abolished.
– The pre-tax deduction for agricultural and
forestry enterprises will be lowered from 9%
to 7%.
In 2003, the Federal Government and the federal
states will pay out a total of around 7 3.3
billion in financial assistance and tax concessions
for hard-coal mining operations. Output
from German hard-coal mining operations will
be reduced from around 46 million tons in
1997 to around 26 million tons by 2005. At that
stage, the level of subsidies will still amount
to around 7 2.8 billion. The output is to be adjusted
to 16 million tons by 2012.
Despite the results that have already been
achieved, the Government will continue to press
ahead with cutting back subsidies. While preparing
the 2004 Federal Budget and the financial
plan for the period from 2003 to 2007, the
Federal Government has systematically reviewed
all the Government financial assistance listed
in the Federal Government’s Subsidy Report
using a standardised review system. This new
approach represents an important step towards
further reducing financial assistance in an economically
and financially efficient manner. The
pressure to justify this approach alone ought
to boost the trend towards reducing subsidies.
Tax concessions are also to be included in the
review process in future. Furthermore, new subsidies
are now to be allocated—if at all—only
as financial assistance and for a limited period.
0
5
10
15
20
25
0,587 0,583 0,597 0,595
1,103 1,147 1,174
1,188
1,872 1,920 1,914 1,938
1,553 1,580 1,653 1,600
6,174
6,085 6,272
6,365
11,517 11,025 11,222
10,606
2001 2002 2003 2004
Savings promotion and
wealth creation
Transport
Other financial assistance
and tax concessions
Consumer protection, food
and agriculture
Housing
Trade and industry
(excluding transport)
22,806 22,341 22,832
22,291
billion Euro
Figure 3: Trends relating to financial assistance and tax concessions granted
by the Federal Government, shown by industry, during the period from 2001 to 2004
Source: Bundesministerium der Finanzen
2.4 Tax policy
The beginning of 2004 will again see a significant
easing of the burden on companies and
citizens as part of the second and third stages
of the “2000 tax reform”. That is an important
signal for more investment and employment.
The third stage of the tax reform, which was
originally planned for 2005, is thus being
brought forward by a year. It will consequently
be introduced at the same time as the second
stage of the tax reform, which was postponed
by a year to enable the flood disaster of 2002
to be dealt with. This means that the entrylevel
and peak income tax rates will fall significantly
and the basic tax-free allowance will
increase (cf. Table 2). The resulting additional
tax relief for industry and citizens in 2004 will
amount to around 7 21.5 billion. The tax relief
for small and medium-sized companies will
be in the order of 7 6 billion. At the same time,
the corporation tax rate, which was raised to
26.5% in 2003 in order to finance the flood
relief costs, will be lowered to 25 % again.
Once the second and third stages of the 2000
tax reform have been completed, Germany
will be significantly below the international
average as regards its income tax burden
(cf. Figures 4 and 5).
The tax relief introduced by the 2000 tax reform
is accompanied by the structural reform
of the tax laws, at the heart of which is the
further reduction of tax concessions. The Tax
Benefit Reduction Act, which, in particular,
limits the tax options of affiliated companies
and includes measures aimed at stabilising the
corporation tax intake, as well as the measures
approved by the Cabinet as part of the Budget
Support Act 2004 (see above), represent the
first steps in this direction.
As well as that, simplifications of income tax
and improvements to the efficiency of the tax
administration are on the Federal Government’s
agenda. In this regard, the raising of
the compulsory bookkeeping thresholds,
which has been approved as part of the Small
Business Support Act, and the standardisation
of the net income method represent the first
visible relief for a large number of small business
enterprises. The radical modernisation of
17
T 2001 T 2004 T 2005*
6,902 7,206 7,426 7,664
22.9% 19.9% 17% 15%
51% 48,5% 47% 42%
40%/30% 25% 25% 25%
Entry-level
income tax rate
Corporation tax rate
Basic tax-free
allowance in Euro
Peak income tax rate
6,681
23.9%
53%
40%/30%
6,322
25.9%
53%
45%/30%
Tax Relief Act
T 2000 T 1999 T 1998
Tax Reduction Act
* Stage is being brought forward to 1 January 2004.
Table 2: Overview of reforms in the area of income and corporation tax rates
Source: Bundesministerium der Finanzen
18
wage and income tax procedures, leading to
fully electronic handling of processes in the
final stage, will ease the burden on small and
medium-sized enterprises, in particular.
Other radical reform projects currently underway
are the reform of capital gains tax and of
the treatment of expenses for old-age provision
and retirement pay for tax purposes. To
this can be added the modernisation of trade
tax and the combining of unemployment and
social welfare benefits as part of the reform of
municipal finances. The reform of municipal
finances is to enter into force as early as 1 January
2004, the Federal Government having
introduced the relevant bill.
At the same time, with the introduction of
the Law governing the development of the ecological
tax reform, as of 1 January 2003, the
ecological control effect was improved by
means of a series of individual measures, in
Figure 4: Entry-level income tax rates
38.1%
31.0 %
30.8 %
26.9 %
25.9 %
22.1%
21.0 %
20.0 %
19.9 %
19.2 %
18.0 %
16.6 %
15.5 %
15.0 %
15.0 %
12.0 %
10.0 %
8.2 %
5.3 %
5.0 %
3.0 %
0 5 10 15 20 25 30 35 40
Denmark
Sweden
Finland
Belgium
Germany (1998)
Canada (Ontario)
Austria
Ireland
Germany (2002)
Italy
Spain
USA (New York)
France
Germany (2004)
Japan
Portugal
Great Britain
Luxembourg
Switzerland (Zurich)
Greece
Netherlands
– other countries, reference year 2002 –
Source: Bundesministerium der Finanzen
particular the reduction of environmentallyharmful
tax concessions. Furthermore, the tax
and financial system is also being ecologically
fine-tuned. An important element of this is the
review and slimming of environmentally-harmful
subsidies. Also on the agenda is the implementation,
as of 1 January 2004, of the EU
Directive on the harmonisation of energy taxes,
which has not as yet been formally passed.
2.5 Efficiency of the public sector,
reducing bureaucracy
The Federal Government began the process of
modernising the administration as early as the
14th legislative period (1998–2002), in particular,
with its “Modern State—Modern Administration”
programme. The use of modern information
and communication technologies plays
a special role in this area. With the Bund-
Online 2005 e-government initiative, the Fed-
19
France
Belgium
Denmark
Sweden
Germany (1998/1999)
Finland
Netherlands
Germany (2002)
Austria
Japan
Spain
Canada (Ontario)
Italy
USA (New York)
Germany (2004)
Ireland
Switzerland (Zurich)
Greece
Portugal
Great Britain
Luxembourg
Deutschland inkl.
Solidaritätszuschlag von 5,5%
– andere Länder
Vergleichsjahr 2002 –
0 10 20 30 40 50 60 70
55.9 %
51.2 %
44.3 %
Germany incl.
solidarity surcharge of 5,5%
– other countries,
reference year 60.8 %
59.7 %
59.0%
56.0%
52.5 %
52.0%
50.0 %
48.0%
46.4 %
46.2 %
45.6 %
42.0%
41.0%
40.0 %
39.0%
50.0 %
40.0 %
40.0 %
Figure 5: Peak income tax rates
Source: Bundesministerium der Finanzen
20 eral Government has laid another important
foundation for a modern and service-oriented
administration.4
Continuing the government’s “Modern State—
Modern Administration” programme, the reduction
of bureaucracy and over-regulation is
to go hand in hand with further rigorous
modernisation of the federal administration.
