Schröder returns to German national stage to rally Social Democrats

Though no stranger to purple prose, Der Spiegel magazine outdid itself a decade ago.

“The Hour of Truth in the Land of Lies” was how it headlined a dramatic 2003 report of a country living beyond its means. The economy was frozen, the debt was rising €144 million daily. Every second budget euro was going on pensions and welfare. With a jobless rate surging to near 12 per cent, there were enough people to be supported.

The solution was Agenda 2010, presented on this day in 2003. It liberalised German labour law and, after a year without work, jobseekers would drop down to a basic welfare entitlement – currently €382 a month.

A decade on, the debate rolls on about whether the reforms were far-sighted and necessary or whether, to return Germany to growth, Social Democrat (SPD) chancellor Gerhard Schröder took an axe to the welfare state.

"We have to modernise now, in a social way, or we will be modernised by cold market forces," said Mr Schröder, in the Bundestag. "No one will be able to take it easy any more at the cost of the community."

But many in Mr Schröder’s party saw the reforms as a sell-out of social democracy. Just 18 months later, voters ejected him from office.

This week he did a lap of honour in a transformed country, where the jobless rate is 6 per cent and a balanced budget is likely by 2015.

"The widespread view in Europe a decade ago was that Germany was that sick man of Europe," noted Mr Schröder yesterday. In a nod to his successor, he joked: "Now it is more like the healthy woman."

Behind the reform success is a persistent concern that the long-term legacy of Agenda 2010 will be an army of working poor. Unions are scathing of how the SPD liberalised the labour market without introducing a statutory minimum wage.

Today almost one million Germans have temporary jobs – up 220 per cent in a decade – while the state spends €9 billion annually in so-called “top-up payments” to subsidise those who work full-time yet earn below the welfare minimum.

"The biggest problem is the rise of poverty despite work," said Annette Buntenbach of the German Confederation of Trade Unions.

“Today, one in four has to cope with a salary from which they cannot live.”

Between politicians and unions, German analysts disagree over the real economic benefit of Agenda 2010.

"We have to move beyond the idea that German economic success today is because of whether we pay the jobless €10 more or less," said Prof Stefan Sell, economist at Koblenz University of Applied Science.

“It is largely down to greater competitiveness because of wage restraint.”

A decade after European neighbours gathered around the German patient, German politicians now attend their neighbours’ sick beds, demanding the same welfare cuts and wage restraint to boost competitiveness and growth.

Slowly, external criticisms are filtering into the political debate here that Berlin’s prescription of austerity and wage restraint cannot be applied universally.

The Social Democrats (SPD) have taken a step to the left of late and are now promising voters in September a minimum wage of €8.50.

Meanwhile, the Left Party, which emerged as a protest movement from the decade-old reforms, is calling for a minimum wage of €10 and higher welfare payments, paid for by a new top tax rate of 53 per cent, with a 75 per cent levy on incomes of more than €1 million.

"Domestic demand in Germany has been strangled for 20 years," said Oskar Lafontaine, once Mr Schröder's finance minister and now a Left Party leading light.

“Germany’s low-wage dumping has led to imbalances in Europe where Germans export and those who import get themselves further into debt to buy them.”