Reducing the German welfare state

July 31, 2012

Free Market Foundation

German Chancellor Gerhard Schroder began the task of reducing Germany’s vast network of social programmes when the plan was approved by 90 percent of Social Democratic Party delegates in a meeting on 1 June 2003.

The plan, known as Agenda 2010, would reduce unemployment benefits and give employers added flexibility to hire and fire workers.

The economic reform package would cut the length of time an unemployed worker younger than 55 may receive unemployment benefits from a current maximum of 32 months to 12 months.

The unemployed would also have less flexibility in refusing to take unattractive jobs while small businesses would gain flexibility to dismiss workers.

In addition, employers would be exempted from contributing to certain health insurance programmes, placing a greater burden on employees.

The changes, analysts have pointed out, are aimed almost entirely at cutting costs both for the social security system and for employers, and contain little devised to stimulate growth, like increased government spending. But in a bid to restore investor confidence and stimulate business, Schroder’s priority has been to trim social spending while not adding to the deficit.

Not surprisingly, left-wingers in the party denounced the plan as pro-business and unfair to the poor.

Schroder had warned that “we need to change just to keep the wealth we have.”

He also cautioned: “Our exemplary health and pension provision will simply no longer remain affordable in our lifetime.”

The party’s resounding endorsement does not necessarily mean that the programme will become law, because some members of Schroder’s slim governing majority could vote against it when it is presented to the German parliament in the weeks ahead.

Source: Richard Bernstein, Germany’s Social Democratic Party Endorses Schroder Proposal to Reduce Worker Benefits, New York Times, June 2, 2003.

For text http://www.nytimes.com/2003/06/02/international/europe/02GERM.html
For more on International (Social Security) http://www.ncpa.org/iss/int/

FMF Policy Bulletin/10 June 2003