By Carl-Erik Isacsson, Militant, Vol.61 no.8, 24 February 1997

STOCKHOLM, Sweden—The number of jobless workers in Germany soared by more than 500,000 in January, to 4.66 million. The big-business press around the world made the point that unemployment is now at its highest level since Adolf Hitler came to power in 1933. As a percentage, unemployment rose to 12.2 percent, up from 10.8 percent in December 1996. In western Germany joblessness rose from 9.6 percent to 10.6 percent, while in eastern Germany the figure jumped from 15.9 percent to 18.7 percent.

While German officials tried to blame the new unemployment figures on cold weather, Labor Department chief Bernhard Jagoda acknowledged this was only a partial explanation in an interview with the German daily Die Welt. Roughly half the rise in joblessness is in construction, where one-third of the workforce is currently unemployed. Jagoda estimated that unemployment would average 4.2 million for 1997.

An article in the February 7 New York Times stated that the jobless figures are also a symptom of the steps German companies are taking to slim down in hope of regaining competitiveness. Industrial giants like Daimler-Benz and Hoechst have aggressively cut costs.

A week before the January unemployment figures were published, German finance minister Theodore Waigel revised his prognosis for the budget deficit as a percentage of the gross domestic product from 2.5 percent in 1997 to 2.9 percent, setting it fairly close to the 3 percent limit allowed for Bonn to qualify for the European Monetary Union (EMU). Waigel assured that Germany will meet the criteria, which Bonn has been demanding other European governments fulfill in order to be voted into the EMU next year. The common currency is supposed to be implemented in 1999.

Jorg Kramer, at Merrill Lynch in Frankfurt, commented that with the new unemployment figures, The risk that Germany will not meet the 3 percent criteria has remarkably increased. Bonn's budget will increase by an estimated 4-5 billion marks for every one point rise in the unemployment rate.

German Chancellor Helmut Kohl met with Romano Prodi, the Italian prime minister, on February 7, the day after the unemployment figures were published. After that meeting Kohl admitted Germany might fail to meet the criteria in the Maastricht treaty for the EMU if measures to tackle its high unemployment are unsuccessful. Kohl said he was hopeful that a number of measures his government is taking, such as the abolition of the wealth tax and plans for further tax and pension reforms, would have an enormous impact on the investment climate. Kohl also reiterated Bonn's stated goal of halving unemployment by the year 2000. The meeting with Prodi, and Kohl's statements afterward, highlight Germany's economic difficulties. Bonn earlier treated Rome as a pariah to be kept at arm's length from the EMU.

One column in the February 8 Financial Times of London estimated that with soaring unemployment, this year's budget deficit in Germany will be 3.3 percent. To be confident of hitting the Maastricht treaty's 3 per cent target, the Financial Times argues, a half percentage point tightening of fiscal policy might be needed. But that could increase the jobless total. Alternatively Germany could resort to the accounting fiddles other European countries have employed to massage down their reported deficit. But by abandoning the high ground Germany would lose its ability to insist on other countries playing it by the book.

Instead, Kohl should persuade the other European governments to postpone the project for more than a token period, the British paper said, in order to give more time to free up Europe's sclerotic labour markets. In an interview published in the International Herald Tribune January 20, German Bundesbank chief Hans Tietmeyer blamed political leaders in Germany and Europe for having linked urgently needed but painful public-spending cuts, labor-market deregulation and welfare state reforms with the Maastricht treaty on economic and monetary union. He said politicians should stress that such reforms are necessary regardless of a single currency in Europe to become more competitive in a rapidly changing world economy.

The interview with Tietmeyer was part of a series of interviews with the heads of the central banks that are at the heart of Europe's single currency project. The others were Wim Duisenberg, the head of the Dutch Central Bank, and Jean Claude Trichet, governor of the Bank of France. All three underscored the threat of record unemployment to society and the need to find practical solutions independent of the Maastricht process, International Herald Tribune correspondent Alan Friedman wrote.

Tietmeyer stated that rigid labor laws, collective wage negotiations, small gradations in wages compared to the United States, and high direct taxes instead of indirect taxes were at the heart of the economic problems in Europe. The Herald Tribune reported, The idea of high wages for everyone and resistance to a more steeply varied wage scale, he [Tietmeyer] noted, `has deep roots, even to the French Revolution.' But the cost of keeping wages high even for unskilled workers in Europe `means that some unskilled people are not getting an opportunity to get a job.'

Monetary union, he said, is no panacea for Europe's ills. But if the launch of the single currency is accompanied by structural reforms, then I think there is a chance of having a more stable relationship with the dollar and the yen, the Bundesbank chief said. Tietmeyer also favored a future European central bank independent of and free of political influence, the Herald Tribune stated. This is at odds with Paris.

Meanwhile, Kohl's government is in increasing disarray over the tax and pension reforms. Labor Minister Norbert Blum and Finance Minister Waigel are publicly quarreling over Blum's proposed changes in the pension system. Blum is proposing reducing benefits and raising new money through an increase of the value-added tax. Waigel's scheme is instead to start taxing some pension benefits. The Free Democrats, a junior partner in the ruling coalition, are opposed to the tax increases. The government is unpopular because of the unemployment crises and the austerity measures it has implemented since last spring, including attempts to cut sick leave payments and pensions.

Kohl's authority in the Christian Democratic Party, uncontested for the last 15 years, is now challenged by younger leaders in his own party, such as Christian Wulff in Lower Saxony, who has called for a cabinet reshuffle and Waigel's replacement.

Labor resistance to the austerity measures, which broke out in the form of strikes and demonstrations last fall, is still there. The printers union recently held warning strikes, for instance, and signed a contract for its 210,000 members on February 6 that includes 100 percent sick leave payments.