Germany On The Road To Reform?

“Voting for the C.D.U. Sunday meant putting a stop to Schr?der’s reform agenda…..But in the future, if the C.D.U. has power, there is no stopping the reforms.” says Morgan Stanley’s Elga Barsch (remember her?). This argument draws attention to an important enigma which must be puzzling a lot of people. As the New York Times puts it:

If voters are angry about economic legislation that rolls back the social welfare state, and they take out their anger on the governing party, does that make more such legislation inevitable?

As undemocratic as that might sound, investors in Germany seem to think so. As financial analysts said chances of new legislation had increased, the country’s stock market rallied Monday after a stinging defeat in regional elections for the Social Democratic Party of Chancellor Gerhard Schr?der, which led him to call for national elections in the fall.”

Actually the ‘engima’ isn’t such an enigma when you get to look at the details, since it isn’t so much the change of party people are looking at, but rather the possibility of coherence in the structure of government:

“As the Bundesrat needs to approve many key legislative changes, including many tax and labour market issues, in the past it has often proved difficult for the government to push through key reform initiatives. It is a regular feature of the German political landscape for the upper house of parliament to be dominated by the opposition parties after a few years of a new government being in office. An incoming CDU-led government would therefore have to make the most of the window of opportunity to push through with reforms while it still enjoys a broad majority in the both houses.”
Elga Bartsch: Morgan Stanley GEF.

So this is the point: control of both houses by one of the main parties, whichever it may be, is what will give the impetus to the reform programme. And note, this will only be a window of opportunity – those few years – before the upper house once more falls into the hands of the ‘new’ opposition, and the whole logjam sets in all over again.

It is not entirely obvious that appetite for some of the reforms will be any more popular amongst CDU/CSU voters than it has been amongst their SPD equivalents. Labour market reforms may prove more popular, but addressing the ongoing financial problems of the health system – as indeed George Bush is discovering in the US – may be another mater altogether:

Just what those changes would be is far from clear. One idea suggested by Ms. Merkel is to stop paying for the national health care system through a tax on wage earners, which opponents say drives up the cost for employers and discourages hiring. Instead, she suggested a flat tax on all beneficiaries of the system., whether or not they were full-time wage earners. But, Ms. Bartsch said, the Christian Democrats’ allies in Bavaria, the Christian Social Union, might not support the idea, which means their combined election platform might be vague.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

5 thoughts on “Germany On The Road To Reform?

  1. Seats of the upper house at stake

    year black/yellow others
    2006 10 11
    2007 0 3
    2008 20 0
    2009 7 8

    among the b/y of 2006 are the 6 of Baden-W?rtemberg, which are secure.
    The CDU&FDP now have 8 seats in excess of a majority.

  2. ?Just what those changes would be is far from clear.”

    That’s the nub of the matter. I don’t think the CDU-CSU is any more serious about structural reform than GWB and the US Republicans are about cutting the deficit.

    I think they’re all for favorable treatment for their best friends in the very biggest of businesses, but otherwise not much for change. Just look to the late Kohl years to see what the Union really yearns for.

  3. I agree with Doug. And don’t forget, that most of the reforms have been a collaboration between the government and CDU. What new thoughts do they have to offer, besides the change of colour? One positive suggestion came from the FDP actually: To scrap the Bundesagentur f?r Arbeit.

    Der Spiegel has a scary special on the Hartz IV reforms in this week’s magazine – although they went into print to late to catch the latest news, this article made me wonder if Schr?der hasn’t been pondering this for some time.

  4. Again, Wolfgang Streek:

    “4. The deadlock in German welfare state reform is not, however, exclusively caused by the undoubtedly impressive number of veto points and veto players in Germany?s political system. The conservative welfare state and the ?quivalenzprinzip by which it is largely governed (the principle that benefits have to be basically proportionate to contributions, which in turn are proportionate to earned income) are immensely popular with German voters, far into the middle class. The idea that status-securing social insurance entitlements are something like private property, rather than the outflow of a public right to social citizenship, is deeply rooted and is reinforced by German legal doctrine, which tends to impose narrow limits on political discretion with respect to earned entitlements. This corresponds to the fact that flat-rate benefits are widely considered incompatible with social justice.”

    His latest paper is a bit more concerned about the social consequences of the kinds of shifts in governance structure that we’re witnessing right now (and also of “elites” let loose)…

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