Reforms Erode German Welfare State

Chancellor Gerhard Schroeder claimed a symbolic victory Friday when German lawmakers approved tax cuts worth about $21 billion and agreed to begin overhauling an entrenched welfare state that many say has weakened the world’s third-largest economy.

The votes by the lower house of Parliament were a boost to Schroeder’s politically dangerous plan to scale back Europe’s most generous welfare system. Facing the pressures of globalization and a troubled economy, Schroeder is attempting to convince Germans they must live without some costly social benefits, considered birthrights since the 19th century.

If successful -- many predict messy political battles in the weeks ahead -- Schroeder will redefine the vision of social democracy in one of the continent’s most powerful countries. The chancellor has threatened to resign if at least some of his ambitious measures, known as Agenda 2010, aren’t passed into law by early next year.

Schroeder’s victory was expected in a chamber dominated by his Social Democrats and their coalition partners, the Greens. The crucial debate over the reforms will begin when the conservative Christian Democrats, who control the upper house, seek additional welfare cuts to reduce the nation’s $47-billion debt and revitalize an economy whose annual growth has registered a paltry 1%.

“This shows the coalition stands united when it is about to modernize Germany,” said Schroeder, who canceled a trip to a European Union summit meeting in Brussels to be in Berlin for the vote. “It is now up to the majority of Christian Democrats not to block this necessary process of modernizing. I am confident.”

In a hint of things to come, Angela Merkel, leader of the Christian Democrats, said of the reform plan: “We are not happy.”

The most controversial bills passed Friday entailed reducing unemployment benefits and forcing jobless Germans into work they may not choose but the government deems “reasonable.” Those who refuse to accept jobs after 12 to 18 months on unemployment compensation could have their incomes cut by more than 50%.

“We have to get away from our complicated rules,” said Economics and Labor Minister Wolfgang Clement, predicting that the measures could reduce the country’s 10.1% jobless rate by one-fifth. “We must expect that the unemployed, when they receive an offer of work, take advantage of it.”

Schroeder’s other victory Friday was approval for the $21-billion tax cut to stimulate an economy that often teeters close to recession. The proposal would reduce the lowest income-tax rate from 19.9% to 15%. The highest rate would fall from 48.5% to 42%.

The tax cuts and the welfare reform measures are testing the Social Democrats’ ideological boundaries. This week, Schroeder was forced to soften the labor package after six party rebels threatened to vote against him Friday -- a move that could have brought down the government if the chancellor made good on his promise to resign. Such splits within the party are certain to intensify as cuts are proposed for health care, pensions and other programs.

Polls indicate that Germans are ready to accept a diminished welfare state if it means a stronger economy. But Schroeder discovered this week that widespread discontent with his vision persists when the country’s largest trade union -- worried that its unemployed members may be pushed into low-paying jobs -- booed him during a speech. It is rare for a Social Democratic chancellor to be jeered by organized labor.

“Who would have thought that the pillars of the welfare state would be put into jeopardy by a Social Democrat government?” asked Juergen Peters, leader of the IG Metall union.

The Christian Democrats are enjoying the tumult within Schroeder’s party as they threaten to exact harsher budget cuts. Roland Koch, a leading Christian Democrat, chastised the chancellor’s labor reforms as too limited and having an aura of “last century’s thinking.”

Such attacks are pressuring Schroeder, who like chancellors before him, has lacked the political will to push the country in a new direction. It is a tricky game, according to analysts, who suggest that neither party can be seen as derailing reform efforts at a time when Germans want their nation to have a larger role in world affairs.

“The one who allows this huge reform package to fail, as confusing as it may look at the moment, will lose the approval of the voters,” said Nico Fried of the Sueddeutsche Zeitung newspaper. Noted political scientist Juergen Falter, “The real exciting days are still ahead of us.”