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Last Updated: Wednesday, 2 February 2005, 12:05 GMT
Germany's jobless face tough choices
By Ben Richardson
BBC News business reporter

German man protesting against labour market reforms
Germany's workforce is facing some very difficult decisions and changes
The Germany of the 1930s was a very different place to the nation of today.

It was in the midst of a global depression, was creaking under the weight of reparation payments, and had only just emerged from a period of hyper-inflation that saw people take wages home in wheelbarrows.

Government figures on Wednesday, however, have shown there is in fact one striking similarity, and it has got a lot of observers very worried indeed.

Unemployment has been climbing steadily and in January topped five million for the first time since the 1930s, according to the German Federal Labour Office.

That pushed the jobless rate to 12.1% and has prompted calls of alarm from politicians and economists.

'Dramatically high'

The government called the figure "dramatically high", but blamed the surge from December to January on new methods of counting people who are out of work.

Since the start of the year, all people claiming unemployment benefits and welfare support, as well as those termed as long-term unemployed, are officially classified as looking for work.

Five million is still five million, and that is a pretty scary number
Mike Bayer, Ceros fund manager

That is why, the government said, unemployment jumped by 572,900 between December and January.

"Politicians always try to say that things aren't as bad as they look, and there may well be an effect from the changes," said Mike Bayer, a fund manager at Ceros in Frankfurt.

"But five million is still five million, and that is a pretty scary number."

"The German employment market is really in trouble, as is the case for a lot of European markets, and even the US," he continued. "People are feeling poorer than they were a couple of years ago and they feel more insecure."

Build up

A key factor in this growing sense of unease has been attempts by Chancellor Gerhard Schroeder's government to reform Germany's inflexible labour market, and cut state spending on healthcare and pensions.

Under the "Hartz IV" programme it has set in progress the biggest overhaul of Germany's welfare system in decades, and long-established prerogatives and entitlements are disappearing.

Protests have been commonplace, especially in the former communist east of the country where unemployment is higher than in the west following the closure of many state-run enterprises.

At the same time, established employers including Volkswagen, Siemens and DaimlerChrysler have been negotiating hard with unions to cut costs and change employment practices among a workforce that is one of the world's most costly.

Outside factors

As painful as they may seem, companies and politicians have little choice but to make difficult changes, analysts say, adding that the economic pressures that have helped drive unemployment are unlikely to go away.

German factory workers
Price is almost as important as quality in manufacturing today

Germany's economy is set to grow by between 1% and 1.5% this year, while at home and in the rest of Europe consumer demand is proving difficult to stoke.

The US, meanwhile, a key destination for German products, is far from the powerhouse it was in the 1990s.

With profits being squeezed in key markets, companies are going to look where and how they can manufacture products most cheaply.

That means that more and more contracts are likely to head to low-cost centres such as Eastern Europe, Asia, and Latin and South America.

Labour Office deputy head Heinrich Alt said on Wednesday that unemployment in Germany was unlikely to have peaked.

Bite the bullet

For any serious in-roads to be made into Germany's jobless rate there needs to be a major reshaping of the country's internal structure, analysts say.

Unions have to be willing to give up some of their workers' rights, making it easier and cheaper for companies to hire-and-fire.

Red tape, the bane of many European countries, needs to be cut so that firms can be set up quicker and with less regulation.

And political parties on all sides have to be willing to sacrifice some popularity to ensure that the difficult decisions on spending and reform are taken and followed through.

"It's very sad, but I haven't seen anything in the past 10 years that makes me think the political will is there," said Ceros's Mr Bayer.

"I believe things will get better, but it will take a very long time."

Five million Germans out of work
02 Feb 05 |  Business
Germany nears 1990 jobless level
04 Jan 05 |  Business

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