Date: Mon, 17 Feb 97 17:16:51 CST
From: email@example.com (Brian Hauk)
Subject: Joblessness Hits Record High In Germany
STOCKHOLM, Sweden—The number of jobless workers in Germany soared by more than 500,000 in January, to 4.66 million. The big-business press around the world made the point that unemployment is now at its highest level since Adolf Hitler came to power in 1933. As a percentage, unemployment rose to 12.2 percent, up from 10.8 percent in December 1996. In western Germany joblessness rose from 9.6 percent to 10.6 percent, while in eastern Germany the figure jumped from 15.9 percent to 18.7 percent.
While German officials tried to blame the new unemployment figures on cold weather, Labor Department chief Bernhard Jagoda acknowledged this was only a partial explanation in an interview with the German daily Die Welt. Roughly half the rise in joblessness is in construction, where one-third of the workforce is currently unemployed. Jagoda estimated that unemployment would average 4.2 million for 1997.
An article in the February 7 New York Times stated that the jobless
also a symptom of the steps German companies are taking
to slim down in hope of regaining competitiveness. Industrial giants
like Daimler-Benz and Hoechst have aggressively cut costs.
A week before the January unemployment figures were published, German finance minister Theodore Waigel revised his prognosis for the budget deficit as a percentage of the gross domestic product from 2.5 percent in 1997 to 2.9 percent, setting it fairly close to the 3 percent limit allowed for Bonn to qualify for the European Monetary Union (EMU). Waigel assured that Germany will meet the criteria, which Bonn has been demanding other European governments fulfill in order to be voted into the EMU next year. The common currency is supposed to be implemented in 1999.
Jorg Kramer, at Merrill Lynch in Frankfurt, commented that with the
new unemployment figures,
The risk that Germany will not meet the 3
percent criteria has remarkably increased. Bonn's budget will
increase by an estimated 4-5 billion marks for every one point rise in
the unemployment rate.
German Chancellor Helmut Kohl met with Romano Prodi, the Italian prime
minister, on February 7, the day after the unemployment figures were
published. After that meeting Kohl admitted Germany might fail to meet
the criteria in the Maastricht treaty for the EMU if measures to
tackle its high unemployment are unsuccessful. Kohl said he was
hopeful that a number of measures his government is taking, such as
the abolition of the wealth tax and plans for further tax and pension
reforms, would have an
enormous impact on the investment
climate. Kohl also reiterated Bonn's stated goal of halving
unemployment by the year 2000. The meeting with Prodi, and Kohl's
statements afterward, highlight Germany's economic
difficulties. Bonn earlier treated Rome as a pariah to be kept at
arm's length from the EMU.
One column in the February 8 Financial Times of London estimated that
with soaring unemployment, this year's budget deficit in Germany
will be 3.3 percent.
To be confident of hitting the Maastricht
treaty's 3 per cent target, the Financial Times argues,
half percentage point tightening of fiscal policy might be needed. But
that could increase the jobless total. Alternatively Germany could
resort to the accounting fiddles other European countries have
employed to massage down their reported deficit. But by abandoning the
high ground Germany would lose its ability to insist on other
countries playing it by the book.
Instead, Kohl should persuade the other European governments to
postpone the project for more than a token period, the British
paper said, in order to
give more time to free up Europe's
sclerotic labour markets. In an interview published in the
International Herald Tribune January 20, German Bundesbank chief Hans
Tietmeyer blamed political leaders in Germany and Europe for having
linked urgently needed but painful public-spending cuts,
labor-market deregulation and welfare state reforms with the
Maastricht treaty on economic and monetary union. He said
politicians should stress that such reforms are necessary
regardless of a single currency in Europe to become more competitive
in a rapidly changing world economy.
The interview with Tietmeyer was part of a series of interviews with
the heads of the central banks that are at the heart of Europe's
single currency project. The others were Wim Duisenberg, the head of
the Dutch Central Bank, and Jean Claude Trichet, governor of the Bank
of France. All three
underscored the threat of record unemployment
to society and the need to find practical solutions independent of the
Maastricht process, International Herald Tribune correspondent
Alan Friedman wrote.
Tietmeyer stated that rigid labor laws, collective wage negotiations,
small gradations in wages compared to the United States, and high
direct taxes instead of indirect taxes were at the heart of the
economic problems in Europe. The Herald Tribune reported,
of high wages for everyone and resistance to a more steeply varied
wage scale, he [Tietmeyer] noted, `has deep roots, even to the French
Revolution.' But the cost of keeping wages high even for unskilled
workers in Europe `means that some unskilled people are not getting an
opportunity to get a job.'
Monetary union, he said,
is no panacea for Europe's
ills. But if the launch of the single currency is accompanied by
structural reforms, then
I think there is a chance of having
a more stable relationship with the dollar and the yen, the
Bundesbank chief said. Tietmeyer also favored a future European
independent of and free of political influence,
the Herald Tribune stated. This is at odds with Paris.
Meanwhile, Kohl's government is in increasing disarray over the tax and pension reforms. Labor Minister Norbert Blum and Finance Minister Waigel are publicly quarreling over Blum's proposed changes in the pension system. Blum is proposing reducing benefits and raising new money through an increase of the value-added tax. Waigel's scheme is instead to start taxing some pension benefits. The Free Democrats, a junior partner in the ruling coalition, are opposed to the tax increases. The government is unpopular because of the unemployment crises and the austerity measures it has implemented since last spring, including attempts to cut sick leave payments and pensions.
Kohl's authority in the Christian Democratic Party, uncontested for the last 15 years, is now challenged by younger leaders in his own party, such as Christian Wulff in Lower Saxony, who has called for a cabinet reshuffle and Waigel's replacement.
Labor resistance to the austerity measures, which broke out in the form of strikes and demonstrations last fall, is still there. The printers union recently held warning strikes, for instance, and signed a contract for its 210,000 members on February 6 that includes 100 percent sick leave payments.