On 26 February 2003, the Federal Government
approved key points in respect thereof under
the heading “Supporting small and mediumsized
businesses—creating employment—
strengthening civil society”. The objective is to
release forces of innovation and investment
by reducing unnecessary bureaucratic regulations.
This initiative is intended to be a dynamic
process. What this involves, to a greater
extent than previously, is a uniform, strategic
and cross-departmental approach for the entire
Federal Government. The initiative will be
implemented in the form of concrete projects,
also incorporating projects that have been
successfully launched and have not yet been
completed. The resolution of 26 February 2003
triggered the immediate launch of an emergency
programme comprising 13 definite projects.
These emergency projects include, for
example, support for business start-ups and
small companies5, the reform of the Craft
Trades Act6, the modernisation of the income
tax system or the reform of collective bargaining
law for the public service.
The overall plan for reducing bureaucracy,
which the Federal Cabinet approved on 9 July
2003 focuses the measures aimed at reducing
bureaucratic barriers on five strategic areas
that are particularly important in terms of
Germany’s competitiveness as a location for
business and industry and in terms of easing
the burden on citizens:
– The labour market and self-employment
– The business community and small and
medium-sized enterprises
– Research and technology
– Civilian society and honorary appointments
– Services and civic duty
To date, a total of 54 projects—including the
projects in the emergency programme—have
been submitted as part of the initiative. Registration
law, for instance, will be simplified and
made more citizen-friendly by facilitating the
creation of an unbureaucratic electronic registration
and departure notification system in
future. Another example is the reform of vocational
training, which envisages that companies
authorised to provide training will be
relieved of the burden of regulations that
create impediments to training. This facilitates
the creation of large numbers of new training
places in industry. Simpler and more transparent
tender statutes will strengthen the competition
for public contracts.7 More companies
will have the opportunity to participate in
public-sector tenders. Finally, the burden on
companies of having to compile statistics will
be reduced. It is planned to include further
projects in the initiative.
2.6 Public procurement
The Federal Government will soon be presenting
its report on experience gained with the
reform of tender statutes in 1999. To this end,
it evaluated some 1,250 questionnaires which
surveyed public procurement offices, companies,
business associations, auditing officials
and other parties interested in public procurement
procedure. The survey campaign established
that there was a clear need for modernisation
in terms of the small business-friendliness
of tender statutes. What small and medium-
sized businesses object to, in particular,
is the unclear and inconsistent structure of
state purchasing rules. Even the OECD, within
4) Also see Section 4.2
5) Also see Section 2.7
6) Also see Section 2.8
7) Also see Section 2.6
the framework of the German state examination
on regulatory reform in June 2003, called
for German tender statutes to be simplified. In
July 2003, the Federal Government incorporated
the streamlining of tender statutes as a
priority objective into the bureaucracy reduction
initiative.8 Current tender statutes are to
be reviewed in order to establish whether each
provision is really needed and at the same time
they are to be modernised.
Since the legal framework conditions for an
Internet-based electronic procurement process
in Germany were changed in 2001 and the
e-procurement platform was launched in May
2002, numerous tender processes have been
conducted electronically9. What has emerged
is that the business community is not embracing
the use of the proper electronic signature
that is required for submitting a legally valid
electronic tender in Germany, to the extent
that is desirable. This deficiency is to be eliminated—
also with a view to other applications—
via the signature alliance. In the medium to
long term, the Federal Government’s “Bund-
Online 2005”10 e-government initiative aims to
spread the use of the e-procurement platform
to federal states and municipalities with a uniform
technical standard. In addition, the new
electronic tendering procedures (e.g. auctions)
that have been tested so far have shown that
significant savings can be achieved even in
the public sector. Many companies feel that the
necessity of demonstrating, at considerable expense,
their expertise, efficiency and reliability
every time they submit a bid for a public
contract is excessively bureaucratic. The Federal
Government is therefore examining whether
a pre-qualification process could be a possible
solution.
2.7 Facilitation of business start-ups
Start-up entrepreneurs make a major contribution
to innovation, growth and employment
and play an important part in bringing about
structural change. Supporting them represents
a forward-looking way of fighting unemployment.
For these reasons, supporting entrepreneurial
self-reliance is a matter of key importance
to the Federal Government. Recently, the
number of business registrations has been
falling (cf. Figure 6). This is due, inter alia, to
the weak economy and the fact that the backlog
of demand that resulted from reunification
in eastern Germany is now diminishing. With
its entrepreneur-friendly policies, the Federal
Government aims to contribute to a resurgence
in the number of business registrations.
As part of the “pro-small business” campaign,
which was presented in January 2003, the starting
conditions for entrepreneurs are being improved
by raising the turnover tax threshold
for small companies to 7 17,500 and the compulsory
bookkeeping threshold from 7 260,000
to 7 350,000 for turnover and from 7 25,000 to
7 30,000 for profits. At the same time, market
access to the craft sector will be greatly facilitated.
11 In order to further ease the financial
burden on entrepreneurs, they are to be
exempted from paying contributions to Chambers
of Industry and Commerce or Chambers
of Crafts for the first four years, unless their
profits exceed 7 25,000.
To create additional incentives for more employment,
in the first four years after commencing
their business activity, young entrepreneurs
can hire skilled staff not just for two
but for four years on temporary employment
contracts without giving a reason for setting a
time limit. In addition, small businesspeople
with up to five employees will benefit from
the planned relaxation of protection against
dismissal, under which up to five additional
employees who have been hired on temporary
employment contracts will not count towards
the threshold level of five employees for the
21
8) Also see Section 2.5
9) For regular information on electronic tenders visit
www.e-vergabe.bund.de
10) For current information visit www.bundOnline2005.de
11) Also see Section 2.8
22
application of the Dismissal Protection Act.
Business start-ups launched by the unemployed
also represent a major opportunity to stimulate
business start-up activity. At the same time,
this is a good way of waging a sustained war
against unemployment. Persons who by becoming
self-employed cease being or avoid becoming
unemployed may receive benefits
under the Social Code Part Three. They may be
granted a so-called bridging allowance for six
months after launching the start-up, to ensure
that they have enough to live on and to provide
them with social security. Alternatively,
since 1 January 2003, unemployed persons can
claim a business start-up grant (so-called “selfstart-
up” (Ich-AG)). The latter is intended to be
used to maintain an adequate level of social
security during a “transitional phase” of up to
three years. In January-August 2003,105,800
persons received support in the form of a
bridging allowance and 51,900 persons in the
form of a business start-up grant.
The current range of training and advisory
services for start-up entrepreneurs will be
supplemented by the “GründerService Deutschland”
(Service for Start-up Entrepreneurs in
Germany) campaign: the range of advisory
services provided by Chambers of Industry and
Commerce, Chambers of Crafts, the KfW banking
group, employment offices and other partners
is to be concentrated and, at the same
time, improved. Since July 2003, the project has
been running in three regions (Berlin, Leipzig
and Neubrandenburg) on a trial basis. It is
planned to make the experience gained during
the trial run available to the partners involved,
to enable them to establish services nationwide
as part of the “GründerService Deutschland”
campaign by the end of 2005.
Surveys show that finance continues to be the
biggest stumbling block for business start-ups.
