Election no quick fix for high unemployment

Germany's conservatives, tipped to win a September 18 election, have won modest praise for their plans to combat hefty unemployment, but economists say hopes of slashing the jobless rate will require far harsher measures.

All Germany's parties are promising more arbeit (work), aware of voter anger at unemployment levels which hit a post-war peak of 5.2 million in February and stand at 11.4 per cent of the workforce.

However, economists say no party's remedies go far enough to solve the problems of a nation that has gone from postwar "economic miracle" to the sick man of Europe.

The rate, adjusted for international comparisons, is almost double that of the United States. In western Europe, it is only worse in France and Spain.

Germany's economy is forecast to grow by a meagre one per cent this year, the slowest rate in the 25-nation European Union. In a vicious circle, growth appears too slow to create new jobs, while high unemployment is choking spending and preventing a stronger economic expansion.

Angela Merkel, leader of the conservative opposition, has vowed to accelerate the reform drive of Chancellor Gerhard Schroeder, drawing comparisons with former British Prime Minister Margaret Thatcher.

But her plans are far less radical that those of the "Iron Lady".

Thomas Straubhaar, head of the HWWA economic think tank, calls the remedies that leading parties have put on the table "fainthearted and powerless".

"The government and the conservative opposition remain, with their prescriptions, far behind what is required to cure the German illness of mass unemployment," he wrote this month, adding that Ms Merkel's plans are vague on many economic issues.

Karl-Heinz Nassmacher, a political scientist at Oldenburg University, believes Germans are not ready for the severe reforms economists argue are necessary.

"Most are unaffected by problems. It's nothing like the situation of Britain's winter of discontent in 1979," he said.

Even one conservative member of parliament described the party manifesto pledges as "peanuts", yet few politicians want to call for more and risk being labelled heartless.

Ms Merkel's conservatives, 12-13 points ahead of Chancellor Gerhard Schroeder's Social Democrats in opinion polls, do win some praise from economists for pushing in the right direction.

Ms Merkel's plans to cut non-wage labour costs, to make it easier for firms to opt out of collective wage deals and to loosen rules on firing are designed to encourage firms to hire.

Economists say that the first item, a two percentage point reduction of unemployment insurance, could create 200,000 jobs.

And the rise in sales tax to fund the plan may not be as poisonous for the economy as retail groups say.

Peter Mueller, the conservatives' economy and labour expert, said this week his party's measures could set Germany on course to bring the unemployment rate below five per cent in the long-term.

Still, the benefits could be some time coming, while the pain could be felt at once, particularly if the conservatives follow through on their pledge to rein in existing schemes Schroeder introduced such as "one-euro jobs" on offer to unemployed people. There is no sign German firms will stop relocating plants to lower wage countries under a conservative government and the depressed east, where unemployment is 18.3 per cent, is still desperately short of viable businesses.

Tellingly, no party has made specific commitments, maybe mindful of Mr Schroeder's comment, made before he took office in 1998, that he would not merit re-election if he did not cut unemployment significantly. Mr Schroeder held onto office in 2002 despite failing to make inroads into joblessness. Now, with unemployment some 800,000 higher, Germans seem set to vote him out.