Germany is praised these days by Obama supporters as “ the most socialist in Europe” and TDB claims that “it’s doing just fine”. If so, it’s prospering (some of us think it’s still on the edge of the grave) under a form of socialism unrecognizable by the socialist – Democrat party of America.
Those of us capable of remembering even recent history remember what Germany looked like just a dozen years ago and dismiss the bumper sticker crowd’s delusions as just that. Gerhard Schröder certainly does.
The Berlin road to economic righteousness is no mere sermonizing. Germany itself has gone down it and grown stronger. Gerhard Schröder, a Social Democrat, was German chancellor from 1998 to 2005, and during his second term his government lowered taxes, revamped unemployment benefits and streamlined labor laws. Mr. Schröder’s shakedown of the welfare state—dubbed Agenda 2010 when it was launched in 2003—has been credited with insulating Germany against the debt mess that would later befall Southern Europe.
Circumstance forced economic reform onto Gerhard Schröder’s agenda as chancellor. When he took office in 1998, Germany’s unemployment rate was 11% and economic growth was close to nil.
Mr. Schröder won the federal election that year by vowing to end the economic misery. But the Europe-wide recession during his first term left him having to explain to voters, when he sought re-election in 2002, why the jobless rate was still nearly 10%. Germans gave Mr. Schröder a second chance, and his government immediately set about making good on its mandate.
The result was a radical reshaping of the German welfare state. To reduce labor costs, Agenda 2010 merged social-welfare benefits with benefits for the long-term unemployed, paring down the total amount and availability of assistance. Employers’ health-insurance costs were trimmed back. Planned income and corporate tax cuts were accelerated: The top personal income tax rate was lowered to 42% from 48.5% and the bottom rate went down to 15% from 19.9%. The corporate tax rate dropped to 19% from 25%.
In the labor market, Mr. Schröder made firing easier with the expectation that hiring would consequently become easier, too. Rules protecting employees against dismissals “for economic reasons” were loosened. Measures were introduced to help employers avoid lawsuits from laid-off workers seeking re-employment. To spur job-seeking among the unemployed, Agenda 2010 cut jobless benefits and strengthened financial sanctions against those who were able but unwilling to accept work.
“And now the results speak for themselves,” Mr. Schröder says. “For a long time we were the sick man of Europe. Now we are the healthy Frau of Europe.” With German unemployment at 6.8%, nearly the lowest level since reunification in 1990, it’s hard to disagree. German GDP growth has so far kept the euro zone from falling into another recession this year.
Mr. Schröder does note that Germany’s present economic vigor isn’t solely the result of Agenda 2010. Work-sharing programs are common in Germany. During the financial crisis, this has allowed employers, with the help of government subsidies, to keep workers on reduced hours instead of laying them off. Mr. Schröder also notes that Germany’s unique system of “co-determination,” under which union representatives occupy permanent spots on corporate boards, ensures that labor and management are able to negotiate terms with both sides’ long-term interests in mind. In Germany, workers’ confidence that they have a say helps keep wages competitive while reducing the incidence of strikes compared to other European countries.
Mrs. Merkel may have kept the spirit of the Schröder reforms alive in Germany, but in most of Europe there has been little evidence, in seven years, that the reform wisdom Germany displayed has rubbed off. French President François Hollande has spent his first months in office raising the minimum wage, lowering the pension age, and standing by his notorious pledge to tax high earners at 75%. Adopting Mr. Hollande’s policies would be “a real catastrophe” for Germany, Mr. Schröder says.