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Germany

The Poverty Trap

Chancellor Gerhard Schroeder looked for a remedy for Germany's unemployment woes when he gathered government, industry and unions around a table on Friday.

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No future?

It was the first "Alliance for Jobs" forum since the economic downturn gripped in Germany.

Wage restraint has been the main achievement of the "Alliance for Jobs", established on the promise to create jobs.

It now looks like the agreement has fallen apart, because German unions are no longer willing to watch the unemployment figures rise, while wage demands have been moderate in recent years.

But German Chancellor Gerhard Schröder, has made lowering unemployment the yardstick by which his centre-left government should be judged. At the same time he needs to control wages to help stem the economic slowdown and halt rising unemployment before a general election on September 22.

He faces an uphill struggle all the way.

The Federal Employment Office announced Wednesday that on a seasonally non-adjusted basis, the jobless total in December rose to 3.964 million from 3.789 million in November. The unadjusted unemployment rate rose from 9.2% to 9.6%.

Regional Disparity

And the picture is far from clear. Regional variations are huge, even in Bavaria, Germany’s wealthiest state.

The figure for the capital, Munich is 4.4 percent. For Hof in the north-east of Bavaria, the jobless rate jumps to 10.4 percent.

And Bavaria is doing very well.

Bavaria is where Germany’s new leader of the opposition, Edmund Stoiber, is premier.

He has obtained a reputation for strong economic management, his trump card in the up and coming elections, promising to apply his economic formula for Bavaria to the whole of the country.

Yet a closer look at Bavaria's record shows that Mr Stoiber has played only a modest part in steering the state toward success. In addition, stark regional economic disparities and divisions between modern and older industries blur the state's image of prosperity.

New ideas to fight a losing battle

A raft of proposals to tackle the problem have surfaced in recent months.

Looking to the US for inspiration, Hesse’s premier, Roland Koch of the opposition Christian Democrats, has called for cuts in welfare provisions across the board – including families.

But families especially are increasingly under financial pressure in Germany. According to a new report produced by the federal government, even middle class families are getting close to the poverty line.

Instead of going on to university, many youngsters are under pressure to earn money.

The current methods of penalising long-term unemployed who are unwilling to take a job offered" only really works for people without children", Koch said.

And the chancellor is set to abandon his much-vaunted "policy of the steady hand" in a bid to tackle the growing jobless problem.

The government will issue a state subsidy to top up the basic wage in order to bring the total income of low-wage earners above what they would take home if they were collecting welfare.

Proponents of these so-called "combi" (or combination) wages point out that the beneficiaries, low-wage earners, tend to be unskilled workers, who make up a large proportion of the long-term unemployed.

But while the politicians are slogging out the right way forward, unemployment is set to rise further. Not surprisingly, the economy is the main battleground at the start of the general election campaign.