Under these conditions, German chancellor Gerhard Schröder has proposed a "labor reform plan," including cuts in social benefits and curtailment of labor rights. Schröder heads a coalition government of his Social Democratic Party and the Greens. Representatives of the country’s numerically strong unions immediately rejected the proposals.

Germany is the "sick man of the world, the sick man of Europe," lamented one business executive in the February 17 Business Week. GDP growth of an average 1.3 percent a year over the past decade is "the lowest rate in Europe and not much better than Japan’s rate of 1 percent," the magazine stated.

These developments confirm the relative weakening of the German bourgeoisie both economically and politically in capitalist Europe, especially vis-à-vis its imperialist rival in France. This was one of the major shifts in world politics over the last decade, set off by reunification with the German Democratic Republic in 1990.

The comparison with Japan, whose banks are staggering toward collapse under the weight of billions of dollars in uncollectable loans, was not unusual. While Berlin’s stagnation is not worse than Tokyo’s, it has greater immediate weight, given Germany’s central position within Europe and trade with other countries on the continent.

Government statistics show that in 2001 more than 55 percent of German exports went to nations in the European Union, while imports from those countries amounted to 52 percent. By comparison, exports to the United States were 10 percent and imports 8 percent of the total.

The German economy is 40 percent larger than that of either France or the United Kingdom, the next two strongest imperialist powers in Europe.

The downward slide shows up more in specific sectors of the capitalist economy. Once home to the world’s biggest pharmaceutical manufacturers, Germany now has no such company in the global top 15. "In the 1980s, Frankfurt’s elegant banks stood as bastions of stability," noted Business Week. "Now, Frankfurt’s future as a major financial center is in doubt."

Capitalist politicians and commentators in the big-business press in the United States and Europe pin the blame for the German crisis on the country’s social security system and conditions of labor. Any gains for working people registered in Germany’s labor and other laws were won through struggles by the labor movement in the decades after World War II. Laid-off workers, for example, are supposed to receive 60 to 70 percent of their wages for two-and-a-half years after losing their jobs, and a shade above 50 percent after that. Schröder himself has derided such benefits as exemplifying Germany as a "nanny state."

Germany needs "root and branch" change, said an editorial in the March 17 Investor’s Business Daily, which is based in New York. "Companies need some relief, especially from Germany’s powerful unions," it continued. "Their biggest beef: By law, any deal between the employers and unions is imposed on all companies--whether they can afford it or not. It’s been an economic disaster."

In contrast to "the more dynamic" economies of Britain, Spain, and Central Europe, stated Business Week, "Germany--with France not far behind--will constitute Europe’s unchanging core, where taxes remain stiflingly high, growth is glacially slow, and labor rigidities kill chances to dent unemployment."  
 
Massive transfers to the East
The article claimed that the "core" of the "German disease" is the "job-protection law [which] makes any employer pay through the nose for laying off workers."

At the same time, Business Week acknowledged another factor for Berlin’s economic woes that receives scant attention in the media--the huge drain caused by the attempt to integrate the socialized economy of the East. "Since 1990," the article stated, "reunification has cost Germany an estimated $700 billion and still devours 4% of GDP a year."

The lion’s share of these funds has gone to unemployment benefits and other social programs, not capital investment. The German government has shut down much industry in the east. Official unemployment there topped 20 percent in 1998, more than double the national level of the day. Joblessness in eastern Germany is actually much higher if low-paying government make-work programs are not counted.

Referring to these transfers--made to avert a social explosion in the east as working people have continued to demand equalization of living and working conditions east to west--Germany’s finance minister Hans Eichel said, "From an economic point of view, there are naturally things we shouldn’t have done. You can’t take an economy that has been cut off from the world 40 years and make it competitive overnight.

"It will take until 2020 to conclude the process of reuniting Germany," Eichel added, trying to be optimistic.  
 
