Germans contemplate cuts to social welfare system


Unemployed mom Fee Linker lives on welfare benefits in a centrally located five-room flat that costs about $1,500 a month. The garden terrace looks out onto a lush wooded area where birds chirp in the trees.

“I wouldn’t get along without this government money, not with this apartment,” says Linker, who sends her 6-year-old daughter and two sons, 7 and 10, to a private school. “It’s my opinion that as a mother of three, I deserve a comfortable life.”

These days, fewer politicians and economist agree, and if proposed laws are enacted, Linker’s benefits could be gone with the stroke of a bureaucrat’s pen.

The German government is contemplating spending cuts and tax increases totaling $100 billion by 2014. The Cabinet approved the measures July 7, though many details have not been disclosed. But proposals so far include slashing $40 billion in welfare benefits, in part by allowing caseworkers to decide how much, if anything, people like Linker get instead of doling out automatic payments.


“Germany has never [before] agreed to an austerity package to this extent, but these cuts have to be made in order for the country to establish a stable economic future,” a grim-faced Chancellor Angela Merkel told the nation in early June. “We cannot afford everything we wish for if we want to create a future.”

After providing poor citizens with generous stipends for decades, Germany’s welfare system is coming under scrutiny like never before. Europe’s economic powerhouse says that it’s no longer able to foot the bill. Economists worry that maintaining current benefit levels for Germany’s increasingly elderly population is placing an unfair burden on the young, who must eventually shoulder the cost.

There are also great regional variations that critics say unfairly result in some areas subsidizing others. In Berlin, up to 15% of families and 30% of children receive some form of public assistance, whereas only one of 20 people are on social welfare in richer states such as Bavaria.

Among the proposed measures are cutting up to 15,000 workers from the public payroll, tightening rules for benefits to the able-bodied or the long-term unemployed and privatizing some pension plans. They also include plans to cut assistance to single parents, subsidies for heating bills and maternity leave benefits. There’s also a plan to make employers pick up a larger share of healthcare costs.

Under the austerity measures, between 2012 and 2035, the initial retirement age will rise a month every year. Another proposal calls for cutting 40,000 troops from the 250,000-strong German armed forces, the Bundeswehr.

“I think the package as a whole is a balanced package,” said Helmut Rainer, a professor of economics at the University of Munich and head of the department for social policy and labor markets at the Ifo Institute for Economic Research. “It simply responds to the previous crisis, in which public spending has been increased. It’s exactly the right thing at the right time.”


But critics of the austerity measures say they will not only impose an unfair burden on the poor, but they also won’t work, especially when paired with tax cuts for the wealthy. Since 2005, the maximum tax rate has been cut from 52% to 42%.

“In the last five years we have … cut taxes and it didn’t bring any benefits for the economy,” said Ulrich Schneider, executive director of the Berlin branch of Paritaet, an umbrella organization of nonprofit organizations helping the poor.

He predicted that the deeply unpopular proposals, which have pulled the government’s approval ratings to record lows, would never see the light of day. “The planned cutbacks don’t have any acceptance among Germans,” he said. The proposals must still be approved by parliament.

Advocates of the cuts say Germans are getting carried away, not realizing how good they have it. Indeed, by American standards, the poor do well in Germany. Trimmed hedges line the subsidized housing blocks on the poorer east side of Stuttgart, for example, where Isabella Hatadym, 43, lives alone with her 13-year-old son.

Hatadym and her ex-boyfriend had opened a bar in 2007 that went bust in 2009, after no-smoking rules were enacted. She found herself unemployed and broke.

“That bar was my dream,” Hatadym said. “The rent was high, and business went down.”

In December, Hatadym was diagnosed with uterine cancer and underwent surgery. Because of her situation, the government pays 75% of her rent and about $700 a month for other expenses. She also works for about $6 an hour cleaning up at a local gambling casino and can afford some extras, including the new flat-screen television in her living room.


“When people are not happy in Germany, they’re unhappy at a very high level,” said Hans-Peter Burghof, chairman of the banking and financial services department at the University of Hohenheim in Stuttgart. “They have everything — a television, a car.”

The debate between advocates and opponents of austerity measures sometimes resembles the sparring in the U.S. between liberals and conservatives. Schneider says the government can’t reduce the deficit simply by raising taxes on the rich. Yet business-friendly tax cuts implemented in 2003 have cost the state $25 billion a year, he says.

But in some fundamental ways, the debate in Germany is very different from that playing out in America. Powerful politicians still talk about social justice and responsibility, notions often dismissed as quaint in the U.S. In addition to helping the poor, there remains a relatively unquestioned commitment to continue aid to the economically depressed states of the former East Germany, 20 years after reunification.

Even Burghof, a devout advocate of market reforms and the austerity measures, says a tax increase might be in order “to also give the impression that even the rich will pay.”

Germans practically invented the concept of social welfare in the 19th century to help raise the living standards of workers toiling in factories and stave off the encroaching threat of socialism, an idea developed largely by German social theorists.

“I see it as a privilege that we as citizens are not simply left alone by the state,” said Linker, the welfare mother with the garden apartment shaded by woods.