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Last Updated: Friday, 17 October, 2003, 14:14 GMT 15:14 UK
Germany inches towards reform

Analysis
By Tim Weber
BBC News Online business editor

Chancellor Gerhard Schroeder
Chancellor Schroeder has tied his political future to the Agenda 2010 reforms
A comprehensive package of economic reforms is winding its way through Germany's parliament, but will it be enough to kickstart the country's stagnant economy?

Twenty years of doing nothing are over. Most politicians agree: the "social market economy" model of the 1950s and 1960s, foundation of Germany's past economic prowess, won't survive the age of globalisation.

Chancellor Gerhard Schroeder is now pushing reforms - known as Agenda 2010 - to pull the country out of its slump and tackle unemployment, stubbornly stuck at about five million people.

His reform agenda is ambitious and far-reaching, touching nearly every aspect of the country's welfare state.

    Jobs
  • Germany's comprehensive network of job centres will be overhauled.
  • Benefits for long-term unemployed will be cut.
  • Those out of work have to be more flexible about which jobs they accept and face benefit cuts if they are 'not co-operative'.

    Welfare

  • Jobless and welfare benefits will be rolled into one allowance, and many will ultimately receive less than before.
  • Jobless allowances may be reduced to take account of previous savings and the income of partners.
  • Overall welfare payments will be cut.

    Pensions

  • A government-appointed commission proposes raising the retirement age to 67 and freezing current pension payouts until 2005.
  • Workers will be encouraged to take out more private pension cover.
  • More benefits may be paid to those who retire later.
  • Overall, contributions are likely to increase while benefits fall.

    Taxes

  • Tax cuts worth 15.6bn euros will be brought forward by a year to 2004.
  • Tax breaks and subsidies for homebuyers, commuters, farmers and others will be reduced.
  • Tobacco taxes will go up.
  • Tax evaders hiding their untaxed savings abroad have been offered an amnesty.

    Health

  • Each visit to a doctor will cost 10 euros, plus 10 euros a quarter for being registered with a surgery.
  • Cover for dental treatments will be reduced.
But will the reforms work?

Some hardline trade unionists have made dire predictions that the reforms could cost 100,000 jobs.

Employers speak of a half-hearted attempt at turning around the German supertanker, a mere exercise in cost-cutting.

And many of the reforms will have to be passed by both houses of parliament - and the opposition controls the second chamber, the Bundesrat.

It doesn't help that Mr Schroeder's party is deeply divided, with some powerful Social Democrats demanding much tougher reforms, while others hope to soften the blow of welfare cutbacks.

Even the opposition conservatives are at odds with each other, squabbling about alternatives to the government's reform package.

The chances of reaching a compromise are not helped by the fact that 2004 has been dubbed a "super election year", with a string of key regional votes that will determine the balance of power in the Bundesrat.

Already the Chancellor's party is in the electoral doldrums, and with federal elections due in 2005 he has not much time to push through Agenda 2010, never mind achieve the results needed to save his political bacon.

Meanwhile, Finance Minister Hans Eichel has to scrabble ever harder to keep on top of an escalating budget deficit, which already is well above the limits set by the eurozone's stability pact.

Some of the tax reforms outlined in Agenda 2010 will make things even worse for him, especially if lobby groups succeed in derailing plans to cut back government subsidies.

But at least reforms are now firmly on Germany's political agenda.

Considering the stagnation of the past 20 years, this is a huge step forward.




SEE ALSO:
Schroeder wins key reform vote
17 Oct 03  |  Europe
Germany facing 'hesitant upturn'
25 Sep 03  |  Business
Germany drafts 'risky' budget
09 Sep 03  |  Business
'Recovery on the way' for Germany
26 Aug 03  |  Business
Germany falls into recession
14 Aug 03  |  Business
Can Germany bounce back?
14 Aug 03  |  Business



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