On Oct 24, 2007, at 6:15 PM, Angelus Novus wrote:
> Doug wrote:
>
>> isn't Merkel reversing parts of Hartz IV? Or is the
> FT > lying to me?
>
> I don't read the FT, so you'll have to post what you
> are referring to.
The first is a news story, the second, an editorial.
Doug
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Germany eyes higher jobless benefits in policy shift By Bertrand Benoit in Berlin
Published: October 2 2007 03:00 | Last updated: October 2 2007 03:00
Germany's government said yesterday it could undo its predecessor's most controversial labour market re-forms as it took a big step towards raising jobless benefits.
The move underlines how far the political pendulum in Berlin has swung away from the structural reform policies of Gerhard Schröder, the predecessor of Angela Merkel. "If the [ruling coal-ition] parties can reach an agreement on a joint approach, then it will become part of the government's agenda," a spokesman for Ms Merkel said.
The statement came after senior officials in the Social Democratic party (SPD), junior partners in Ms Merkel's Christian Democrat-led grand coalition, yesterday agreed to dilute Mr Schröder's controversial Hartz IV labour market reforms which sought to boost incentives to work by capping benefits.
The SPD decision follows a move by the CDU, which adopted a similar motion at its latest party conference under pressure from the conservative party's left wing.
"I cannot talk for the entire parliamentary group but my personal view is that the SPD has now moved very close to our ideas," said Stefan Müller, deputy social-policy spokesman for the CDU's parliamentary group. "It looks like something could happen."
The news sparked concern among economists. Elga Bartsch, Germany expert at Morgan Stanley, said: "There is a leftward shift in policies that reflects public opinion. It is legitimate in a democracy but it is something one ought to be concerned about from an economic point of view."
The changes being considered by the SPD would extend the eligibility for the most generous form on unemployment benefit. Mr Schröder had cut these from 32 to 12 months. The SPD is considering extending the eligibility to 24 months for those over 50 and to 18 months for jobseekers older than 45, a party official said.
During this time, jobseekers are entitled to up to 67 per cent of their last salary, after which they become eligible for a flat-rate benefit of about €350 ($500, £244) a month.
The official declined to confirm reports that the SPD also wanted to relax the means-testing criteria governing eligibility for the flat- rate benefit, a measure backed by the CDU's left wing "as it creates an incentive for people to save money while they have a job," Mr Müller said.
The proposals are certain to cause alarm among reformists in both parties, though the vast majority of both parliamentary groups are likely to support them. Recent opinion polls show almost three- quarters of Germans favour higher jobless benefits.
Wolfgang Clement, economics minister under Mr Schröder and one of the architects of his Agenda 2010 structural reform programme, lashed out at the suggestions yesterday, accusing Kurt Beck, SPD chairman, of turning his back on the necessary restructuring of the German economy. "This is exactly the opposite of what we need at this juncture, which is to encourage people to work longer in law and in practice," Mr Clem-ent told Financial Times Deutschland.
The proposed changes could present the government with a credibility dilemma after Ms Merkel repeatedly praised Mr Schröder's reforms as having contributed to cutting unemployment.
Economists said undoing the Hartz IV reform could destroy incentives for jobseekers to accept lower-paid jobs. Mr Clement said it would also undermine efforts to raise the retirement age.
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Squandering good economic times
Published: October 4 2007 03:00 | Last updated: October 4 2007 03:00
It was nice while it lasted. The European Commission's hopes of five months ago that the eurozone could enjoy economic growth above long- term potential for three years to the end of 2008 have been jolted by the turmoil in credit markets.
In recent days, a clutch of business sentiment surveys have pointed to slower growth in eurozone economic activity. In particular, the purchasing managers' indices released by the Royal Bank of Scotland and produced by NTC Economics indicate a broad-based slowdown in eurozone manufacturing growth and a steep fall in demand for services.
While there is still good news around - for example, a drop of nearly 700,000 in German unemployment in the year to September - the latest forward looking indicators should be giving policymakers pause for thought.
They suggest that an opportunity for pushing through painful, but necessary economic reforms may be closing fast, and with that the chance of putting the eurozone economy on to a sounder footing.
The risk of slower growth poses a particular problem for France. The government last week unveiled the first budget of Nicolas Sarkozy's presidency. It envisages only a minimal reduction in next year's public deficit and continued high indebtedness of more than 64 per cent of gross domestic product until 2009.
This could be stacking up problems for the future. The budget assumes growth next year of 2 per cent to 2.5 per cent, which seems ambitious given that the European Commission recently revised down its estimate of French growth this year to 1.9 per cent.
Germany's problem is different. It is pursuing a no-risk strategy despite thriving exports, greatly improved public finances and expected growth this year of a respectable 2.4 per cent after nearly 3 per cent in 2006.
The European Commission estimates Germany's long-term noninflationary growth potential is just 1.25 per cent a year. It has urged further structural reforms of wage-setting arrangements, job protection, corporate finance and taxation to lift growth potential towards a European Union average of 2.25 per cent. Instead, the German political class is currently debating whether to undo part of the previous government's "Hartz IV" labour market reforms that curtailed overgenerous unemployment benefits.
If history has one lesson for eurozone policymakers, it is that the business cycle cannot be left to cure long-standing structural ills. Both Germany and France risk trouble ahead if they ignore this truth.