For this reason, the Federal Government will
continue to offer high-level support to the
establishment and evolution of companies in
this area in the future. Last year, for example,
a total of some 7 3.4 billion from the Federal
220000
200000
180000
160000
140000
120000
100000
240000
1996 1997 1998 1999 2000 2001 2002
Business start-ups
Business closures
Figure 6: Business registrations and deregistrations
(excluding small-scale trade and secondary activities)
Source: Federal Statistical Office
Government’s ERP Special Fund was allocated
for low-interest loans and venture capital. This
assistance was supplemented to the tune of
around 7 9 billion by the programmes which
the Federal Government’s development bank,
the KfW banking group, has put in place itself.
Start-up entrepreneurs benefit, in particular,
from the start-up grant of up to 7 50,000 and
the micro loan of up to 7 25,000 provided by
the KfW-Mittelstandsbank.12
In order to embed the culture of self-employment
more firmly in society, it is essential to
get an early start within the education system.13
Both the JUNIOR project, which gives lower
secondary pupils the opportunity to set up and
manage their own company as part of a game,
and the “Jugend gründet” (young entrepreneurs)
planning competition, which will be
starting with around 500 teams in the
2003/2004 school year and is aimed at pupils
attending upper secondary and vocational
schools, serve this purpose. The start-up environment
at German universities has improved
significantly over the past few years. The university
chairs for start-up studies – which now
number 50—and the “EXIST—Existenzgründungen
aus Hochschulen” (business start-ups at
universities and other institutions of higher
education) programme are playing a major
part in this. Both the chairs for start-up studies
and the EXIST programme are to be expanded
or reoriented in the coming year.
2.8 Reform of the craft trades statutes
On 28 May 2003, the Federal Government
approved a comprehensive reform of the
craft trades statutes. This “draft of a third Act
Amending the Craft Trades Act and Other Craft
Trades Regulations” is currently being discussed
at parliamentary-committee level. The
reform will modernise the structures of the
German craft trade sector from the ground
up. The amendment is intended to liberalise
the craft trades statutes and opens up new
prospects for start-up entrepreneurs, also
through takeovers of existing craft enterprises.
It facilitates the entry of competent, long-standing
journeymen in the Register of Craftsmen,
thereby providing a boost to the labour and
education and training market. In addition,
the reform reduces the existing discrimination
against national residents and enables German
craft statutes to meet European standards.
The major elements of the reform are:
– Abolition of the mandatory master craftsman’s
requirement for non-hazardous
trades (limiting Annexe A to hazardous
craft trades);
– In the businesses listed in Annexe A, both
master craftsmen and, for example, enginers,
state-certified technicians, factory
foremen and long-standing journeymen
may be self-employed;
– “Long-standing journeyman”: Self-employment
after ten years of professional experience,
including at least five years in a
managerial, senior or responsible position;
– Access to the master craft examination
will be extended and facilitated (period as
a journeyman no longer required).
– Abolition of the owner principle;
– Start-up entrepreneurs exempted from
contributions to Chambers of Industry and
Commerce and Chambers of Crafts.
Another law is being prepared in order to clarify
the conditions under which activities do not
require the master craft examination. It is intended
to be a precautionary measure against
plant closures or fines imposed by municipal
standards offices that subsequently turn out to
be unlawful. This legislative process has not
yet been completed either.
23
12) Cf. Cardiff Report 2002, Section 2.2
13) Also see Cardiff Report 2002, Section 2.2
24 3.1 Telecommunications
Making telephone calls is cheaper in German
than in any other EU country. This applies to
local and long-distance calls alike. The sharp
price reductions in the telecommunications
market observed since market liberalisation
have, however, reached a standstill for the time
being. According to the Federal Statistical Office,
the average prices of fixed network telephony,
mobile communications and Internet
usage have only changed slightly since November
2002 (cf. Figure 7). Nonetheless, the index
for fixed network telephony has been falling
again since the introduction of call-by-call in
the local network. The reform concluded last
year to give telephone customers the legal
possibility to select their provider in advance
(preselection) or to select their provider on a
call-by-call basis in the local network has also
developed an impact. Since 25 April 2003, telephone
customers have been able to make
cheaper calls in the local network by selecting
their provider on a call-by-call basis. Since 9
July 2003, customers have been able to permanently
preselect an alternative network provider
(preselection).
Whereas customers can choose between several
providers in the fixed network when making
telephone calls and accessing the Internet,
competition at connection level is slow to take
off. A good four percent of telephone channels
and more than 6 percent of broadband Internet
access had gone to Deutsche Telekom AG’s
3. Opening network markets
30.7
9.7
7.7
4.6
3.2
2.0 2.2
18.4
9.7
4.6
3.5
2.1 1.9 1.8
12.3
7.2
3.6
2.0 1.7 1.9 1.8
0,0
5,0
10,0
15,0
20,0
25,0
30,0
35,0
During the day
After 6.00 p.m.
After 9.00 p.m.
1997 Jan 1998 Jan 1999 Jan 2000 March 2001 Jan 2002 Jan 2003
Year in which
charges were reduced
Cent
Figure 7: Standard charges without discounts. Prices in cent per minute, weekdays, call-by-call
Source: Regulatory Authority for Telecommunications and Posts
25 competitors by the end of 2002. By reducing
charges for access to the subscriber loop and
by raising charges for analogue telephone
lines, the Regulatory Authority has now given
new impetus to competition for residential
customers in the connection level.
In August 2003, a law entered into force preventing
telephone customers from being unreasonably
exploited as a result of the abusive
use of so-called premium rate numbers with
the area code 0190 or 0900. This has enhanced
transparency regarding the use of these call
numbers without disproportionately restricting
the supply of services via these numbers. To
this end, the Regulatory Authority has provided
a search engine on its homepage that enables
customers to find out who is responsible for
providing the individual 0190 numbers.14
Measures such as the introduction of price
ceilings and the obligation to terminate call
after one hour have also reduced the risk for
consumers who may end up owing large sums
of money after using premium rate numbers.
The current Telecommunications Act is being
amended on the basis of European projects.
This amendment is likely to be completed before
the summer break in 2004. It will, among
other things, enhance regulations which have
hitherto been less than optimum for the benefit
of the market and will limit regulation to a
minimum. It is also aimed at enhancing competition
for customer access—increasingly also
via competing infrastructures. The regulatory
goal of promoting efficient infrastructure investment
and supporting innovation has been
incorporated into the current bill.
3.2 Post
Since the year 1998, parts of the German market
for letter mail services have been gradually
opened to competition. However, these traditional
postal services are being increasingly replaced
by electronic forms of communication.
New market opportunities are emerging from
the development of sophisticated new mail
services such as hybrid mail. The Postal Act,
which was amended in 2002, forms the national
regulatory framework that facilitates this
competition in the interest of growth, employment
and consumer-oriented products and services.
There is also stiff competition in the
markets for courier, express and parcel services
that have witnessed a large number of new
and innovative services. In the field of mail delivery,
competition currently exist in the area
outside the exclusive licence only.
The turnover of over 7 22 billion generated on
the German postal market in 2002 can be broken
down as follows: roughly two-thirds of
overall turnover was generated in areas where
there was competition: in the rapidly expanding
courier, express, parcel sectors and in parts
of the letter mail market. A good third of turnover
was generated in the segment in which
Deutsche Post AG (DP AG) still operates under
an exclusive licence. Deutsche Post AG’s competitors
in the letter mail market (turnover
generated in 2002 including DP AG totalled
around 710.5 billion) recorded a significant
increase in sales in 2002 according to figures
supplied by the Regulatory Authority for Telecommunications
and Posts; however, their market
share, at only 3.3 percent (2001: 2.4 percent)
continues to be very low (cf. Figure 8).
