Differences on reform plans mar job summit

18th March 2005, Comments 0 comments

18 March 2005, BERLIN - Emerging from talks with German opposition leaders on how to cut record unemployment, Chancellor Gerhard Schroeder on Thursday said there had been progress but he admitted key differences remained on necessary reforms.

18 March 2005

BERLIN - Emerging from talks with German opposition leaders on how to cut record unemployment, Chancellor Gerhard Schroeder on Thursday said there had been progress but he admitted key differences remained on necessary reforms.

"Naturally we could not agree on everything - but we made a good step forward," said Schroeder at a news briefing after talks with Christian Democratic Union (CDU) leader Angela Merkel and Christian Social Union (CSU) chief and Bavarian Premier Edmund Stoiber.

Schroeder, in a related development flanking the meeting, admitted he was "very unhappy" over failure of the incumbent premier from his Social Democratic Party (SPD) to win re-election in Schleswig- Holstein state. Heide Simonis failed to get re-elected Thursday despite four rounds of secret voting in the state's parliament after a member of her own party apparently voted against her.

At a separate news conference, Merkel referred to "constructive talks - but with dissent". Stoiber was harsher, terming Schroeder's proposals "measures of small and medium magnitude".

The meeting, dubbed a "jobs summit", is vital for further reforms given that the CDU/CSU controls Germany's upper chamber of parliament and must approve most measures passed by Schroeder's centre-left coalition in the lower house.

Schroeder has been forced into action after German unemployment last month rose to 5.2 million - the highest since the 1930s. In some economically hard hit parts of former communist east Germany the rate is a grim 30 percent.

In a bid to stimulate hiring, the Chancellor used a speech to parliament earlier Thursday to propose trimming corporate income tax to 19 percent from 25 percent.

Business leaders have been calling for a reduction of at least 10 percentage points from their overall tax burden, which is about 39 percent after other taxes are added on.

Both Merkel and Stoiber said they backed Schroeder's tax cut as long as it does not mean running up new state debts.

But major differences between the government and opposition remain in key structural areas, Schroeder confirmed.

The Chancellor said he had rejected calls by the conservatives to slash back Germany's strict laws protecting employees from sacking.

Addressing this crucial question, Merkel added: "There is no movement visible."

Stoiber, in a harsh parliament speech prior to the meeting, accused the Chancellor of being unwilling to confront trade unions and the left wing of his own Social Democrats (SPD) to force through such deeper structural reforms.

"We need a reform of the employment-hostile law on protection against sacking," said Stoiber, adding: "This is one of the biggest hindrances to employment."

Germany's limits on dismissing workers are regarded by most in the SPD as a core worker's right. But business leaders complain of the inability to shed employees during downturns.

There was also sharp disagreement over Schroeder's demand for elimination of a tax subsidy for private home builders. This, he said, would yield EUR 300 million next year and ultimately EUR 6-8 billion which should be spent on research and development and education.

Merkel and Stoiber said the subsidy must remain due to, among other reasons, the weakness of the construction sector in Germany since the mid-1990s.

Summing up the meeting, Schroeder, Merkel and Stoiber said experts from the parties would now seek to hammer out compromise legislation in the areas where differences remained.

Analysts were generally lukewarm on the government proposals unveiled by Schroeder in parliament.

Elga Bartsch, a senior economist with Morgan Stanley in London, poured cold water on the Chancellor's proposal by noting most of the corporate tax cut would be recouped by simply broadening the tax base.

"Overall there will be no net tax relief for German corporations," said Bartsch, adding: "The measures proposed are mildly positive for the German economy, but fall short of a meaningful stimulus."

Morgan Stanley was therefore leaving its GDP growth forecast for Germany unchanged for 2005 at a modest 0.8 percent, she said. Economists generally say 2 percent growth is needed to make a dent into Germany's unemployment rate.

Among other measures, Schroeder also announced his centre-left government would pump EUR 2 billion of public funds into highway and railway building.

A EUR 250 million package of direct aid to long-term unemployed was also unveiled in Schroeder's speech.

Adolf Rosenstock, a European economist at the Frankfurt-based office of Nomura International Analysts, warned that Schroeder's past and coming reforms will only have an impact in Germany in the long- term and that there is no fast cure to the current jobs misery.

"It's a long haul," said Rosenstock, adding: "It could take years, if not decades."

Schroeder's jobs creation package is seen as a last-ditch bid to show the government is serious about bringing down unemployment before general elections next year in which the German leader is seeking a third term for the centre-left alliance of his SPD and Greens.

The Chancellor's high-profile jobs speech is also linked to the faltering regional re-election bid of the Chancellor's SPD in the key state of North Rhine-Westphalia on 22 May.


Subject: German news

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