Germany faces a Thatcherite conversion David Gow doesn't think Germany should be put through the kind of radical economic restructuring that the UK underwent in the 1980s
Monday March 17, 2003 The Guardian Hans-Olaf Henkel, the former head of Germany's most powerful business lobby group, the BDI, has spent years trying to drum up support for a radical dose of Thatcherism in what remains Europe's biggest economy. But the resistance to stripping unions of their power, as well as deregulation, privatisation and liberalisation of markets, has been ferocious, not least among businesses themselves. Germany once resolved conflicts violently; now it seeks consensus in everything. The whole society and economy is built on consensus and company executives have seen great strengths in the system of co-determination, not least the ability to plan for the medium to long term and avoid upheaval in the form of strikes. But in recent years, this consensual system has degenerated into a form of stasis. Last Friday's speech by the chancellor, Gerhard Schröder, unveiling a set of long-delayed and overdue structural reforms, was designed to kickstart a new beginning for an economy that has become the sick man of Europe with the lowest growth record. Superficially, the Schröder package amounts to a pretty radical set of measures, particularly for a man of the social democratic left. He has already enraged the main union body, the DGB, with his proposals and faces an uphill struggle to convince his own party, many of whose Bundestag deputies are themselves trade unionists. Companies will, for instance, be allowed to opt out of centralised collective pay bargaining if they are not making enough profits. If employers and unions fail to make bargaining more flexible, the government will force them to through legislation. In fact, unions like IG Metall already turn a blind eye to breaches of national pay deals, especially if a company is in trouble and could be forced to lay off its entire staff. But this is a much more comprehensive approach. The re-elected Schröder government is also doing the unthinkable: making it easier to sack workers, particularly in small businesses with more than five employees. Staff are given the choice between legal action and redundancy money. Regulations obliging firms to sack younger workers before older employees will also amended. Full unemployment benefit - giving 67% of former pay to people with children and 60% to the childless - will be available for only 12 months, not 32, for those aged under 55 and for 18 months for those older than that. Unemployment aid, at 57% of the old wage, now cuts in after unemployment benefit has lapsed; henceforth it will be merged with means-tested social welfare benefits. Taken with a 15bn euro (£10.2bn) economic stimulus package and well-trailed reforms to the health and pension systems to reduce their spiralling costs, this could be interpreted as a Thatcherite conversion. Certainly, Berlin seems to have acknowledged the need for structural reforms rather than the traditional response of throwing money at a problem. But, as we have seen with the Hartz programme for combating unemployment, the government is good on promises, short on delivery. It is also far from certain whether it can get the necessary parliamentary - and party - support for the package. Already, the bill raising taxes to meet the deficit target set out in the EU stability and growth pact has been blocked in the Bundesrat or upper house controlled by the Christian Democratic Union opposition and its Bavarian allies in the Christian Social Union. This latest package could be blocked equally easily. Inevitably, the package has already been lambasted by the DGB as bitterly disappointing and a breach of Schröder's election pledges but the union body has become ultra-conservative in its thinking, refusing to accept any changes that could dent unemployment as it approaches an official 5 million. Analysts believe, naturally, that the reforms fall short of what is really required. Modern Germany, however, is not cut out for Thatcherism (nor was the UK really) and is not about to embark on an experiment in social and economic engineering that could undo all the genuine benefits of the post-war consensual system. Schröder, the ultimate pragmatist, knows he has to act to get the economy out of the doldrums but it will come as no surprise if, in a few months' time, the package has become smaller and far less radical. · David Gow is the Guardian's industrial editor