On 1 January 2003, the monopoly limit for letters
weighing 200g was reduced to 100 g and
competition was introduced for outbound international
mail. On 1 January 2006, the weight
limit for the letter mail monopoly will be reduced
to 50g. Within the European Union, Germany
is among the Member States in favour of
complete market liberalisation by terminating
all exclusive rights on a specific date. The Law
Amending the Postal Act of 16 August 2002
therefore extends beyond EU regulations:
DP AG’s exclusive licence will expire on 31 December
2007, whereas a relevant EU Directive
14) www.regtp.de.
26
(2002/39/EC) merely calls for a decision to be
taken by the end of 2007 regarding further
steps to be taken in 2009.
On 1 January 2003, postage rates were reduced
for the first time in over fifty years. The rates
approved by the Regulatory Authority for one
year led to a decrease in rates of 4.7 percent
on average in the monopoly area.
3.3 Energy
In the course of EU-wide liberalisation, the
electricity and gas markets have been formally
opened for all consumers since 1998. In the EU
as a whole, these markets will not be liberalised
until 2007. According to Single European Market
Directives for electricity and gas, the prerequisites
for regulation of these markets must
be created by 1 July 2004. From this time forward,
the main market rules for network access
are to be specified as binding and government
agencies are to be entrusted with the tasks of
a regulatory authority. The Federal Ministry of
Economics and Labour is planning to assign
the federal tasks to the Regulatory Authority
for Telecommunications and Posts. The Federal
Government is to submit a relevant bill before
the end of 2003.
Effective and non-discriminatory TPA is a prerequisite
for functioning competition on electricity
and gas markets. Energy and cartel laws
guarantee the basic right to network access.
Suppliers are supposed to develop the complex
technical and practical terms in Association
Agreements, in order to make it possible to
prepare the legal claim for practical implementation
by having concrete network access regulation.
with the monitoring report published
in September 2003, the Federal Ministry of
Economics and Labour takes stock of the competition-
related results achieved with Associations
Agreements and indicates options for the
necessary improvements. In doing so, a different
picture emerges for electricity and gas.
Deutsche Post AG
Exclusive licence Competitors
37,9 billion 32,5 billion
Licensees
2336 million
Higher-value services
2122 million
Figure 8: Turnover in the licensed letter mail market in Germany in 2002
Source: Regulatory Authority for Telecommunications and Posts, 2002 Annual Report
27 Electricity
Germany liberalised the electricity market in
one sweep in 1998, opting for the path of negotiated
TPA (third-party access), with government
measures to set framework conditions
complemented by the self-regulation of the
market partners via Associations Agreements.
With this concept, the market was fully liberalised
in a relatively short space of time without
too much red tape and electricity prices
were reduced which in turn fuelled competition.
It was, in particular, possible to counteract
problems that loomed on the horizon by
working on Associations Agreements well in
advance. The Associations Agreement Electricity
II Plus of 13 December 2001, for example,
with a term extending to 31 December 2003,
that currently applies thus resulted in considerable
progress toward improving competition
on the German electricity market.
With the “First Act Amending the Energy Industry
Amendment Act” of 20 May 2003, the
state regulatory framework for the system of
negotiated TPA practised in Germany was further
enhanced. Decisions taken by cartel authorities
in respect of transmission and the level
of network rates are now immediately enforceable
as the legal norm. Furthermore, the elimination
of the lignite protection clause for
eastern Germany has strengthened competition
in eastern Germany.
US
Japan
EU15
Spain
France
UK
Finland
Greece
Sweden
Portugal
Luxembourg
Denmark
Germany
Ireland
Belgium
Italy
Netherlands
Austria
Norway
Iceland
0 0.01 0.02 0.03 0.07 0.08 0.09 0.04 0.05 0.06
2002
2003
Figure 9: Electricity prices for industrial users (4/kWh)
Source: Eurostat
28
US
Japan
EU15
UK
Luxembourg
Ireland
Netherlands
Denmark
Belgium
Austria
Germany
France
Sweden
Italy
Spain
Portugal
Greece
Finland
Iceland
Norway
0 2 4 6 14 8 10 12
2002
2003
Figure 10: Gas prices for residential users (4/gigajoule)
Gas
Competition in the German gas market has developed
far more slowly than in the electricity
market—similarly to a large number of other
EU Member States. One reason for this is that,
in gas, Germany is 80 percent dependent on
imports—unlike the electricity market. The
main reason for unsatisfactory competition in
the gas sector is, however, that the associations
have not yet developed a sufficiently viable
TPA system. The Federal Government is now to
develop the basic elements of a TPA system itself
that will greatly enhance the prerequisites
for competition. The monitoring report indicates
an option for doing so that is based on
international experience and takes the special
structures of German gas supply into account.
The report advocates that the measures of exante
regulation be confined to regulating the
methods used and that effective supervision of
anti-competitive conduct ensure they are adhered
to. The new regulatory framework must
satisfy the interest of market players in a stable
general setting, while offering them the necessary
flexibility to respond swiftly to new market
requirements.
3.4 Water
The water supply and waste water disposal
industry, which generates revenue of approx.
7 20 billion a year, employs around 100,000
persons. The Federal Government is develop-
Source: Eurostat
29 ing a modernisation strategy for the German
water industry in co-operation with the federal
states, the municipalities and specialised associations
based on the resolution on “Sustainable
Water Management in Germany” of 21
March 2002. The aim is to develop an efficient,
customer-oriented and competitive water
supply and waste water disposal industry. The
core elements of this strategy include ensuring
that all companies in the waste water disposal
sector are treated equally in taxation terms, regardless
of the company’s organisational form.
This could involve facilitating the development
of clear and modern organisational forms and
the desired cross-sectoral integration (drinking
water supply and waste water disposal in one
company). The trend towards more PPP (public-
private-partnership) models, mergers and
collaborations that has been observed in recent
years can be strengthened by the modernisation
strategy.
Strengthening and pressing ahead with cooperation
between municipalities and forming
suitable local collaborations and collaborations
under public and private law is a further
element of the modernisation strategy. In addition,
the aim is to introduce, where possible,
a nationwide code numbering system for the
drinking water and waste water sector which
also takes developments at EU level into account.
The rule-making technical associations
will draw up a set of rules in the form of a
guide for the development of this benchmarking
system. Likewise, municipal commercial
law will be reviewed in order to establish how
it can be made easier for municipal enterprises
in the water sector to become more competitive.
3.5 Transport
Road transport
The Federal Government sees the rapid harmonisation
of competitive conditions for the
road haulage industry in the European Union
as an important task, which it is a matter of
developing on an ongoing basis. The Federal
Government intends to achieve harmonisation
of competitive conditions by introducing the
mileage-based motorway toll for heavy goods
vehicles, resulting in more efficient and more
equitable road user charges. In terms of international
competition, the toll for heavy goods
vehicles will reduce the disadvantages German
haulage companies currently face, because all
users of German motorways can in future be
made to pay a fairer share of infrastructure
costs. The current time-based toll system has
not been able to meet this requirement.
Railways
A major objective of the Federal Government’s
reform plans is to double rail freight traffic by
2015. The number of public railway companies
has risen significantly since the rail reform.
There are a total of 313 public railway companies
in Germany15, 202 of which are nonfederally
owned rail transport companies that
can be regarded as potential competitors of
Deutsche Bahn AG (DB AG) in the area of passenger
and freight transport by rail.
