International   

Mixed response to German reforms

By Batuk Gathani

BRUSSELS DEC. 22. The German Chancellor, Gerhard Schroeder's `diluted' reform package of "Agenda 2010'' to improve performance of the European Union's "locomotive economy'' — after some nine months of political wrangling — has evoked mixed responses in major E.U. capitals. There is relief beyond Germany's borders over the agreement in Parliament on reduction of taxes, social security contributions and labour market reforms, in a broad strategy to revive the economy. The reforms are based on "give-and-take '' principles between the ruling coalition of Social Democrats and the Greens, who control the Lower Parliament and the Opposition Christian Democrats, who control the Upper Parliament.

The consensus in the European capitals is that a collapse of the reform process — which was a real possibility only last week — would have damaged the fragile recovery in Europe's biggest and the world's third largest economy, after the U.S. and Japan. This could have affected Germany's neighbours and largest trading partners in Europe and deflected the momentum towards reform process in neighbouring countries — France, Italy and Benelux are obvious examples.

The reform proposes early tax cuts of euro 8.9 billions. They also propose an overhaul of local taxes, a tax amnesty and tax changes to underpin the health and life insurance sector. Then there are major cuts in very generous unemployment benefits for German workers. The other measures will also free the very rigid labour market. The 11 bills passed in the German Parliament are part of Mr. Schroeder's "Agenda 2010'' strategy to drastically stimulate the economy. The gross domestic product grew by 0.2 per cent last year and the unemployment remains at a record high — 4.4 million unemployed or almost 10 per cent of the workforce. The 2003 supplementary budget sets a new borrowing target of euro 43.4 billions and the 2004 expenditure of euro 257. 3 billions, down 1.1 per cent from euro 260.2 billions for the current year.

European analysts have argued that the reforms have been undermined by Mr. Schroeder's compromises with the Christian Democrats while the problem with the compromises is that it often leaves all sides unhappy. This is the dilemma Mr. Schroeder faced and he agreed that the package fell short of its original targets. He staked his political reputation on getting the package passed by threatening to resign if it was rejected.

After some "minor adjustments'', the Christian Democrats gave in gracefully and did not dare to risk the wrath of public opinion, which has displayed a yearning for the reform process. Many Germans are worried that Germany's competitive edge in the global market could be fast eroding with its notoriously high labour cost of skilled workers. A skilled worker costs more than an American and Japanese worker due to high welfare contributions on the part of the employers.

Printer friendly page  
Send this article to Friends by E-Mail

International

News: Front Page | National | Southern States | Other States | International | Opinion | Business | Sport | Miscellaneous |
Advts: Classifieds | Employment | Obituary |

Stories in this Section

• Russia to build powerful missile
• Religion: China objects to U.S. views
• Dhaka promises action against militants
• Diana: royal family declines comment
• `Khan being debriefed'
• U.S. to woo ``non-criminals'' in Taliban
• Mixed response to German reforms

Copyright © 2003, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu