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Germany

Diagnosing Germany's Labor Pains

A new European Commission report says that without major labor market reforms, Germany will continue to fall behind its EU neighbors in economic growth. The biting report comes just months before national elections.

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On the dole and under the gun: The EU says Germany's weak labor market is dampening economic growth

"The conditions of the labor market are an important cause for Germany's below-average growth since the mid-90's," the "Financial Times Deutschland," quoted the report as saying on Monday.

Economic growth in Germany is close to one percent lower than the EU average, a startling statistic for the world's third-largest economy. And although two-thirds of its economic problems resulted from the after-effects of reunification, a third were attributable to the country's weak labor market, the report said.

"A general lack of flexibility"

In order to reverse the downward trend, Germany must create a larger, more flexible labor force, the commission concluded. One policy prescription emphasized by Brussels' economic physicians are vast improvements of Germany's "under-developed" childcare system to enable more women to enter the workforce.

The Commission also suggested that salaries for unskilled workers should be determined by productivity, and that barriers should be removed that hinder foreigners from seeking a legal job in the country. Such reforms would help the country overcome a "general lack of flexibility and mobility" in its labor market, they argued.

The report also noted that Germany's system of master craftsman certification and skilled-craft regulations stymied competition. Germany is the only country in the EU that still has such laws on its books, it noted.

Responding to the report over the weekend, the Social Democrats' Secretary General, Franz Müntefering, told the "Financial Times" that a final report from a 15-member commission studying sweeping reform proposals for Germany's Federal Labor Office would be issued prior to the September 22 elections.

The panel, chaired by Volkswagen board member Peter Hartz, is expected to recommend a fusion of the country's unemployment and welfare benefit offices. Experts hope that the merger will drive more people to look for work, thus expanding the labor market.

"We will continue on the reform path"

A spokesperson for Federal Finance Minister Hans Eichel said the reforms expected to be undertaken following the release of the Hartz Commission's report are just the tip of the iceberg. "We will continue on the reform path, even if we can't undertake every reform Brussels has suggested at the same time," said Jörg Müller.

But the opposition would like to see quicker results. Christian Democratic Union chairwoman Angela Merkel said Monday that the opposition Union bloc would like to eliminate job-growth choking bureacracy in order to give the market a boost. Merkel said the party's goal is to create bouyant enough economy by 2003 to bring about a positive change in the labor market.

Germany is the world's third-largest economy, but it nonetheless lags in last place in the European Union for growth.

A recent study by the Organization for Economic Co-Operation and Development predicted just 0.7 percent growth for Germany and 1.3 percent growth in the Euro-zone overall this year.

It attributed the weak growth to a heavy budget deficit and a decrease in exports. Like the European Commission, it also blamed an outmoded labor market for the economic malaise.

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