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Europe: Germany--A Much-Weakened Powerhouse

Munich, 25 March 1998 (RFE/RL) -- Germany, the economic powerhouse of Europe, is approaching the end of the century with an economic and social crisis to which none of the major political parties appear to know the answer.

For decades, Germany has been regarded as an economic model. It was the country which gave its workers the strongest social safety net, the longest vacations, the earliest retirement, the shortest working week and good pensions.

Today, more than 4.8 million Germans -- or 11.5 percent of the workforce -- are unemployed and living on the dole. Social benefits taken for granted for nearly 50 years, such as health care, care for the aged and retirement pensions, are being sharply reduced.

The situation is worsened by the fact that Germany has taken on the massive task of incorporating and rebuilding the former communist East German state. As unemployment, and thus social expenditure, is proportionally greater in this area than in western Germany, the picture presented by united Germany is bleaker than otherwise would have been the case.

But that can't change the fact that Germany's lifestyle is under siege. Germans call it the "crisis without a name" because it covers so many problems. It is a situation in which the people and the political establishment are shaken by the growing awareness that the rules which made Germany rich and secure no longer seem to apply.

Professor Hans-Ulrich Wehler of Bielefeld University said recently: "The certainty of a job, the pride in institutions which worked and a social contract which once gave Germans a real sense of identity all of a sudden look shaky, as if they had no future."

In a public appeal to the nation to pull itself together, President Roman Herzog said last year: "What do I see in Germany? A vast sense of discouragement is the dominant element. A crippled feeling hangs over our society."

The basic problem is the structure of Germany's social market economy, with its steep labor costs which have driven many companies to move production to other countries. The cost of hiring has become too high. For example, to ensure that an employee gets a net pay of $2,000 a month, employers must pay more than twice that amount in gross salary to cover mandatory withholdings for such things as health care, social security, state pensions and taxes.

Confronted by fierce competition, many companies say they can no longer afford the costs of doing business in Germany. Household names such as Siemens and Daimler-Benz have fired thousands of workers in Germany and moved production to countries where taxes and labor costs are much lower. As an example, Hoechst, Germany's leading chemical company, has cut the number of workers at home to 45,000 from 80,000 and has moved much of its production abroad.

The irony is that the strategy works to a great extent. German products have a good name and continue to sell well abroad when the price is right. No matter where the goods are produced, they all count as "exports" in government statistics. So the official figures show that German exports are booming. But that does not help the job situation at home.

The head of the Federation of German Industry, Hans-Olaf Henkel, said recently: "We have the paradoxical situation of solid economic growth which does not reduce unemployment." Henkel said this situation could not continue indefinitely: "We are exporting too many jobs."

But the trade unions are reluctant to accept that changes, such as the moderation of wage demands, are unavoidable if new jobs are to be created. In wage negotiations, some unions still push for increases of up to 7 percent. And changes intended to provide more jobs are often seen as an opportunity for new wage demands. When the Government agreed to allow shops to remain open for a few more hours on weekdays and Saturdays, the union response was to demand a 20 percent wage surcharge for the new hours. The German Retailers Federation says that only about 15-20 percent of shops have taken full advantage of the new opening hours. Few new workers were hired.

Others complain that the government has done little to modernize regulations which stifle initiative and discourage entrepreneurs who could bring new life into the country's business. Jorg Menno Harms, who is chairman of Germany's association of technology companies, says the computer industry is but one example.

"The computer industry developed in the U.S., Britain and other countries because of young people who had ideas and just went ahead and did their own thing," Harms told an interviewer. "Here, parliament approved a law last month which requires information technicians to qualify before they set up a company or take over a business. They are expected to complete three years of formal training plus three years of on-the-job experience."

With federal elections looming in September, the government of Chancellor Helmut Kohl, which has been in power for 15 years, is trying to find new jobs. Pro-government industrialists have given assurances that half-a-million new jobs can be created by the end of this year. Economics Minister Guenter Rexrodt says unemployment can be cut by 200,000 by the end of the year. But critics are skeptical.

Kohl's challenger in the election, the Social Democrat Gerhard Schroeder, promises changes to put Germany back on the road to the future. But he has offered few practical suggestions so far. In fact, the left wing of Schroeder's party insists that if it wins the elections it must reverse the changes the Kohl government has made to cut the system of social benefits.

Many believe President Roman Herzog was right when he said in his much-noted speech last year: "Our problem is a mental one. It is not as if we do not know that we have to urgently modernize our economy and society. We don't have a problem recognizing the situation but a problem doing something about it. There are no mitigating circumstances for the blocked modernization process in Germany. It is homemade and we can blame it on ourselves."