To date, competition on the railway network
has evolved to varying degrees in the individual
rail transport sectors: in the area of shortdistance
rail passenger transport, since regionalisation
was introduced, the departments
concerned have the option of putting services
up for tender in order to achieve cost reductions
and improve quality. According to the
Association of German Transport Companies,
since 1996, a total of 58.8 million train kilometres
have been put up for tender in 36 tendering
procedures; that represents around 10%
of the total kilometres on offer on the longdistance
rail passenger transport network. In
2001, 56 railway companies were operating
short-distance rail passenger transport services,
31 more than in 1993/1994. According to the
15) As at 1 January 2002, source: Association of German Transport
Companies
30 Association of German Transport Companies,
the market share claimed by the non-federally
owned rail transport companies rose from
3.0% to 7.6% during this period. In the case of
non-federally owned rail transport companies
and DB AG, competition in the area of shortdistance
rail passenger transport has led to
customer-focused operating concepts with new
rolling stock, shorter travel times and attractive
timetables, thereby resulting in a significant
increase in demand.
In the long-distance passenger transport sector,
the first routes that are serviced by nonfederally
owned rail transport companies have
also appeared. However, real competition will
not be able to develop in this area until further
progress has been made in liberalising the
European railway network. Germany continues
to support this within the European Union.
Since 1999, competition in the rail freight transport
sector in Germany has intensified. A total
of 155 rail transport companies are already
operating in the freight transport area. DB AG’s
network mainly handles block trains, in some
cases over short and medium distances following
shipments made on other companies’ own
networks. According to the Association of German
Transport Companies, the market share
breakdown in the area of transport services in
2001 (a total of 80.6 billion tkm) was as follows:
DB Cargo accounted for 92.3%, non-federally
owned rail transport companies in the public
transport sector 2.7% and non-federally owned
rail transport companies in the non-public
transport sector 5.0% of the market, respectively.
DB Cargo accounted for 51.6%, non-federally
owned rail transport companies in the
public transport sector 2.9% and non-federally
owned rail transport companies in the nonpublic
transport sector 45.2%, respectively, of
the total transport volume (a total of 533.3
million tons in 2001).
Research and development is an important
foundation for economic growth and new
jobs. For this reason, the Federal Government
has further increased funding for research and
innovation. The upward trend, also including
R&D spending by industry, continued in 2002.
Total expenditure on R&D accounted for close
to 2.5% of gross domestic product. Approximately
2/3 of R&D expenditure was privately
financed.
The number of patent applications filed is an
important indicator for measuring the technological
effectiveness of an economy. Germany
continues to be in a very strong position in
this regard, both in respect of patent applications
filed with the European Patent Office
and of those filed with its US counterpart (cf.
Figure 11).
The number of Internet users in Germany is
steadily rising. More than half of the population
aged 14 or over and the vast majority of
companies already use the Internet. 44% of
private households and 84% of companies now
have their own Internet connection (cf. Figure
12). These figures give an indication of the extent
to which new technologies have become
part of private individuals’ and professional
people’s daily lives in Germany. Besides the
number of Internet users, the quality and intensity
of Internet use is also increasing. An
indication of this is the explosive growth in
broadband Internet connections, particularly
via DSL. According to BITKOM, the German
Association for Information Technology, Telecommunications
and New Media, approximately
1 million DSL connections were added
in 2002 alone; at present, there are around
4 million broadband Internet connections in
Germany.
4.1 Research, development and innovation
The Federal Government is channelling its support
for research into those sectors where a
major leverage effect on growth, employment
and innovation is possible. To this end, it is
defining so-called guiding innovations across
different technologies, thereby focusing its
strategy on technological developments with
a high level of value creation potential. The
technological focus of the Federal Government’s
research policy remains the development
of new ICT technologies, nano and optics
technologies as well as biotechnology and related
sectors (healthcare, medical and genomics
research). In the IT sector alone, a total of
71.5 billion in project funding and the same
amount again in basic institutional funding
will be going into research in the next few
years as part of the “IT Research 2006” programme.
Recent surveys show that companies
use every euro of state R&D subsidies to make
their R&D budgets stretch as far as possible.
The programmes aimed at fostering research
cooperation (PRO INNO, IGF, the R&D special
programme in eastern Germany, InnoNet) have
been evaluated. As a result of this evaluation,
the programmes are being reorganised to
make them more efficient and more customeroriented.
The guidelines are being standardised
and the performance review improved.
Small and medium-sized enterprises (SMEs) are
to be included to a greater extent in the planning
and implementation of cooperative
industrial research. In eastern Germany, the
R&D special programme is being replaced by
the new INNOWATT programme, which will
channel assistance into growth sectors. The
programmes aimed at fostering technologyoriented
start-ups (Venture Capital for Small
Technology Companies, as well as FUTOUR in
eastern Germany) are being continued.
They are indispensable in the venture capital
market and as funding assistance in the particularly
important early phase. In addition,
researchers at universities and other institutions
of higher education and at research institutions
who wish to set up companies receive
support during the pre-formation phase
within the framework of the EXIST seed programmes
and the EEF Fund.
31
4. Strengthening the knowledge-based society
32 Figure 11: Patent applications filed with the European Patent Office (left) and with the United
States Patent and Trademark Office (right) – per 1 million inhabitants
US
Japan
EU15
ACC
Sweden
Finland
Germany
Netherlands
Luxembourg
Denmark
Austria
Belgium
France
UK
Ireland
Italy
Spain
Greece
Portugal
Slovenia
Hungary
Cyprus
Estonia
Czech Republic
Malta
Latvia
Slovak Republic
Poland
Lithuania
Bulgaria
Turkey
Romania
Norway
Iceland
US
Japan
EU15
ACC
Sweden
Finland
Germany
Luxembourg
Denmark
Netherlands
Belgium
Austria
UK
France
Ireland
Italy
Spain
Greece
Portugal
Slovenia
Hungary
Malta
Czech Republic
Cyprus
Estonia
Lithuania
Poland
Latvia
Slovak Republic
Bulgaria
Romania
Turkey
Iceland
Norway
50 100 150 400 250 300 350 0 200 50 100 150 250 300 350 0 200
2001
2002
2001
2002
Source: Eurostat
33 Figure 12: Percentage of companies (left) and private households (right) with Internet access
US
Japan
EU15
Belgium
France
Netherlands
Portugal
Finland
Sweden
Denmark
Austria
Germany
Ireland
Spain
Luxembourg
Italy
Greece
UK
Iceland
Norway
US
Japan
EU15
ACC
Netherlands
Denmark
Sweden
Luxembourg
Finland
Austria
Ireland
UK
Germany
Belgium
France
Italy
Portugal
Spain
Greece
Bulgaria
Cyprus
Czech Republic
Estonia
Hungary
Lithuania
Latvia
Malta
Poland
Romania
Slovenia
Slovak Republic
Turkey
Iceland
Norway
10 20 30 50 60 0 40 70 80
20 40 60 100 120 0 80
2001
2002
2001
2002
Source: Eurostat
34 The assistance programmes aimed at developing
innovative network structures and technology
transfer, in particular in eastern Germany,
are also being continued. In this regard, the
successful InnoRegio approach for strengthening
cooperation between the business and
scientific communities in innovative regional
alliances with the “Innovative Regional Growth
Centres” and “Centres for Innovative Expertise”
programmes is being intensified. Innovative
infrastructure projects, such as technology and
start-up centres, are also increasingly being assisted
with national and EU funds for regional
policy as part of overall investment promotion
for structurally-weak regions. In addition, SMEs
are receiving support in the area of R&D expenditure
and skills upgrading measures.
As part of the applied-innovation campaign,
the Federal Government is increasing the
awareness of research institutes and of industry
of the significance of patents and their exploitation
by means of training measures and
financial support in the fields of patent applications,
patent research and exploitation.
Since the abolition of the university teachers’
exclusive rights to patent their findings at the
beginning of 2002, universities and other institutions
of higher education have been able to
freely exploit such innovations. Positive progress
is being made with regard to establishing
a professional patent exploitation structure for
inventions brought out by employees of universities
and other establishments of higher education.
Within the European framework, the
Federal Government is calling for the introduction
of an innovation grace period in European
patent law to better combine the publication
of research results and product development
with their protection under patent law.
In addition, it supports efforts at European
level to reduce the cost of Europe-wide patent
applications by introducing the Community
patent. SMEs and start-up entrepreneurs can
receive financial assistance when they file
their first patent application (SME patent campaign).
4.2 Information society
The year 2002 was a difficult year for companies
in the information and communications
industry and entailed slight declines in revenue
and employment. According to BITKOM,
the German Association for Information Technology,
Telecommunications and New Media,
the consolidation process will end in 2003. The
Federal Government will continue to actively
promote Germany’s development into an information
society and, in the autumn of 2003,
will submit a comprehensive strategy in the
form of the “Information Society Germany
2006” programme.
With “BundOnline 2005”, the German government
set forth the strategy for Europe’s largest
e-government programme. The aim is to make
all Internet-capable services of the federal
administration available online by 2005. With
the cabinet decision of December 2002, the
BundOnline 2005 master plan was updated. It
will focus on the joint e-government policy of
all government levels in order to ensure that
there is a comprehensive range of services
covering all administrative levels available in
a country with a federal organisation such as
Germany. In a joint DeutschlandOnline strategy,
BundOnline will be supplemented by services
provided by the federal states and the
municipalities. In addition, joint projects are
to be developed. The federal states’ prime ministers
approved this joint strategy on 26 June
2003.
The existing protection of intellectual property
has been expanded with the amendment of
copyright. The stipulations in the EU Directive
on copyright in the information society as well
as two so-called “WIPO agreements” have been
transposed into national law. This does not
mean, however, that the copyright reform
35 process has been completed. The copyright
payment system, in particular, still has to be
revised.
With the Federal Government’s new Youth Employment
Protection Act and the federal states’
Interstate Agreement on Youth Media Protection,
youth protection in Germany has been
adapted to meet the new challenges created
by the online media.
4.3 Training and further training
New technologies, a changed labour organisation,
a growing services sector and increasing
international economic integration require
new qualifications and greater flexibility.
A society that not only wishes to adapt to such
trends, but also wants to shape them proactively
in order to be able to live in prosperity and
social justice in future, needs more and better
education and the willingness to embrace
innovation.
The level of education of the gainfully employed
population in Germany is among the
highest in the world (cf. Figure 13). In order to
be able to maintain this standard, the Federal
Government has further modernised vocational
training in the dual system. In doing so, it greatly
improved the prerequisites for the training
of the new generation of skilled workers.
On 1 August 2003, another 22 occupational
profiles were modernised and 6 new certified
apprenticeship trades were defined. After
modernising industrial and manual electrical
trades and automotive engineering trades in
2003, a new set of rules is to be established for
industrial metalworking trades in 2004. In order
to strengthen the dual system, the Federal
Government is also planning to amend the
Vocational Training Act during the current
legislative period.
On the basis of a new, future-oriented structure
for the amendment of master craft examinations
created in 1999, six master craft examinations
were modernised in the year 2002, and
two further master craft examinations were
modernised in early 2003. The amendment of
the Craft Trades Act that is currently in the
pipeline will have a major impact on master
craft examinations, in particular because of
the revision of Annexes A and B.16 With the reform
of the Upgrading Training Assistance Act
(Meister-Bafög) of 1 January 2002, the Federal
Government improved the promotion prospects
of young skilled workers and increased the incentives
for self-employment. As a result of the
improved conditions, the demand for assistance
has risen sharply.
The further training concept for IT skills that
entered into force on 4 May 2002 has been well
received at the operational and professional
level. It is anticipated that around 150 examinations
will be held at Chambers of Industry
and Commerce trialling the scheme in 2003.
Discussions are still underway regarding ways
in which these qualifications can be recognised
for further education at institutions of higher
education (e.g. similarly to the ECTS system).
Furthermore, the certification agencies required
in connection with the preliminary 29
specialist profiles are still being set up.
The Federal Government has eliminated red
tape in order to help companies with the
training of young persons. From August 2003
onwards, the examination which instructors
were hitherto obliged to sit in order to furnish
proof of their work and vocational education
skills will be dispensed with. This gives small
and recently-established companies, in particular,
an opportunity to begin training young
people without incurring any additional costs
or having to invest any extra time.
The individual further vocational training
assistance which is an important element of
16) See Section 2.8
36
labour-market-related services was radically
changed and reorganised by the “First Act for
Modern Services in the Labour Market” as part
of the implementation of the proposals tabled
by the “Hartz Commission”. The legal amendments
that entered into force on 1 January
2003 are aimed at enhancing the options of
employees and the unemployed as well as at
boosting competition among education providers.
They will impact on two areas:
– By issuing a newly-introduced education
voucher, the employment office undertakes
to cover the costs of approved further training.
Compared to how employment offices
operated in the past, the options and
decision-making rights of employees have
been greatly strengthened by the fact that
they can now make a free and largely independent
choice among approved training
courses.
Figure 13: Percentage of the population (aged between 24 and 64)
with at least an upper secondary leaving certificate (2001)
United States
Switzerland
Norway
Germany
Japan
Canada
Sweden
Denmark
Austria
Finland
Netherlands
France
United Kingdom
Australia
Belgium
Ireland
Greece
Italy
Spain
Portugal
0 10 20 30 40 50 60 70 80 90 100
88 %
87 %
86 %
83 %
83 %
82 %
81 %
80 %
77 %
74 %
65 %
64 %
63 %
59 %
59 %
58 %
51%
43 %
20 %
40 %
Source: OECD Education at a Glance 2003
37 – The content of measures that are eligible
for subsidies was changed with a view to enabling
people to take part in business startup
seminars. In doing so, the Federal
Government wishes to support persons who
by becoming self-employed want to cease
being or avoid becoming unemployed.
Within the framework of the “Second Act for
Modern Services in the Labour Market”, the
Federal Government underlined its commitment
to support disadvantaged young people.
In this context, it is important to integrate into
the Vocational Training Act measures aimed
at preparing young people for vocational training,
which, by providing initial, partial qualifications,
help disadvantaged young people to
embark on their first vocational training
course.
Important reforms in the field of higher education
were already described in the last two
years’ reports.17 In order to implement the
recommendations presented publicly by the
Education Forum at the beginning of 2002,
and based on the findings of the PISA Study,
the Federal Government proposed the launching
of a programme on the future of education
which envisages, inter alia, the following
measures aimed at enhancing education:
– The establishment of a range of full-time
schools, based on requirements, for which
the Federal Government will allocate a total
of 7 4 billion between 2003 and 2007.
