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Last Updated: Monday, 21 February, 2005, 18:22 GMT
Germany's economy fights red tape
By Ray Furlong
BBC News in Berlin, Germany

Unemployed queuing in a German job centre
Unemployment in Germany is at record levels
Germany's economy is in trouble, consumer confidence is low, but politicians are struggling to find a recipe for growth.

This weekend's elections to the Schleswig-Holstein state assembly underline the dilemma facing German voters.

People were fed up with the governing coalition of Social Democrats and Greens - but didn't really trust the opposition to do a better job.

The result is that the Red-Green coalition has (just) held on to power in the state.

Likewise, national opinion polls show a general election would be a close run thing - with the government possibly winning again.

This is despite the fact that unemployment in Germany recently went over the psychologically important five million mark - and the government says next month's figures will show another increase in the dole queue.

Opposition dazzles with disunity

Chancellor Gerhard Schroeder and Premier Heide Simonis of Schleswig-Holstein
The German economy has trouble getting into gear

"People are so used to high unemployment rates that they don't really feel shocked any more," said Markus Loening, an MP from the small opposition Free Democrats recently.

"The Chancellor, half a year ago, thought that he had no chance to win the next election. But now he thinks he can do it again."

"Germans want reforms but they are scared of the effects of reform," says Mr Loening. "Everybody seems scared stiff that reform might change their personal life."

This may be partially true, but it's not the whole story.

The Christian Democrats (CDU), the main opposition party, have also damaged themselves with infighting in recent months, destroying their opinion-poll lead with a dazzling show of disunity.

Now they are hoping that a scandal over tourist visas, which were awarded to economic migrants and women traffickers in the Ukraine, will damage the government and help them recover, but there is a broader mood of disillusion with politicians in general.

Entrepreneurs tangle with red tape

"The politicians have ideas about how you create jobs but the bureaucracy in Germany is the real problem that they don't address," says Johanna Ismayr, a Berlin-based entrepreneur.

German economics minister Wolfgang Clement
Economics Minister Wolfgang Clement says it's difficult to cut the red tape

Ms Ismayr is a so-called 'Ich-AG,' part of a government scheme to help jobless people to start-up their own businesses.

The scheme has mixed results: around 20% of all 'Ich-AGs' have gone bankrupt.

Ms Ismayr's business idea was inventive and successful.

She imported sand from the Baltic coast to set up an artificial beach in the shadow of the Reichstag in Berlin, complete with bars and a grill-restaurant.

She's been in business for two summers, employing 30 people, but this year may not reopen because of the local red tape.

"To go on with our job we have to get the permission of the city of Berlin. But they say: this is a green area and this is a governmental area, and we don't want you to do business there, we don't want you to do events there," she says.

"Every year it's the same procedure to get the permission and it's very, very difficult."

Does Germany need master craftsmen?

Ms Ismayr's business has earned her a high-profile in Berlin; so much so, that recently she was able to confront Germany's Economics Minister Wolfgang Clement (SPD) in a live debate on television.

Mr Clement agreed with her: "We're sitting here a bit like Gulliver and a lot of our strength is tied down. We have to cut these ties back gradually but it's a fearfully difficult thing to do."

Successive attempts to reduce the amount of regulation in the German economy have been blocked by the country's cumbersome parliamentary process.

For example, the current government tried to liberalise the rules on doing business in a number of branches, from carpentry to butchery, which for centuries have required a special certificate of authorisation called a 'Meisterbrief'.

This takes years to acquire and has been cited by some as restraining initiative and making Germany uncompetitive.

But the Christian Democrats, who can block most legislation in the upper house of Parliament, the Bundesrat, wanted to keep the system unchanged, seeing the reforms as an attack on its core small business constituency.

When the CDU was in government, under Chancellor Helmut Kohl, it was grid-locked as well with the Social Democrats controlling the Bundesrat for much of their time in power.

Political deadlock

"I have come to the conclusion that we are suffering in Germany from something which you don't have in most other democracies," says Hans-Olaf Henkel, former head of the Federation of German Industry (BDI).

Protester against
'One-euro' jobs are supposed to get people back into work, but there have been protests
"We have a constitution and a political decision-making system that is not conducive to reforms - a system that doesn't enable us to move."

Mr Henkel says constitutional reform is needed: a simplified legislative process complemented by delegating more power to Germany's 16 individual states, known as the Laender.

"Very much like Tony Blair when he started creating Parliaments in Scotland and Wales, we need to enable the Laender to make decisions themselves and not wait for central government."

"There would be competition among the Laender in a variety of areas; from education to shop-opening hours. This competition would make Germany more competitive," says Mr Henkel.

The government and opposition did set up a joint commission to try to implement some of these ideas - but attempts to reach a deal collapsed at the end of last year.

As Germany's politics remain deadlocked, there's little sign that Europe's biggest economy will get back on track in the near future.

Meanwhile, as this weekend's elections in Schleswig-Holstein suggest, neither political camp has managed to convince voters that it holds any answers to the country's economic ills.

Newest EU members underpin growth
21 Feb 05 |  Business
German growth goes into reverse
15 Feb 05 |  Business
Schroeder hit by state election
21 Feb 05 |  Europe
Five million Germans out of work
02 Feb 05 |  Business


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