Sun, Nov 02, 2003 page11

• The German social paradise faces a battery of crises

  'AMUSEMENT PARK' With rising unemployment, nearly defunct health and pension systems and budgetary cutbacks, can the country maintain a rising standard of living?

  • DPA
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  From the outside, Germany looks like a worker's paradise with the longest holidays, some of highest pay scales in the world and a comprehensive welfare system.

  Former German Chancellor Helmut Kohl once famously called Germany an "amusement park" because of the long vacations and the big chunk of public holidays enjoyed by the country's employees.

  But change is afoot and Germany's once steadily rising standard of living can no longer be taken for granted.

  Germany now faces record unemployment, a crisis in the health and pension systems, continuous government spending cutbacks, a hard-pressed education system, and a growth rate that has pushed Germany to the bottom of the European economic league table.

  Cushioned by years of post-war prosperity, German workers normally put in a 35-hour week, have 30-plus days holiday, 16 days off for public holidays and retire at 60 even though the official retirement age is 65.

  Now German workers are facing calls from across the political spectrum for cutting public holidays, raising the retirement age to 67 and introducing the 45-hour working week as a way of boosting economic growth and ending three years of economic stagnation.

  With Germany expected to overshoot the strict fiscal targets for euro member states again this year, criticism has even focused on the country's sports stars.

  Formula One racing star Michael Schumacher and former tennis champion Boris Becker -- have been criticized over their status as so-called tax-exiles.

  Finance Minister Hans Eichel said he would have expected "a minimum of patriotism from these people" considering the current financial problems facing Germany while Green Party chief Reinhard Buetikofer this week said that Germany should follow the US model and insist they have to pay taxes in their home country.

  As Schroeder's Social Demo-crat-led government battles to overhaul a welfare system that was pieced together more than a century ago, a raft of elections and opinion have underscored the current political disorientation in the nation.

  Economists believe that the nervousness created by the reform debate has resulted in growing unease among German consumers with surveys showing stagnating consumer sentiment official data showing retail sales unexpectedly falling in real terms year-on-year in September.

  While polls show that more Germans blame Kohl for the country's current problems than Schroeder, uncertainty unleashed by the changes has driven down support for the Social Democrats.

  More people abstained than voted in weekend regional elections in the state of Brandenburg, which surrounds the capital Berlin, raising concerns among some political analysts that the electorate has become disillusioned and exhausted by the stream of changes to the country's welfare state and continuing weak economic growth.

  "In historic terms the changes represent a quantum leap for Germany," said said Adolf Rosenstock, European economist with the Japanese investment house, Nomura, in Frankfurt.

  "This is the first time in 30 years that the social welfare state is being substantially cut back," Rosenstock said. "Previously, there has been cuts but mainly there has been an expansion in the social state."

  Days after parliament's lower house signed off on Schroeder's landmark reform package, the German Chancellor announced a big shakeout in the nation's deficit-hit pension system, including shifting more of the burden onto the retired through a freeze on pensions.

  The Social Democrats and their Green Party coalition partners were forced to take urgent action to deal with the pension system after it was revealed that it was facing an 8-billion-euro (US$9.3 billion) deficit next year.

  The choice was essentially either trimming pensions or increasing wage-linked contributions to the pension, which could have placed at risk the government's pledge not to increase non-wage costs.

  Economists see keeping the lid on Germany's high non-wage costs as crucial in the struggle to tackle the nation's high unemployment, which currently stands at 10.1 percent.
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