German election no quick fix for high unemployment

By Philip Blenkinsop

BERLIN (Reuters) – Germany’s conservatives, tipped to win a
September 18 election, have won modest praise for their plans
to combat hefty unemployment, but economists say hopes of
slashing the jobless rate will require far harsher measures.

All Germany’s parties are promising more “Arbeit” (work),
aware of voter anger at unemployment levels which hit a
post-war peak of 5.2 million in February and stand at 11.4
percent of the workforce.

However, economists say no party’s remedies go far enough
to solve the problems of a nation that has gone from postwar
“economic miracle” to the sick man of Europe.

The rate, adjusted for international comparisons, is almost
double that of the United States. In western Europe, it is only
worse in France and Spain.

Germany’s economy is forecast to grow by a meager one
percent this year, the slowest rate in the 25-nation European
Union. In a vicious circle, growth appears too slow to create
new jobs, while high unemployment is choking spending and
preventing a stronger economic expansion.

Angela Merkel, leader of the conservative opposition, has
vowed to accelerate the reform drive of Chancellor Gerhard
Schroeder, drawing comparisons with former British prime
minister Margaret Thatcher.

But her plans are far less radical that those of the “Iron
Lady.”

Thomas Straubhaar, head of the HWWA economic think tank,
calls the remedies that leading parties have put on the table
“fainthearted and powerless.”

“The government and the conservative opposition remain,
with their prescriptions, far behind what is required to cure
the German illness of mass unemployment,” he wrote this month,
adding that Merkel’s plans are vague on many economic issues.

Karl-Heinz Nassmacher, a political scientist at Oldenburg
University, believes Germans are not ready for the severe
reforms economists argue are necessary.

“Most are unaffected by problems. It’s nothing like the
situation of Britain’s winter of discontent in 1979,” he said.

Even one conservative member of parliament described the
party manifesto pledges as “peanuts,” yet few politicians want
to call for more and risk being labeled heartless.

FIVE PERCENT GOAL

Merkel’s conservatives, 12-13 points ahead of Chancellor
Gerhard Schroeder’s Social Democrats in opinion polls, do win
some praise from economists for pushing in the right direction.

Merkel’s plans to cut non-wage labor costs, to make it
easier for firms to opt out of collective wage deals and to
loosen rules on firing are designed to encourage firms to hire.

Economists say that the first item, a two percentage point
reduction of unemployment insurance, could create 200,000 jobs.

And the rise in sales tax to fund the plan may not be as
poisonous for the economy as retail groups say.

Peter Mueller, the conservatives’ economy and labor expert,
said this week his party’s measures could set Germany on course
to bring the unemployment rate below five percent in the
long-term.

Still, the benefits could be some time coming, while the
pain could be felt at once, particularly if the conservatives
follow through on their pledge to rein in existing schemes
Schroeder introduced such as “one-euro jobs” on offer to
unemployed people.

There is no sign German firms will stop relocating plants
to lower wage countries under a conservative government and the
depressed east, where unemployment is 18.3 percent, is still
desperately short of viable businesses.

Tellingly, no party has made specific commitments, maybe
mindful of Schroeder’s comment, made before he took office in
1998, that he would not merit re-election if he did not cut
unemployment significantly.

Schroeder held onto office in 2002 despite failing to make
inroads into joblessness. Now, with unemployment some 800,000
higher, Germans seem set to vote him out.