– The development and evaluation of national
competence standards and the setting up
of an independent national scientific standards
and evaluation agency. The Federal
Government has offered financial support
for the establishment of this agency.
– Pursuant to the mandate of the German
Bundestag of July 2001, the reaching of an
agreement between the Federal and state
governments regarding the establishment
of a system of independent national reports
on education to be provided by an independent
advisory council, which is also to
be newly established.
– Implementation of the “Structural Innovations
in Education” action framework, which
was agreed between the Federal Government
and state governments on 17 June
2003 and which aims to enhance the quality
of education. The priority areas include the
fostering of language, reading and writing
skills, the promotion of skills in mathematics
and natural sciences and the provision
of assistance to migrants.
17) Cf. Cardiff Report 2001, p. 44, Cardiff Report 2002, p. 39.
38
5. Environmental policy
5.1 Objectives and market-economy instruments
in the field of environmental protection
In Germany, the integration of environmental
protection into all areas of life and the economy
is enshrined in the Basic Law as a state objective.
In this regard, in addition to traditional
legislation relating to law and order, economic
instruments are playing an increasingly
important role in orienting economic activities
to the goal of sustainable development.
Economic activities are associated with the utilisation
of natural resources and energy, but
they also release residues and pollutants into
the natural environment. Achieving ongoing
and significant improvements in efficiency
and reducing the use of natural resources therefore
presents a key challenge to management
based on the principle of sustainable development.
As such, the environmental indicators
and objectives of the national strategy for sustainable
development are a key benchmark.
The most recent data proves that Germany has
succeeded in improving its level of efficiency
in the use of important natural input factors
and in further reducing the link between economic
growth and the consumption of natural
resources (cf. Figure 14). The expansion of residential
and traffic areas continues to be the
exception. The Federal Government will therefore
work with the federal states and the municipalities
to develop a strategy aimed at reducing
the areas used. The challenge, however,
remains the following: to achieve an absolute
reduction in the utilisation of resources.
The introduction of the Ecological Tax Reform
Development Act, which entered into force
on 1 January 2003, modified the fifth eco-tax
bracket in order to achieve a better-coordinated
control and distribution effect. Among other
things, the tax concession for storage heaters,
which had been granted solely for social reasons
but was environmentally counter-productive,
was further reduced and a time limit was
set. Furthermore, under the coalition agreement
on ecological financial reform, the tax
and financial system is also being ecologically
fine-tuned. An important element of this is the
review and slimming of environmentally-harmful
subsidies.18
5.2 Measures aimed at achieving the goals of
the European Strategy for Sustainable Development
(Göteborg)
Germany met its obligation to develop a national
strategy for sustainable development
when it submitted the comprehensive strategy
“Prospects for Germany. Our Strategy for Sustainable
Development” in April 2002, focusing
initially on eight specific areas. Concrete goals,
measures and instruments for implementation
have already been agreed for three key areas,
namely climate protection/energy policy, environmentally-
compatible mobility and consumer
protection/agricultural change.
The first progress report, which will be approved
by the Federal Government in September
2004, is currently being prepared as part of the
planned two-yearly monitoring. It will review
developments using 21 key indicators and take
stock of successes and deficiencies, based on
which it will determine the need for political
action. Furthermore, the following subject
areas: “Potential of older people in the economy
and society”, “New energy supply structure
incorporating renewable energies”,
“Alternative fuels and propulsion technologies”,
“Reducing area use” and—in the form of a
rough concept—“Sustainable financial policy”
and “Biological diversity” are being integrated
into the strategy as further fields of action.
By defining the fields of action, the need for
political integration is being met. The process
is being accompanied by extensive social dia-
18) See Section 2.3
39
US
Japan
EU15
ACC
Denmark
Austria
Germany
Ireland
Luxembourg
France
Italy
Netherlands
Sweden
Spain
UK
Belgium
Portugal
Finland
Greece
Cyprus
Slovenia
Malta
Turkey
Hungary
Slovak Republic
Poland
Latvia
Lithuania
Czech Republic
Estonia
Romania
Bulgaria
Norway
Iceland
0 500 1500 1000 2000 2500
1999
2000
Figure 14: Energy intensity of the economy (kg oil equivalent per 41,000 of GDP)
Source: Eurostat
40
logue with all groups in society. In addition,
the “Council for Sustainable Development”,
which has been appointed by the Federal
Government, is initiating dialogues as part of
the development of the strategy for sustainable
development.
Germany has achieved great success in the field
of climate and energy policy. In 2002, greenhouse
gas emissions were reduced by 19.4 percent
compared to 1990. This can be attributed
to the ecological tax reform that has helped to
reduce fuel consumption and hence also environmentally-
harmful emissions in the area of
transport. The successful policy aimed at promoting
the use of renewable energy sources
is being continued and developed with a view
to further increasing the proportion of renewable
energies. The proportion of total primary
energy consumption accounted for by renewable
energies is to reach 4.2% by 2010, having
risen from around 2.9% in 2002. The percentage
of total gross electricity consumption
accounted for by renewable energies is to increase
from 6.3% in 2000 to 12.5% in the year
2010. This corresponds to the guidelines for
Germany in the EU Directive on Renewable
Energies. At present (2002), the proportion of
total gross electricity consumption accounted
for by renewable energies is approximately 8%.
The following measures, in particular—apart
from R&D projects—are being used to promote
renewable energies:
– Exempting biodiesel (rape methylester) from
the petroleum tax. According to current
law, biodiesel is not subject to petroleum
tax. In 2003, this is expected to produce a
shortfall in tax revenue of 7 460 million.
It is intended to grant tax concessions to
mineral oils from 1 January 2004 to the
extent that they demonstrably contain biopower
substances (for vehicles or heating).
Figure 15: Gross electricity generation in Germany 2002 = 581 TWh
Hydro 4.5 %
Wind 2.9 %
Other 4.4 %
Gas 9.3 %
Nuclear energy 28.4 %
Hard coal 23.2 %
Lignite 27.4 %
164.8
159.0
135.0 26.0
54.0
16.8
25.4
Source: Federal Ministry of Economics and Labour, German Institute for Economic Research,
Stat. der Kohlewirtschaft e.V., German Electricity Association (VDEW)
– Federal Government programmes aimed at
encouraging the use of renewable energies:
these mainly involve investment subsidies
and reduced-interest loans. Installations that
make use of solar energy, hydro-electric and
wind power, biomass and the earth’s natural
heat receive subsidies. The most important
assistance programme is the Market Incentive
Programme for Renewable Energies
(investment subsidies and low-interest loans,
for which the 2003 federal budget appropriated
7 190 million). The 100,000 roofs solar
power programme (reduced-interest loans;
budget appropriation in 2003: 7 25 million)
was discontinued on 30 June 2003 because
the development target of 300 MW of
installed photo-voltaic capacity had been
reached.
– Electricity generation using renewable energies
is being subsidised via the Renewable
Energies Act, which requires grid operators
to accept electricity fed into the grid from
renewable energies and to pay fixed statutory
minimum rates for it. On this matter,
the European Court of Justice has found that
this assistance is not a state subsidy within
the meaning of the EU law of contract. In
2002, the amount of electricity supplied under
the Renewable Energies Act amounted
to around 25 TWh and the volume of payments
made under the Renewable Energies
Act totalled around 7 2.2 billion. This year,
the amount of electricity supplied under
the Renewable Energies Act is expected to
rise to around 30 TWh and the volume of
payments made under the Renewable Energies
Act to 7 2.8–2.9 billion. The cost of
the subsidies paid out under the Renewable
Energies Act is borne by electricity consumers
via the price of electricity. As part of
the upcoming revision of the Renewable
Energies Act, the Federal Government will
adjust the level of support in a technologybased
and degressive manner—whilst upholding
the objective of a doubling by 2010.
