Schröder Calls for Germans to Prepare for Sacrifices

The speaker stepped before his Berlin audience bearing a speech filled with hellfire and brimstone. "What is wrong with our country?" German President Roman Herzog asked the audience in 1997. "In clear terms: a loss of economic dynamism. The ossification of our society. An unbelievable mental depression."

Nearly six years later, it was German Chancellor Gerhard Schröder's turn to point the way out of the crisis that only seems to have gotten worse since Herzog delivered his sermon: Today, the country's economy is on the brink of a recession, unemployment is rapidly approaching the record levels of 4.8 million set in 1998, and costs in the country's health care system continue to climb unchecked.

"We have to summon up the courage to launch the changes that are necessary to return our country to the top of Europe in economic and social performance," Schröder told the country's parliament in a speech that was called one of the most important in his political career.

Time for sacrifice, chancellor says

In place of hellfire and brimstone, the Social Democrat preached sacrifice. "All segments of society will have to make a contribution: Employers and employees, freelancers and retirees," he said.

One area of sacrifice will focus on the unemployed, Schröder said. All jobless people younger than 55 will be able to draw unemployment benefits for a maximum of 12 months instead of 32 months, he said. Those 55 and older will be eligible for 18 months.

"I reject the notion that people who want to work and can work have to draw welfare, while others who are not even looking for a job draw unemployment assistance," he said.

In the nearly 90-minute speech, the chancellor also listed a string of other reforms he wants to introduce, from changes in rules governing layoffs to revisions in the health insurance system and to assistance for Germany's financially struggling cities.

Revision to layoff rules proposed

The issue of layoff rules is one of the most pressing ones for employers, who maintain that the current rules serve as a barrier to job creation. As part of his program, the chancellor proposed the creation of new rules for companies to follow when they have to lay off employees. Currently, companies have to weigh such factors a worker's age and seniority in drawing up a list of employees whom they must dismiss. But the chancellor proposed on Friday that company and worker representatives be allowed to create a system that allows the best employees to keep their jobs.

Turning to the health insurance system, the chancellor said his goal was to cut premiums. Today, the average premium is 14.3 percent of gross pay, and is generally shared on a 50-50 basis between employers and employees. The chancellor wants to reduce that premium to 13 percent.

One way he wants to lighten the load carried by the insurers is to require people to take out private insurance if they want to receive funds to help them with long-term injury and illness. Today, the public insurance companies begin paying this assistance at the start of the seventh week that a person has been out of work. The change is designed to save the insurers €7 billion ($7.56 billion).

Schröder promised that the health insurance changes would be balanced. "We stand by one principle: Everyone will receive the medical care he needs, regardless of age and income."

The task as Schröder acknowledged will be difficult. The deficit of Germany's public health insurance companies climbed nearly 6 percent last year to $2.96 billion, and about one-third of the country's public health funds increased their premiums this year.

Cities to get assistance

To Germany's cities, Schröder promised help instead of sacrifice. He said he would create a program of low interest loans to help them and the country's troubled construction industry. The city program would total €7 billion and would be used for capital investment projects. The builders' program would total €8 billion and would be used for apartment renovation.

Germany's cities are suffering in part because the total amount of revenues that flow from the their primary source of revenue -- the trade tax that applies to businesses -- has decreased by €3.8 billion ($4.1 billion) since 2000 and the costs of such social services as welfare have been climbing. As a result, the total deficit of German cities hit €6.65 billion last year and may rise to a record €9.9 billion this year.

After Schröder had finished his roughly 90-minute talk and the members of his coalition had completed their standing ovation, the leader of the country's biggest opposition party responded to the speech. "That is surely not a major master plan for the Federal Republic of Germany," said Angela Merkel (photo), chairwoman of the Christian Democratic Union. Merkel said she doubted that Schröder recognized the depths of Germany's problems and seemed to be focusing on "administering the moment."

Speech produces criticism

Disappointment about the speech spread through the unions and business community as well.

"We are bitterly disappointed," said Michael Sommer, leader of the German Trade Union Federation. Sommer said the disappointment applied particularly to the cuts in jobless benefits for older workers. "That is a point that we cannot and will not accept," he said.

Horst Siebert, who heads the Kiel Institute for World Economics, also expressed doubts about the labor reforms. "There will be only a marginal improvement on the job market," Siebert said. "Furthermore, the chance of implementation is low."

The chancellor had one other critic who had nothing to do with the political debate: the president of the German Association of Speech Writers. "The speech was dry and delivered with little emotion," Thilo von Trotha said. "That was nothing."