Schröder Will Focus on Unemployment, Aid to Cities

Chancellor Gerhard Schröder still had three days of time on Tuesday to read, refine and rehearse the direction-setting speech he intends to deliver to the country's parliament. But Horst Siebert, one of Germany's leading economists, has already made up his mind about what Schröder should say.

"The key problems of weak growth, rigidly high levels of unemployment and the financing of the social-services system are tangled into a knot and must be addressed with one complete concept," Siebert said in an interview with the news agency dpa.

The speech Siebert is referring to will be delivered on Friday in Berlin. It will be called "The Courage to Seek Peace, the Courage to Seek Change." The Social Democratic chancellor decided to make it after his efforts to find a consensus solution on such things as unemployment between the country's business community and unions collapsed during a final round of discord on March 3. Now, Schröder (photo) is changing his tactics, shifting from being the broker of competing interests to the generator of fundamental reforms. "I will not negotiate," he said recently.

Details of plans leak out

Since the chancellor announced his intentions last week, details of his address have begun to trickle out from various sources -- a comment from Social Democrats here, a newspaper story there. Based on these reports, the chancellor is working on just the subjects that Siebert has suggested he should.

Between Monday evening and Tuesday, the chancellor met with his own party members and with his coalition partner, the Greens, to talk over the speech. Afterward, sources said Schröder had three spending plans in mind -- a national apartment renovation plan, financed by low-interest loans totaling €7.5 billion ($8.3 billion), that would help the country's struggling construction industry, a similar €7.5 billion program that would finance capital investment projects in Germany's money-short cities and a separate aid program totaling €2 billion to help those same communities.

These comments were accompanied by the publication on Tuesday of a report in the newspaper Die Welt about other plans. It reported that Schröder would propose to cut the maximum period that a person may draw unemployment benefits from 32 months to 18 or 12 months. Franz Müntefering (photo), the head of the Social Democrats parliamentary group in Berlin, confirmed in a radio interview on Tuesday morning that Schröder was indeed considering such a cut. Müntefering also explained the rationale behind the proposal. He said many companies had turned the 32-month payments into a bridge leading to early retirement for many employees. Such a practice creates an extra burden on workers still paying into the system, Die Welt reported.

Müntefering said the governing coalition of Social Democrats and Greens also had a clear timetable for its reforms. "By summer, the coalition will make its decisions on economic growth, the job market and workers' rights," he said.

Not everyone in the Social Democrats' parliamentary group is happy about Schröder's plans. "The Social Democrats' left wing will not join the effort if the social state is to be turned into a social state lite," said Michael Müller, a vice chairman of the party's parliamentary group.

The Social Democrat who chairs the parliamentary Economic Affairs Committee acknowledged on Wednesday that some members were upset. But Rainer Wend told the news agency Reuters that Schröder would win the support of his party's lawmakers. Pointing to their governmental responsibilities, Wend said, "The parliamentary group cannot avoid the program."

Reasons for reforms

The government is being forced to act for a number of economic reasons.

Last year, the German economy grew by 0.2 percent, the lowest rate since the country suffered through a recession in 1993. And the institute that Siebert directs, the Kiel Institute for World Economics, gave Schröder little reason on Tuesday to think that the economy would pick up any time soon. In the face of the crisis over Iraq, higher oil prices and a stronger euro, the institute reduced its economic growth forecast for 2003 from 1 percent to 0.4 percent.

Furthermore, the jobless rate rose from 11.1 percent in January to 11.3 percent in February -- 4.706 million people were out of work. With the increase, the jobless totals are continuing to head back toward the country's worst levels, which were set in January and February 1998, when more than 4.8 million were out of work.

In addition, the total deficit of German cities hit €6.65 billion last year and may rise to a record €9.9 billion this year.

"The country is in a crisis," Siebert said. "And it is not just experiencing a cyclical economic downturn but is overburdened with massive long-term structural problems. We are experiencing our third year of stagnation in a row."

Members of the parliamentary opposition, like the Christian Democrat Volker Kauder, are not so excited about Friday's speech and are playing down their expectations. "Curry sausage can't be turned into filet mignon overnight," Kauder said.