Talk About a Revolution

Election years can make bad times for serious economic reforms. But Germany needs to do just that, just now, with federal elections coming September 22.

The federal Labour Office’s reputation is in tatters following revelations that its local bureaus dramatically inflated job-placement statistics, by as much as 70 percent. For a country facing chronically high unemployment, currently over 10 percent, this was bitter news.

Chancellor Gerhard Schröder’s quick fix was to fire the Labour Office’s chief, a political rival, and fill his seat with an ally, a former labour minister in the state of Rhineland-Palatinate, Florian Gerster.

With Gerster's hiring, changes are on the way.

For a start, the office’s name is changing to "Federal Work Agency" or some such, because Gerster says it needs a name that "sounds active". He describes himself, using an English phrase to conjure an aura of slick administration and modern sensibility, as a "Change Manager".

Good politics, no doubt – Schröder’s style to a tee – but will it wash in reality? What does it mean for Germany's labour market?

Lefty but feasible

Gerster’s task, broadly speaking, is deregulation. But he calls it just "a little bit of deregulation," abandoning "orthodox liberalism" while towing the Red-Green government’s centre-left line, incrementally allowing fiercer competition between workers and strategically cutting unemployment benefits.

One plan already outlined in some detail would give vouchers to workers unemployed for three months or more, redeemable at private job placement agencies.

Such a "privatisation" plan, which many of Schröder and Gerster’s own Social Democrats would have found outrageous just a few years ago, will in theory build an element of competition into the state’s own lacklustre job-placement programmes.

The overall idea is to stay as politically far left as possible while instituting economically feasible labour market reforms. "My heart beats on the left, not just physically," Gerster said in an interview with the Frankfurter Allgemeine-Zeitung.

Yet according to critics his role will be to push policy to the right, while Schröder and cabinet-level colleagues moderate the reforms, insulating themselves from political fallout on their left flank.

A parliamentary deputy for the opposition Christian Social Union, Johannes Singhammer, told the Frankfurt newspaper that "Mr. Gerster is now allowed to announce cruel cuts in unemployment benefits... But everyone knows that the chancellor, in the end, will largely accommodate the union and dump half the proposals."

The long-term question not just for Schröder’s government now, but for whatever governments follow, is whether Germany can adapt its "job-for-life" employment culture and compete. The centre-left feel the heat now, but it would pose no less a challenge to a government of Christian Democrats.

As with most revolutions, this one is so far all talk. Unemployment is high, and holding.