German Welfare State Trimmed, Not Slashed

BERLIN — German Chancellor Gerhard Schroeder’s proposals for tax cuts and long-contemplated welfare reforms -- known as Agenda 2010 -- were scaled back Friday by political parties unwilling to enact more sweeping legislation in an attempt to enliven Europe’s largest economy.

What Parliament approved the day before Christmas recess could be termed Agenda 2010 Lite. The $19 billion in income-tax cuts Schroeder proposed for 2004 were reduced to about $10 billion. Social and labor reforms, including peeling back worker-protection laws, were softened to avoid inciting Germans already anxious about their generous welfare state being meddled with.

The tax cuts and reform package, according to many economists and corporations, will not significantly improve an economy with a 10% unemployment rate and a government deficit of $54 billion. But they do represent more than a symbolic recognition by Schroeder’s Social Democrats and the opposition conservative Christian Democrats that ambitious reform is needed.

“Today cannot hide the fact that real reforms still lie ahead,” said Angela Merkel, the Christian Democrats’ leader. “Germany is in the hardest crisis since World War I ... with national debts and unemployment at record heights. Germany is at a crossroads.”

Said Schroeder: “The talk about the ‘German disease’ is going to be over. The reform Agenda 2010 is a signal showing that Germany is moving ahead and taking up challenges.”

Several of the laws Parliament passed Friday hinted at the government’s direction in restructuring a society that is extremely dependent on the state. Lawmakers voted to cut subsidies to commuters and homeowners to pay for the tax cut, for example. It also passed controversial bills to trim unemployment benefits and require welfare recipients to accept jobs offered by the government or face the prospect of losing their benefits.

“This is a good start,” said Guido Westerwelle, leader of the Free Democrats, “but it’s not much more than that.”

The chancellor has been touting his Agenda 2010 for months -- even threatening to resign if the plan wasn’t passed by Christmas -- as a bold vision to keep Germany economically competitive. His speeches have been rife with rhetorical flourish and calls for political courage.

But Friday’s parliamentary votes revealed the reality of Schroeder’s position: Leftists in his party bristle at welfare reform and the conservative opposition chides him for not going far enough.

The German public, which recent polls show is willing to accept welfare state reform if it means strengthening the economy, doesn’t know whom to trust. In a recent survey by Infratest Dimap, 41% of respondents were uncertain about which party to trust with “tackling the issues of the future.” Thirty-eight percent favored the Christian Democrats; 15% picked Schroeder’s party.

“The majority of Germans want changes,” said Karl-Rudolf Korte, a political scientist at the University of Duisburg-Essen. “After months of discussions, all the political parties have begun a competition of ideas and have delivered on many of these ideas. It won’t be enough for most of us, but it shows the right direction.”

Parliament’s passage of the whittled-down agenda was the result of hours of meetings between the two main parties, ending at 3:30 a.m. Monday, when Schroeder and Merkel announced a compromise. Schroeder said at the time, “This result is not all we could have wished for, but it is really an absolutely respectable result.”

The broadest disagreement was over the $19-billion income tax cut, proposed to stimulate an economy that has grown less than 1% this year. The Christian Democrats -- forcing Schroeder to accept spreading the cut over two years -- feared it would be financed through expanding the public debt. For the last two years, Germany has violated the European Union’s requirement of keeping budget deficits below 3% of gross domestic product.

The debate over Agenda 2010 even reached the Society for German Language. “Agenda 2010” ranked second on the society’s Phrase of the Year list. The winner was U.S. Defense Secretary Donald H. Rumsfeld’s term “the old Europe.”