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German Government Faces Trouble Over Economy

  • Roland Eggleston

Munich, April 25 (RFE/RL) - The German government is to announce tomorrow a preliminary packet of measures to rescue the faltering economy. Chancellor Helmut Kohl will present the proposals to parliament.Labor unions have threatened nation-wide strikes.

Union hostility is directed at plans to modify the welfare system, including cuts in sick pay for workers. Employers generally back the government plans. Most employers organizations have said the government should introduce much tougher measures if it is to stimulate investment and create new employment.

In Germany, industrial relations are generally governed by a consensus between the government, the trade unions and the employers. Kohl's attempts to do so in this case collapsed at the beginning of the week after hours of secret talks.

Afterwards the head of the German trade union federation (DGB), Dieter Schulte, accused the government of falling under the influence of big business and turning its back on the welfare state. In an unusually strong statement, he charged that chancellor Kohl "showed no awareness of social injustice."

The government proposals reflect fears that the country is sinking into economic malaise. German companies are finding it harder to develop export markets because their goods are said to be too expensive. Thousands of companies have gone bankrupt over the last year. A report issued earlier this week said company failures in January were 13 per cent higher than in the same month last year. One result has been the staggering increase in unemployment which has now reached more than 4.2 million - the highest in Germany since the war.

There is no danger of Germany collapsing into bankruptcy. Economists emphasize that Germany still has the strongest economy in Europe and likely to continue doing so. But most agree with the government that tough measures are needed to prevent slippage.

The immediate focus of the government's measures is to reduce the budget deficit with spending cuts worth 33 thousand million dollars.. But at the heart of the debate are doubts about whether the country can still afford the traditional welfare system. The system is based on a model founded more than 100 years ago and many economists doubts whether it can be maintained in the present world.

The public welfare system is funded by payroll contributions from both employer and employee. It worked well for decades but in recent years it has been strained by several factors. One is the cost of including millions of people from the former east Germany, who never contributed to it. Another is the high unemployment. Not only do those without jobs draw income from the unemployment funds but they are also not contributing anything.

The welfare system has also been damaged by the rapid growth in health spending, prompted partly by an aging population. The aging population also means there are fewer young workers paying into the system - a problem which could become serious in the next few years.

Most Germans, including the political opposition, recognize the problem. The difficulty is that no sector of the population wants to be the one which bears the cost.

Most of the government's package remains secret while the final details are discussed today. But a senior official, Friedrich Bohl told reporters that Kohl intended to press on with two proposals that have angered the unions - cuts in sick pay and laws which make it easier for small companies to dismiss workers. Bohl declined to discuss details.

The government wants to change the system which allows sick employees not only to receive full pay but also to continue receiving their most recent overtime pay. One suggestion is that sick pay should be cut to 80 per cent of wages for the first 14 days an employee is away from work.

The government would also like to modify Germany's traditional system of "rest cures". This enables a worker with the appropriate doctor's certificate to spend four weeks every three years in a rest center, often in a country location. This "rest" comes on top of generous holiday provisions of up to six weeks leave a year. The government argues that modifying the system would save millions but the trade unions have threatened action if there is any interference with the sick care system.

The unions are also angry at proposals for giving an employer more power to dismiss workers. Current laws make it extremely difficult to fire a worker in most situations. A trade union statement said any changes "would mean Germany's entry into the U.S. system of hire and fire."

Leaks from Bonn suggest the government wants changes in the pension system including a rise in the pensionable age for women. The government is also said to be planning to defer an increase in allowances for children and to raise the minimum age for early retirement.

Reports that the government may freeze wages for the civil service and other public employees provoked an angry protest earlier this week by the public service union.

Some critics charge that the government is only tinkering with the system. They argue that the entire system of job and wage protection and its social benefits need to be overhauled. But even they acknowledge there is little public support for such a drastic change and any government which tried to do so would risk political defeat. A government official said today that "the existing system has the overwhelming support of the German people. Even those who recognize that changes are needed say the basic welfare system must remain."

Kohl's government has a majority in the lower house of parliament (Bundestag) which should ensure passage of its measures. But political analysts say the collapse of the negotiations with the trade unions may make it difficult to implement them. The opposition Social Democratic Party (SPD) has already threatened to block many of the proposals in the upper house, the Bundesrat, which they dominate.