Jobless at new high in struggling Germany

Unemployment in Germany hit another post-war high in December, amid signs that the economy is again grinding to a halt after a modest recovery in the second half of last year.

According to figures released by the Federal Labour Office yesterday, unemployment rose by 48,000 last month to a seasonally-adjusted 4.156 million - equal to 10.8 per cent of the workforce. And next month the number of jobless is projected by economists to reach 4.5 million.

Much of the rise is attributed to a down-turn in the construction industry, exacerbated by the extremely cold weather that has been gripping Germany for the past fortnight. Economists have warned that the big freeze could push the overall German growth rate in the first quarter into negative figures, repeating last year's trend.

Even without the weather, the economy is faltering. Provisional figures released yesterday by the National Statistics Office showed last year's growth rate at 1.4 per cent, marginally below forecasts and much lower than the previous year's performance. The office estimates Germany's budget deficit for 1996 was around 3.9 per cent - well above the Maastricht target for European monetary union.

Whether the government can keep its budget deficit within 3 per cent in EMU's qualifying year will depend on the growth rate, which it predicts will be 2.5 per cent this year. That forecast is already off target, however, as it did not anticipate the current slow-down. A larger-than-expected unemployment rate will also place a heavy burden on expenditure, straining the budget beyond the permitted limits.

Earlier this week, the Berlin-based DIW Institute predicted that this year's growth would be around 2 per cent, half a percentage point less than what the government is counting on. And even the joint report of the six leading institutes, which expect the growth rate to be within the government's range, has calculated the budget deficit will still be over 3 per cent.

To qualify for EMU, Chancellor Helmut Kohl must again introduce savage spending cuts, which in turn will further depress domestic consumption. This, however, would make him vulnerable to the charge from political opponents that he was abandoning the jobless to attain a lofty goal that is not shared by his electorate.

Responding to the stream of abysmal figures, Mr Kohl pledged again to strive for jobs, though he had nothing new to offer in the way of a remedy. "Fighting unemployment remains the most important domestic policy challenge," he said. "Current levels of over 4.1 million jobless are completely unacceptable."

The Chancellor said he did not believe that rising unemployment would jeopardise economic recovery this year. "I think the chances for recovery rest on a solid basis," he declared. "I see no reason to adopt a resigned attitude - creating jobs is possible."

Mr Kohl reiterated his government's commitment to overhaul the country's convoluted tax system, details of which are to be announced this month. There is also a pension reform on the way, and cuts in the "solidarity surcharge" - tax earmarked for eastern Germany.

The Chancellor is meanwhile promising another round of talks with unions and employers, which last year produced a pledge to halve unemployment by the year 2000.