Europa: A generous state pays, and avoids hard reality

 

Europa: A generous state pays, and avoids hard reality

Richard Bernstein The New York Times THURSDAY, SEPTEMBER 22, 2005

BERLIN Everybody is amazed that Angela Merkel did as badly as she did, but in retrospect it seems almost obvious that she was going to crash and burn, even if the conventional wisdom of the pollsters and prognosticators was very different.

 

The wise political analysis, especially after the Social Democrats lost their historic stronghold in North Rhine-Westphalia in the spring, was that the Germans were ready for a change. They were fed up with Chancellor Gerhard Schröder. They didn't like his "Agenda 2010" reforms, especially when the reforms failed to stem the steady drumbeat of bad news about unemployment and economic stagnation.

 

That's why they were going to vote for Merkel et al., even if Merkel represented deeper, more radical, more Maggie Thatcher-like reform, while Schröder and the Social Democrats meant less reform.

 

It didn't turn out that way for several reasons, not least that Germany is a country that handles its economic crises extremely well, comfortably, with relatively little in the way of visible pain. True, there are five million unemployed, and the Schröder reforms - especially the unpopular slice of them known as Hartz IV - have substantially reduced unemployment payments.

 

Hartz IV decreed that once unemployment benefits have been exhausted, unemployed persons go on welfare. They have to meet some pretty strict criteria. Their spouse's income is taken into account. They are limited to a house or apartment of a certain size. They might have to do some menial social-service type work - caring for the elderly or weeding a kindergarten's garden - for very low pay.

 

But once they qualify, their rent is covered by the state, along with their utilities. They have health insurance, nursing insurance and pension insurance. They are reimbursed for the purchase of major appliances like stoves and refrigerators. And, in addition, they get a stipend of nearly 350, or $425, a month - plus another 200 a month for each child under 14 - for additional living expenses. It's not a fortune, but, even after Hartz IV - bitterly protested by the left wing of Schröder's own party - came into effect, Germany still had one of the most generous social welfare systems in Europe.

 

I heard the other day about a young man who has worked for a few years at a bank and now wants to go to school. Normally, such a person would apply for a subsidized loan to cover his costs while he is studying. He would then repay the loan when he has finished his course of study and has gotten a job.

 

But in this case, the young man decided simply to declare himself unemployed, and to live on Hartz IV benefits while going to school. Why incur a debt that must be repaid, if the state will cover your rent, heat, and electricity, and give you a stipend of roughly 4,000 a year?

 

What many economists say, including pessimistic economists who believe that Germany desperately needs to pare down its welfare costs, is that the country is so rich that it can afford to shield its citizens from such problems as high unemployment and zero growth. The money accumulated during the wonder years buys a lot of social peace, and, given Germany's past, social peace is a particular prerequisite, a way of forestalling the rise of extremes.

 

But, paradoxically, these economists say, the country's wealth also buys a willed sort of denial.

 

The real situation is that fewer and fewer working people are paying for more and more people on welfare, and eventually, and especially if the economy doesn't improve dramatically, something's got to give.

 

"We have to change the widespread idea that the economic miracle, the good times, are coming back," said Wolfgang Nowak, a former adviser to Schröder who became a Merkel supporter. "The German dream is over. Other countries are making cars as wonderful as German cars. We aren't better than the others any more, and we're more expensive."

 

Well, that was Merkel's message, but it didn't get through, drowned out in part by Schröder's skillful and vigorous campaign, in particular his exploitation of the appointment of a genuine tax-reform radical, Paul Kirchhof, to Merkel's kitchen cabinet.

 

But Merkel's message was drowned out by something else as well, or, if not drowned out exactly, made to fall into a cultural environment so unused to that kind of social and economic discourse that it seemed far more extreme than it was. For the better part of 50 years, the conservatives have themselves not been very conservative. Like the Social Democrats, they have always put the message of social stability, the German notion of a class-conflict-free consensual society, ahead of any message about swallowing bitter pills of economic reality.

 

"It's true," said the economist Thomas Straubhaar, president of the Institute for International Economics in Hamburg. "Germany has been governed by two social democratic parties." One of them is the actual Social Democratic Party, with its 19th-century origins in Marxist notions of social justice. The other is the Christian Democratic Union, and its Bavarian sister, the Christian Social Union, with their origins in 19th-century Christian notions of social justice.

 

In the United States and Britain in recent decades, by contrast, wide differences opened up between Democrats and Republicans, Laborites and Tories over social policy. Free-market, welfare-reform conservatism became a fully articulated alternative with its own think tanks, clubs, magazines and newspapers, even university departments, paving the way for the Thatcher and Reagan revolutions. Paul Kirchhof would have been right at home.

 

In Continental Europe, there was very little such development, especially inside the right-of-center political parties. In France, as became conspicuous during the debate over the European Union constitution, Jacques Chirac, who has governed economically and socially from the left for the 10 years of his presidency, railed against neoliberalism as if it were an infectious disease, rather than an alternative economic philosophy that has paid handsome dividends in the United States and Britain.

 

And in Germany, Merkel as a quiet sort of avatar of neoliberalism was from the beginning isolated, not just politically but intellectually, even within her own party, not to mention in the larger context of German society. The wonder in this sense may not be that she failed to get a majority; it's that she managed, with the Free Democrats, to get as many votes as she did.

 

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