Boosting Confidence in Germany
October 30, 2003
A graying population, low birth rate and record unemployment are weighing down on Germany's economy. Health, pensions and welfare systems are all teetering on the brink of collapse. Making things worse, Germany has the unfortunate status of being the slowest growing economy in the entire euro zone.
With his "Agenda 2010" plan of lower taxes, structural reforms and social system cuts, German Chancellor Gerhard Schröder wants to breath life into the economy. The Bundestag, the lower house of parliament, approved some of the measures in mid-October, but they still must be passed by the upper chamber, the opposition-controlled Bundesrat, before they become law. Even then there's no guarantee they will give the German economy the kick start it needs.
Deutsche Welle spoke to Economy and Labor Minister Wolfgang Clement about the challenges facing Germany.
You have said that everyone in Germany underestimated the situation the country was in, and now serious changes are urgently needed. What must be done?
We all failed for years to rationally analyze the need for renewal, and we didn't draw the consequences. We have experienced continually declining growth in recent years and now, during a difficult phase worldwide, we have had three years of stagnation…
What must be done? Besides the things that naturally play a much more important role -- that world trade develops as forecast, that the economy gets stronger in the United States, in Central and Eastern Europe, in China and in the southeastern Asian states -- we need a monetary policy here in Europe that accompanies that prudently.
But we have to continue to implement our reform measures ourselves, and for that to happen the government and the opposition in Germany need to cooperate. We must lower taxes and non-wage labor costs, restructure the labor market, the healthcare system, the pensions system. A comprehensive reorganization or modernization is necessary, and the necessary laws are already on the table.
The bills will only become law if the opposition approves them in the Bundesrat. Will it allow the government to begin implementing the reform legislation starting from January 1, as planned? Isn't time running out?
No, I don't think so… I assume everyone knows that it is of the utmost importance for building confidence that the most important laws are in force on January 1 -- that is, the tax reforms, the tax reductions, …the municipal finance reforms, since we also need municipal investments, especially for small- and medium-sized businesses. The healthcare system reforms will surely be in force by then. The pension system reform -- the acute measures above all -- must be in force and the labor market legislation as well. We still have the trades legislation and similar things relating to it to free up forces in Germany.
We need investment and we need citizens who go shopping again. We need things to reassure us, and we need a bit more confidence. Then we will get the economy going und slowly but surely see a positive development in the labor market.
People will have to pay more for healthcare, pensions will be frozen and unemployment benefits will be cut. All the same, you still expect the national economy to improve?
Yes, I do. Not everyone will be effected by the measures equally, but all taxpayers will be effected by lower taxes. We're taking the lowest tax bracket down 15 points and raising the exemption limit. A family with two children and a yearly income of up to €35,000 ($40,900) won't have to pay taxes anymore. We're talking about substantial tax relief that includes the top tax bracket -- which will be at 42 percent. It applies to everyone who pays taxes, while pensions or healthcare don't effect citizens across the board.
We know there are victims, that we are asking for sacrifices... There's just no avoiding it. Everyone knows that in reality the economic situation is not only to blame, but the demographic situation as well. We can't finance the pensions system or the healthcare system like we did 30 or 40 years ago anymore… We age 10, 15, up to 20 years more than 30 or 40 years ago, and we must adapt the social welfare systems accordingly. We must have different financial routes.
The interview was conducted by Monika Lohmüller.