Furthermore, the legislative measures aimed
at improving energy efficiency that are approved
at EU level are implemented rapidly, for
example in the building sector, by means of
the Energy Conservation Ordinance, which
entered into force on 1 February 2002. In the
meantime, the development of new fuels and
propulsion technologies has become part of
the expansion of the National Strategy for Sustainable
Development.
Germany will continue proactively to play its
part as a pioneer in the area of climate protection.
The Federal Government, which ratified
the Kyoto Protocol together with the other EU
Member States in May 2002, firmly supports
the rigorous implementation of the United
Nations Convention on Climate Change and
the swift entry into force of the Kyoto Protocol.
In addition, it will work to persuade the EU to
give an undertaking at the international
climate negotiations that it will reduce greenhouse
gases by 30% by the year 2020 (relative
to 1990). Provided this condition is met, it will
aim to achieve a 40% reduction in greenhouse
gases. The Federal Government supports the
introduction of an emissions-trading system in
Europe.
41

II. Structural Reforms on the Financial
and Capital Markets
44 On the basis of the measures it had previously
introduced with a view to improving the structures
of the financial and capital markets
(e.g. the Securities Purchase and Takeover Act,
establishment of the Federal Financial Supervisory
Authority, the Fourth Financial Markets
Promotion Act, the Transparency and Disclosure
Act, the German Corporate Governance
Code), in February 2003, the Federal Government
presented a 10-point programme aimed
at strengthening corporate integrity and at improving
investor protection. Important aspects
of this 10-point-programme are also an integral
part of the Financial Markets Promotion Plan
2006, which was presented in March 2003.
The Financial Markets Promotion Plan 2006
comprises a total of around 30 measures, some
of which are subdivided into further projects.
The contents cover the whole spectrum of
financial markets. They have the common aim
of strengthening Germany as a financial centre
and of improving investor protection. They
include, inter alia, the following measures:
3 Development of an internationally
competitive securitisation market in
Germany
In order to develop the trade in claims and risks
arising from banks’ lending operations in Germany,
the general legal and business framework
in the area of so-called asset-backed securities
has been improved. To make it easier for
banks to securitise credit risks and loan claims
and place them on the capital market, to begin
with, special-purpose companies have been
given the same trade tax status as banks themselves.
These special-purpose companies accept
loan claims from banks and organise securitisation.
This has offset one disadvantage that
Germany as a financial centre had vis-à-vis
other financial markets. Second, the development
of an effective platform (True Sale Initiative—
TSI) for securitising risks and claims
arising from lending operations is intended
to give the necessary boost to the structural
development of this segment.
The securitisation of credit risks results in a
lessening of banks’ risk exposure and frees up
equity, thereby expanding their scope for
granting loans. The more efficient and wider
capital allocation and risk diversification associated
with the securitisation of credit risks can
also lead to a general reduction in the level of
interest rates. In addition to improving banks’
liquidity and increasing their flexibility in
managing risks and granting loans, this is also
intended to open up additional financing prospects
for small and medium-sized companies
and housing construction.
3 Investment Modernisation Act
The Investment Modernisation Act, which comprises
the Investment Act and the Investment
Tax Act and is to enter into force in early 2004,
will greatly strengthen Germany as a financial
hub. This Act will transpose EU legislation into
German law. For the first time in Germany, the
Investment Act provides for the regulation of
so-called hedge funds. With this provision, the
Federal Government is responding to the desire
among institutional and private investors to
invest in alternative investments in the form of
hedge funds.
The provision takes a liberal approach in order
to enhance the competitiveness of German
hedge fund providers and the attractiveness of
Germany as an investment location. It does
not include any restrictive investment regulations
and essentially permits shortselling and
leveraging without restrictions if the products
are intended for institutional investors. Private
investors are also to be allowed to invest in
hedge funds. In order to protect investors, the
managers of these funds will have to meet
high standards. Because of the obvious risk of
incurring losses, there are also plans to issue
a specific warning that will make it clear to
private investors that they could lose anything
up to 100% of their assets.
Other revisions and adjustments concern, inter
alia, the procedure for the approval of contractual
conditions by the Federal Financial Supervisory
Authority, the revision of disclosure requirements
for investment companies vis-à-vis
the Supervisory Authority, the European passport
for investment companies, the amendment
of standards in respect of investment
companies’ equity capital, a provision relating
to the outsourcing of activities by investment
companies, the introduction of a simplified
offering prospectus and provisions concerning
the improvement of cost transparency.
The Investment Tax Act combines and thoroughly
revises previous tax regulations. In the
case of international funds, disadvantages
ensuing in particular from the failure to apply
the so-called semi-income procedure to earnings
from investments and when selling investment
trust units are eliminated. Sales profits
from futures for hedging and for investment
purposes are treated equally and are not taxed
so that the acquisition of shares in hedge funds
essentially has the same tax implications for
investors as the acquisition of hedge fund
certificates.
3 Creation of an effective enforcement
mechanism (enforcement = checking the
legality of companies’ actual financial
statements)
In this area, it is a matter of restoring investor
confidence in the transparency and truthfulness
of company balance sheets that was lost
as a result of the fraudulent practices and
balance sheet scandals of recent years. With
the introduction of a so-called enforcement
procedure, company reports issued by capital
market-oriented companies are to be audited
at random and in suspicious cases. There are
plans to have this audit carried out first and
foremost by a body that is organised under
private law. The Federal Financial Supervisory
Authority is also to be assigned an important
role as part of the enforcement procedure. It is,
for instance, to be given the right to institute
special investigations at this private-law agency
even in respect of companies that do not come
under the Banking Act or Insurance Supervision
Act—in other words, their own supervision.
Hence, the plan is to give the Federal
Financial Supervisory Authority a binding right
of application. It is envisaged that the law
establishing an enforcement agency will enter
into force in the coming year.
3 Increasing the accountability of Boards of
Management and Supervisory Boards
The plan to increase the personal accountability
of company managers is also expected
to improve investor confidence. Members of
Boards of Management and Supervisory Boards
are to be personally liable in future with their
own assets for the dissemination of incorrect
ad-hoc reports. In addition, consideration will
be given to extending the scope of application
of the current regulations to additional information
that is relevant to capital markets, for
instance in speeches or interviews.
3 Improving supervision of the grey capital
market
In this area, the regulatory competencies and
the substantive requirements to be met by market
players are to be reviewed. There is also a
proposal to introduce a requirement that a prospectus
be issued for capital investments that
are offered to the public on the grey capital
market. The experience gained with regard to
the existing requirement that a prospectus be
issued for securities which are offered to the
public but are not listed, has been most positive.
45
46
Annexe
Recommendations
Creation of a more competition-oriented entrepreneurial
environment and further reduction of regulatory and bureaucratic
costs in order to provide companies with investment and
growth incentives (Recommendation no. 4).
Implementation of further reforms so that the level of qualifications
is improved and the ongoing lack of qualified specialists
is eliminated (Recommendation no. 5).
Section containing
information on
implementation
2.2
2.5
2.7
4.3
Recommendations pertaining to Germany in the “Broad Economic Policy Guidelines 2003”
(product and capital markets only)

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