In a Deep Crisis, Germany Begins to Revamp Its Vast Welfare State

Essen, Germany-Four years ago, the German social-welfare system rescued Renate Franke Soon after her mother died of cancer that year, her was diagnosed with the same disease. Emotionally drained,Franke, then 48 years old, quit her job at an  The state stepped in, sending her to a spa for three weeks and paying her jobless benefits that were dose to 60% of her former wage. But last year, the state got tough with Ms. Franke. It cut her unemployment aid after she refused to take full-time jobs. It told her to sell her car, as a condition for receiving any further social assistance. Sitting one recent mtrning in her one-bedroom apartment on the outskirts of this industrial city, she said: “I began to fear for my future So, too, does Germany. Faced with its worst economic slump since World War II, Germany is beginning to broach some long-held taboos as it comes to terms with a cold reality: The country’s economic system doesn’t work anymore. The world’s third-largest economy after the U.S. and Japan has slid into its second recession within the past three years-making it the weakest of the world’s major economies. Unemployment is hovering at nearly 11%. The dire conditions are prompting an unprecedented rethinking of the paternalistic role of the state in the country’s economic life. In the decades since the war, West Germany and then united Germany had to deal with a catastrophic legacy of military and moral defeat. One source of pride, however, remained constant: the country’s economic power tethered to a strong social-welfare system. ‘low, the country’s downward spiral has made this model no longer affordable. Social spending has reached close o 30% of gross domestic product, the most of any country in the world except for Sweden and’ more than twice that of the U.S Within the past ‘few months, Berlin’s center-left government has proposed reducing unemployment benefits, opening the public health-care system to private insurers, cutting hundreds _of millions of dollars of subsidies and easing laws that protect workers from being fired. Late last month, the government brought forward by a year a planned tax cut. Some ministers even want to cut back on the country’s famously large amount of free time–30 vacation days on average, compared with 12 in the U.S…. Declining birth rates, longer lifespans, earlier retirement ages, less working time and steadily higher unemployment mean that those paying into the system can no longer support those living off of it. Since 1970, the total number of pensioners and jobless increased by 80% to 16.3 million in western Germany. The number of workers, who together with employers finance the system through payroll taxes, grew by just 4% in that time, to 30.7 million.
In the early part of the 20th century most. social needs, such as care for children and the elderly, were handled by the family across Europe. After World War II, much of the responsibility shifted to the state, and the social-welfare system began to grow exponentially. Driving the expansion were European growth rates of 5% or more, spurred by the rebuilding after the destruction of the war. Jobs were so plentiful that counties had to import workers from Turkey and elsewhere. Birth rates soared, which meant that there were plenty of young workers to finance the retirement needs of the relatively few elderly. Europe could afford to be generous. In the 1960s and ’70s, the social role of governments grew well beyond caring for the needy to providing health care, higher-level education, child and old-age care-for all citizens. “The instruments of redistribution got hijacked by the middle class,” says Dennis Snower, a professor of international .