Germany to roll back the state

THE GERMAN government is proposing to roll back the welfare state, cut bureaucracy and slash subsidies to try to rekindle competitiveness in the country's economy.

A radical blueprint published yesterday by the Economics Minister, Werner Muller, is the first evidence that the recently espoused Blairite thinking is beginning to translate into action in Germany. Mr Muller, a close friend and political ally of the German Chancellor, Gerhard Schroder, takes a hatchet to virtually all the sacred cows of the German "social market economy", and advocates drastically cutting state spending by nearly a fifth.

Mr Muller's main thesis, outlined in the annual report of the Economics Ministry, is that the rising cost of the welfare state is sabotaging its original mission. "The social market economy is becoming less socially just every year," he writes damningly in the preface. "The proof of this is both an unemployment rate that is too high, as well as excessive taxes and deductions to finance socially unjustified and inflated expectations from the state."

The very same words might well have been uttered by Margaret Thatcher 20 years ago.Criticism of this kind has peppered the work of every German think-tank for nearly two decades.

That, precisely, is the nature of the German malaise. In 1982, a Christian Democrat named Helmut Kohl became Chancellor, promising a "turn-around" in the national economy, based on more competition, encouraging enterprise and less molly-cuddling. When he left office 16 years later, German society was more heavily regulated and its enterprise more prodigiously subsidised than ever before. Mr Kohl hit a brick wall of interlocking lobbies and vested interests, and gave up.

Thus, the task of injecting some free-market reforms into the creaking German economy now falls to the Social Democrats, and they must justify their action by resorting to socialist rhetoric. "It is anti-social when labour is too expensive because the state has become too expensive," Mr Muller explained yesterday.

Germany has some of the highest non-wage labour costs in the world, supporting one of the most generous welfare systems in Europe. It also boasts 4 million officially unemployed, and another 2 million hidden from the figures by subsidised early retirement, plus training and make-work schemes.

The government has already announced a programme to lower taxes and reduce state spending. Now Mr Muller wants to go further, bringing down the state's share in the economy from the present 48 per cent to reach 40 per cent.

These are ambitious goals that are likely to make the government a lot of enemies. The trade unions are incensed by Mr Muller's suggestions of wage restraint and a return to individual wage-bargaining.

At least he has little to fear from the left wing of the Social Democrat Party, which has, until now, kept the Schroder government in check. The Economics Minister is not a member of any party and can always return to his old job in the world of business if he is thwarted by colleagues in government.