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Last Updated: Friday, 14 March, 2003, 14:03 GMT
Schroeder tackles entrenched interests

By Tim Weber
BBC News Online business editor

Germany's Chancellor has promised "bold changes" to lift his country's economy out of the doldrums - but are his proposals bold enough?

Germany is in a funk.

For the second time in two years the country is teetering on the brink of recession. Unemployment is at record levels.

Chancellor Gerhard Schroeder
Chancellor Schroeder promises reforms - but faces entrenched interests

Eastern Germany is not a "flourishing landscape" (as promised by Chancellor Kohl), and the economy of Western Germany, once the growth engine of Europe, has stalled.

Opposition to war in Iraq may have won Chancellor Gerhard Schroeder last year's federal elections, but the poor state of the economy has brought him electoral disaster in every regional election since.

As a result, the upper house of Germany's parliament, the Bundesrat, is now controlled by his opponents.


The German model of high wages, high productivity, high job security and consensual industrial relations does not deliver anymore.

In the age of globalisation, economies must be able to change quickly and shift jobs or resources.

But the system is "encrusted", to use the Chancellor's description.

The Germans have a word for what has gone wrong: Reformstau - a logjam of reforms - that has built up over the past 20 years.

A first step

During his first term in office Mr Schroeder pushed through a few radical tax reforms. They are slowly making an impact, breaking up Germany's incestuous corporate culture of endless cross-shareholdings, and cutting deep into the country's high tax culture.

Now Mr Schroeder is promising to get the ball rolling again.

His speech had the title "courage for change". However he did not offer a root-and-branch reform of the system, but an exercise in careful pruning.

  • Jobless benefits will be cut to push people out of the "benefits hammock"
  • Small firms will be allowed to keep staff on short-term employment contracts
  • It will be easier to hire and fire
  • Companies could be forced to take on apprentices
  • A 15bn euro investment programme is supposed to boost demand
  • Local councils will be given extra resources
  • Reforms of the health and pensions system have been promised.

All these proposals are necessary steps in the right direction, but hardly far-reaching.

Worryingly, it took the governing parties weeks of acrimonious debate to get this far.

And does the country have the "courage" demanded by the Chancellor to make the "huge joint effort" to change Germany and return it "to the pinnacle of social and economic development in Europe"?

Apart from a salary freeze for ministers, few of his proposals will meet wide approval.

In the course of his very detailed speech, Mr Schroeder managed to upset nearly every interest group with a stake in the economy.

Collective deafness

And unlike Britain in the 1970s and early 1980s it is not just the trade unions that are unwilling to change.

All parts of society - employers, craft guilds, civil servants, workers, farmers, regional governments and countless special interest groups - have forgotten the principle of give and take.

They talk about reform, but fight to defend the status quo.

The opposition parties enjoy the sight of Mr Schroeder in discomfort, and are doing their best to block reforms in the Bundesrat.

Trade unions demand sharply higher wages, despite economic stagnation.

Germany's highly-paid doctors have threatened to strike over cutbacks in the country's generous health system.

Employers are boycotting government initiatives to cut unemployment.

Despite the dire economic situation, there is still little appetite for reform.

Mr Schroeder's plea that Germans should ask themselves what they can do for their country may fall on too many deaf ears.

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