GERMANY: Chancellor Gerhard Schröder said Germany was finally "on the move" after both houses of parliament approved €15 billion in tax cuts and employment market reforms yesterday intended to stimulate the economy.
Mr Schröder said the reforms struck a "sensible balance", and would cure the so-called "German disease" of high-wage costs of employee inflexibility without compromising the security sought by workers.
"The reforms give room and make available resources for central tasks of reform: education and training as well as research and development," said Mr Schröder during a marathon session in the Bundestag in Berlin yesterday.
The reforms, called Agenda 2010, follow three years of negligible growth in Germany, and nine months of bitter debate.
The German economy appears to be reviving slowly, but with over four million still out of work, Mr Schröder said the "real breakthrough" would only begin to be felt at the end of 2004.
The reform package only became law after a last-minute, high-stakes poker game with the conservatives, who blocked the reforms with their majority in the upper house, the Bundesrat.
They refused to back debt-financed tax cuts, fearing the debt burden would overwhelm rather than revive the economy.
Now the tax cut will be implemented in two stages, with only a quarter of the cut financed by debt. The rest will come from selling government holdings in Deutsche Telekom and Deutsche Post.
The reforms will force unemployed people to accept any work offered to them or face a cut in benefits. The conservatives also secured a compromise that will see employment protection laws in the future only apply to companies with more than 10 employees, rather than five as planned by the government.
"It's better to enter the workforce with less protection from getting fired than being excluded with a lot of protection," said Mr Schröder yesterday, defending the measure from left-wingers in his party.
He said yesterday's vote was only the beginning of a series of reforms, such as an overhaul of the education system and a simplification of Germany's labyrinthine tax system next year.
Leading economists expect the tax cuts to have little effect on output.
Cutbacks in subsidies and increased healthcare costs mean the government will claw back much of what it is giving away in tax cuts.
With that in mind, nearly two-thirds of Germans polled this week said they were disappointed with the final compromise reforms.
