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German labourreform in doubt

26 January 2004

BERLIN – The pace of German labour reforms – key to reviving a sluggish economy – was thrown in doubt Monday as the search began for a successor to the government’s jobs czar sacked at the weekend.

“The labour market is the German economy’s biggest problem,” warned Peter Pietsch, senior economist at Commerzbank in Frankfurt. Germany’s economy shrank by 0.1 per cent last year.

Pietsch was reacting to the dismissal of Florian Gerster, head of the huge German Federal Jobs Agency (BA). With 90,000 employees and a budget of EUR 57 billion for 2004, the BA administers unemployment benefits and job placement.

Klaus Baader, European economist with the U.S. investment house Lehman Brothers in London, said he saw no crisis of confidence in German reforms.

“But it’s clearly a setback for the government because (Gerster) was the man they put in place to drive reforms,” Baader said.

Gerster was appointed by Chancellor Gerhard Schroeder in 2002 to revamp the lumbering state jobs bureaucracy and make it into a service agency for implementing liberalised labour laws which came into force earlier this month.

The hapless Gerster was ostensibly forced out due to outsourced agency contracts which did not go through normal tendering procedures.

He also came under fire for more banal faux pas such as demanding a parking space at the BA’s main entrance for his luxury company limousine and costly redecorating of executive suites.

Media reports, however, say Gerster was ousted by an alliance of opposition conservatives, trade unionists and BA employees who were alarmed over his plans to slash agency jobs.

“Making a public authority into a modern service body is a difficult and long-term process,” said the Frankfurter Allgemeine newspaper, adding there remained a big question mark over whether Gerster’s successor would do any better.

The real problem remains the Federal Jobs Agency’s structure, said the newspaper.

Mirroring Germany’s consensus system the BA is supervised by representatives from big business and trade unions as well as federal, regional and local governments, grumbled the Frankfurter Allgemeine.

“This inevitably leads to conflict,” the paper said.

Questions over German labour reform momentum were fuelled by the fact that it remained unclear who would succeed Gerster.

Economics and Labour Minister Wolfgang Clement, who sacked Gerster, said he would insist on a business leader – not a politician.

The Frankfurter Allgemine quoted unnamed sources as saying Volkswagen AG personnel chief Peter Hartz was a strong candidate. Hartz chaired a committee which hammered out several of Schroeder’s reforms.

A Berliner Zeitung newspaper report predicted Gerster’s deputy, Frank-Juergen Weise, would take command of the agency. Weise is serving as provisional BA head until a final decision is made.

Swift action will be required by whoever takes the helm.

German unemployment is currently 10.4 percent with 4.3 million people jobless.

Schroeder has made getting people back to work his top domestic priority and was first elected in 1998 with a pledge to cut unemployment in half.

The Chancellor failed to meet this ambitious goal during his first term and blamed the weak world economy. He won a narrow reelection in 2002.

Commerzbank’s Pietsch predicted a modest improvement on job creation given that his bank is projecting German GDP will grow by 2 percent both this year and in 2005.

Economists generally agree the German economy starts creating significant numbers of new jobs only when growth runs at 2 percent or higher.

Subject: German news