OECD urges Germany to pursue reforms to narrow social divide

Tue May 13, 2014 8:02am EDT

* OECD urges steps for sustainable growth and social mobility

* Welcomes new minimum wage but criticises pension reforms

* Says wants regional banks and government stakeholdings sold off

By Michael Nienaber

BERLIN, May 13 (Reuters) - Germany should pursue reforms to narrow the social divide in employment and pave the way for more sustainable growth, the Organisation for Economic Co-operation and Development (OECD) said on Tuesday.

Europe's biggest economy has proved resilient amid global financial turmoil and the euro zone debt crisis, and German unemployment stands at post-unification lows even as job losses mount elsewhere in Europe.

But the OECD's Economic Survey on Germany said the social mobility of low-earners in the labour market had shrunk, adding: "While income inequality is lower than in most OECD economies, the share of low-paying jobs has risen considerably."

OECD Secretary General Angel Gurria urged Chancellor Angela Merkel's coalition government to take decisive action in this and other areas, saying in a statement released during his visit to Berlin: "The country must act now."

The OECD welcomed Germany's decision to introduce a legal minimum wage across all sectors but said more needed to be done to give temporary workers the same protection as full-time employees.

Lowering taxes on labour, broadening the tax base by updating property tax valuations and extending capital gains taxes on residential real estate except for owner-occupied housing would free up capital to invest in infrastructure projects and childcare, it said.

The OECD criticised German pension reform plans, saying raising pension entitlements and lowering the retirement age for certain employees would make it harder to reduce labour costs without necessarily alleviating the risk of poverty among the elderly.

PRIVATISE

The Paris-based organisation of mostly rich countries also called for reforms in the financial sector and the reduction of risks emanating from Germany's regional state-owned banks or Landesbanken - "including through privatisation".

Many German states oppose this, with private participation so far only in HSH Nordbank, where the private equity firm J.C. Flowers holds 9 percent.

Germany should take further steps to ensure banks are adequately capitalised and that bank debts are included "as comprehensively as possible in the future bail-in instrument" when new European Union banking directives are implemented.

The OECD reiterated its advice that Germany should push on with the privatisation of government stakes in formerly public companies, such as its roughly 32 percent in Deutsche Telekom and 21 percent in Deutsche Post.

The Federal Audit Office has also urged the government to relinquish its stake in Telekom, although the finance ministry says it has no such plans at present. (Reporting by Michael Nienaber; Editing by Stephen Brown and Hugh Lawson)

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