Schröder’s ‘labor reform plan’
Schröder presented his proposals in a televised address to parliament March 14. "Today the reform and the renewal of the social welfare state has become unavoidable," he said. The labor reform law was based on proposals drawn up by a commission led by Peter Hartz, an executive at Volkswagen, the giant auto company. In August Schröder hailed the commission’s blueprint--which, among other measures, aimed to expand the use of temporary workers--as the "greatest labor-market reform" since World War II.

In his March package, the chancellor said that his government would draft legislation to weaken the job protection law. In addition, he said, local government benefits to the "long-term unemployed" would be cut.

Schröder "surpassed expectations," said an article in the March 15 Financial Times, "by slashing the duration of benefits for the unemployed" from today’s maximum of 32 months to no more than 12–18 months.

The package also included the threats of cuts to government spending on social welfare, health care, and retirement pensions. In his previous term in office, Schröder had already carried out a round of pension cuts.

Union officials immediately rejected the proposals. Frank Bsirske, the head of the Verdi union, said that the coalition government’s policies were "shifting wealth from bottom to top." The union, Germany’s largest, represents more than 3 million public employees and other workers in the service industry--from transportation workers to kindergarten teachers--tens of thousands of whom struck for higher wages last year. The strike coincided with rolling actions by hundreds of thousands of construction workers.

"What was presented in social and labor market policy today was not socially well balanced," said Michael Sommer, the head of the German Federation of Unions.

For their part, a number of spokespeople for the capitalist class said the proposals did not go far enough. Hans-Olaf Henkel, the vice president of the German Federation of Industry, for example, compared it to a "drop of water on a hot stone."

The Investor’s Business Daily editors complained that Schröder had "watered down plans to ease firing rules under union pressure and steered clear of a frontal attack on the industry-wide system of setting wages."

Last year Schröder proposed a raft of tax increases, after the government admitted that its budget for 2003 would have to be revised downward by $13.6 billion. The chancellor blamed spending on unemployment and social security, along with lower than expected tax revenues. The changes, which included a 15 percent capital gains tax, were thrown out by the parliament.  
 
German and French budget deficits
For the second year in a row, the governments of both Germany and France are expected to record budget deficits that exceed the 3 percent limit established as a rule for membership in the European monetary union. It was Berlin and Paris that had browbeaten weaker states in the EU to cut social programs and make other changes to meet this limit before the onset of the euro.

A European Commission official announced March 20 that the current U.S.-led assault on Iraq might provide the two dominant continental powers with a way out. EU monetary affairs commissioner Pedro Solbes said that if Paris and Berlin help finance the occupation regime that would follow a successful war of conquest, they could invoke a commission rule that would allow them to exceed the limit on the grounds of "exceptional circumstances."

"Even Germany will probably help finance the rebuilding after the war, so they could invoke this clause," said economist Hans-Werner Sinn. While Berlin joined Paris in opposing the current Anglo-American assault on Iraq, it has reaffirmed that U.S. warplanes can use German skies. Furthermore, on the eve of war the government expelled four Iraqi diplomats.

Schröder rebuffed calls by the opposition parties to vote on his decision to keep German troops in Kuwait--specially trained in the detection of nuclear and chemical contamination--and to allow troops to join NATO reconnaissance flights over Turkey.  
 
‘Time is short’
The March 17 Financial Times sounded a note of alarm in expressing sympathy with the German ruling class’s financial plight, and support for Schröder’s proposed attacks on the social wage and worker’s rights.

"The German economy is in a dismal state," the paper observed. "Forecasts of economic growth this year are barely above zero, deflation is a real risk, and unemployment is at a five-year high."

The European limit on the deficit, said the Times, is "inappropriate for the eurozone’s largest economy.... Against this backdrop, the package of reform measures announced by Chancellor Gerhard Schröder represents a modest effort to loosen Germany’s economic rigidities....

"Even if he prevails the measures will take time to make any difference. The DAX 30 [stock market] index has fallen by 53 percent over the past 15 months, a decline exceeded only by the Argentine bourse. Time is short."  
 
 
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