A victory that could restore Germany's economic health

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Germany has entered a new era. From this week, the country's generous unemployment benefits have been reduced and the rules for claiming them have been tightened.

Germany has entered a new era. From this week, the country's generous unemployment benefits have been reduced and the rules for claiming them have been tightened.

The reforms may seem timid compared with those introduced by Margaret Thatcher in Britain. For Germans, though, this was the first major pruning of benefits since their welfare state was set up after the war, and widespread protests had been forecast. That there was nothing like the explosion of anger that accompanied the passage of the legislation last summer reflected some judicious government concessions and a shift in public opinion.

With families largely protected - some will actually be better off - those with most to lose are the single unemployed and those with spouses in work. Many could now face a choice between moving to find a job, undertaking a long commute or accepting a job which is beneath their qualifications. To their credit, however, German voters apparently accept that this price could be worth paying if the result is lower unemployment, higher growth and a more competitive economy - a combination that would end Germany's decade as the sick economy of Europe.

Probably only a government formally of the left, such as Gerhard Schröder's red-green coalition, would have been able to enact such legislation. The popular outcry, had the political right tried something similar, can only be imagined. Nor should Mr Schröder's personal role be underestimated. A master tactician and something of a political gambler, he staked his chancellorship on his conviction that the reforms were essential to Germany's future economic health. His reward has been a steady rise in his ratings and disarray among his adversaries on the right.

There are risks ahead. Without new and well-judged investment, there is a danger that discontent could erupt in the eastern part of the country where jobs are scarce. And if there is no improvement in Germany's economic fortunes within the year, the whole rationale for the reforms could be called into question. For now, however, Mr Schröder can claim a famous victory, and the strong likelihood is that there will be no retreat.

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