German belts tighten as 4 million face dole queue

IMRE KARACS

Bonn

Battered by rising unemployment, workers, employers and the German government yesterday joined forces in an effort to halve the number of jobless by the year 2000.

After long talks at Chancellor Helmut Kohl's office, the three sides unveiled a pact to create jobs, cut the welfare state, reduce taxes and implicitly help Germany meet conditions for the creation of a single European currency in 1999.

"We have an accord which lays out principles upon which we can work to form a consensus and create better conditions for increasing employment," said Gunter Rexrodt, the Economics Minister.

Although the package will not be released until next week, officials indicated their attention will focus on reducing the employers' burden. Social security contributions are to be cut over six years, mirrored by a reduction in the welfare budget. There will be help for medium-sized enterprises and growth will be stimulated by infrastructure projects funded by local authorities. Employers agreed to increase apprenticeships by 5 per cent, curtail overtime and create more part-time jobs.

The unions are paying a heavy price. By agreeing to short-term contracts for new employees, they are giving up job security. They are also sacrificing workers' traditional right to expect wage rises above the annual inflation rate, which employers say has made them the most expensive in the developed world. Much of industry's trouble is ascribed to a two-year pay rise at twice the inflation rate, awarded to the biggest union, IG Metall, after strikes last year.

But IG Metall's leader, Klaus Zwickel, has since accepted the link between wage levels and unemployment, and has proposed a pay freeze in exchange for a pledge by the engineering industry to create 330,000 jobs. His proposal for an "Alliance for Jobs" between labour and capital was the catalyst for yesterday's breakthrough, described by one minister as "unparalleled in Europe".

The workers also implicitly accepted cuts in the welfare state. Unemployment benefits are to be reduced by 3 per cent each year. Although the unions staved off attempts to abolish the generous early-retirement schemes, the government has won the battle to raise the normal pensionable age.

The pact comes amid apocalyptic predictions of a crash on a Weimar scale. Unemployment, expected to reach 4 million within the next month, has passed the 1929 level. Forecasts for growth hover barely above 1 per cent. Almost every day there are more lay-offs. Daimler-Benz, the flagship of German industry, reported earlier this week losses of 6bn marks (pounds 2.6bn) for 1995. About 8,000 workers at a Dutch subsidiary and 1,200 in Germany are about to land in the dole queue.

Now industry has got an agreement that it hopes will reverse its fortunes. But it seems inevitable that the government's budget will be stretched for some time to come, and will exceed the target set by the Maastricht treaty for European monetary union.

City Comment, page 17