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German Parliament Backs Labor Reform Plans

October 18, 2003

In a close vote, the Bundestag has approved Chancellor Schröder's plans for labor market reform and tax cuts. His own Social Democrats ended up falling in behind their leader, even though six had threatened to revolt.

A relieved Schröder -- the vote went his way.Image: AP

It was something of a reprieve for Gerhard Schröder, who had staked his political future on the outcome of Friday's vote over his plans to overhaul Germany's welfare state. Although controversial, in the end, the plans squeaked by with slim majorities.

306 deputies voted for and 291 voted against the so-called Hartz IV Law which cuts some job benefits and incurs penalties to long-termed unemployed who do not accept jobs offered to them. The Hartz III Law, which restructures Germany's labor agency, passed 304 to 294.

Although it was tense in the lead-up, the vote fell largely as expected. Gerhard Schröder was successful in quelling a rebellion within his own ranks after six left-leaning members of his SPD party threatened to vote against the plans. Schröder had threatened to resign if that happened, but a last-minute softening of some of the measures was enough to convince the rebellious deputies to fall back into line. One member of the Green Party, Werner Schulz, abstained.

Schröder had cut short an EU summit in Brussels on Friday to get back for the vote and ensure he got his majority. The opposition, made up of the Christian Democrats, the Christian Social Union, the Free Democrats and the Party of Democratic Socialism, had long announced its opposition to the measures.

Goal: kick-starting the economy

The reforms are a key part of Schröder's "Agenda 2010" package of reforms which is designed to pull Germany out of three years of economic stagnation. While the country is showing some signs of economic recovery and emerging from its second recession in as many years, experts still expect the economy to be flat this year. Schröder hopes that loosening some of Germany's rigid labor market rules and bringing tax cuts forward a year to boost consumption will provide a badly needed kick-start and help the country shake off its reputation as the "sick man" of Europe.

Key elements of the plan include restructuring the Federal Labor Agency, cutting benefits for unemployed people and penalizing those who refuse to take jobs offered to them by government-administered employment agencies. Duties on tobacco will be increased, adding about 33 percent to a package of cigarettes, and €15.6 billion ($18 billion) in tax cuts will be brought forward to 2004.

Hours before members of the Bundestag had to make up their minds, Federal Labor Minister Wolfgang Clement appealed for their support. Clement defended the reform package, the controversial measures were "central features of our fight against this country's oppressive unemployment situation."

Unemployment in Germany threatens to hit a postwar high this winter and government officials say the reforms could cut the number of unemployed by 10 to 15 percent. "We need a new approach to the labor market," Clement told parliament. "We have to free up investment and consumption. That's why we have to make sure that taxes and labor costs are reduced."

While the reform plans would bring unpleasant cuts to Germans used to their generous welfare state, most have come to the painful conclusion that things cannot go on as they are. Unsurprisingly, tax cuts are popular, but many say even a planned overhaul of the overburdened health system is unavoidable. A recent survey by the polling firm Forsa showed that almost half of Germans said the country needed to take more action to haul itself out of stagnation.

Not their final form

Although the reform plan passed a crucial hurdle today, it still has to make it through the opposition-controlled upper house, the Bundesrat, before being made into law. Opposition parties have said the reforms do not go far enough and have promised to beef them up when the reform plans go before lawmakers there. That means several more months of uncertainty and hard lobbying for Schröder and his allies.

"It will require a big effort for a long time until just before Christmas. That's when the last votes will be," SPD parliamentary floor leader Franz Müntefering told WDR radio.

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