Policy Statement by Federal Chancellor Gerhard Schröder in the German Bundestag  “Shouldering responsibility for our country: building a stronger Germany”: 

»Mr President, ladies and gentlemen, Almost exactly two years ago I presented Agenda 2010 in the German Bundestag. Agenda 2010 is the response to two major challenges which our society, like many other societies in Europe, faces: on the one hand, the challenge linked to the globalization of our economy and thus the globalization of all aspects of economic life and, on the other hand, a radically changed age structure in our society.


For me, it is important there is clarity that Agenda 2010 is an instrument to underpin our welfare state in this new situation and, by extension, guarantee social cohesion in our society. We need this instrument. After all, we can only secure cohesion in our society if we are ready to change our policies. Change means we can maintain what we have got. After all, the system built up in Germany by a generation that is now getting older deserves to be maintained.


But it has to be just as clear – given recent debates this has to be underlined time and again – that the social cohesion of our society is no luxury that can be left at the wayside when times are getting harder.


Solidarity in a society – the strong standing by the weak, the healthy by the ill, the young by the old – is certainly an asset. But it is also a prerequisite for economic success in Europe’s developed societies.


Those who question social cohesion in our society, those who see social cohesion as a superfluous adornment in years of plenty, are questioning not just major achievements of politics and society in our country, no, they are rather setting about destroying inner peace. Inner peace is not least an economic factor, a further prerequisite for successful and efficient production.


Agenda 2010 is certainly a demanding reform programme which, as its very name indicates, stretches far beyond the current legislative period. Agenda 2010 wants to shape reality and be a vehicle of change. It is therefore linked to an understanding of reform that does not stop with the adoption of laws – whether in the Bundestag or the Bundesrat – rather it is all about changing the reality in Germany. That is why it is so important that part of the reform known as Agenda 2010 centres not least on the implementation of these reforms and not just on the adoption of the relevant laws.


The adoption of a law – whether on the health reform, pension reform but above all else labour market reform – is essential for the reform process. It is the start, but by no means the end.


Ladies and gentlemen, before I focus on the impact of Agenda 2010, it is simply crucial to turn to the situation on the labour market. There can be no question that the figures before us weigh heavily on all our shoulders. The more than 5 million unemployed registered in February are the most serious challenge facing our society. But it also has to be clear: particularly when this is seen as a serious challenge – and we all do that – then we have to explain the background to the figures. The number of those in employment is increasing. In 2005, we expect more than 300,000 new jobs. In 2004, it was 140,000. I am not telling you this to relativize the other figure I mentioned. But I am saying that the reform process we launched, which in many spheres is only two months old, is nevertheless starting to kick in.


There is no denying that no-one can ignore or try to play down the more than 5 million unemployed. It is important to tell the people in Germany, who are at the end of the day feeling insecure because of this figure, how exactly it emerged. In January this year alone, 360,000 people were added to the unemployment statistics. These were by no means new unemployed persons, rather people who had previously been counted in the social benefits statistics. They were people who, although fit to work, were not receiving any offers of paid employment. In Germany’s cities, the number of welfare recipients who are fit to work has by all accounts plummeted by 95 percent on average – these are figures from the Federal Statistical Office not from me. These are people who had no job, who had been pushed into welfare benefits without giving them a perspective for the future. By merging unemployment assistance and welfare benefits, we are at least able to make clear that we see them as people whom we have not forgotten, as people whom we need and whom we want to give a perspective for a life without state assistance through training and job offers.


I know this will be an extraordinarily difficult process. But it has to happen because half of these people are under 25. It cannot be right that we simply leave them by the wayside in the welfare system, providing of course for the bare minimum but without giving them any prospect of a self-determined existence. This is certainly something I don’t want.


With the reforms known as the Hartz reforms we have made a serious attempt to involve these and other people in the labour market. We are following the principle of support, but also expect something in return. The people in question will receive offers – not always the sort they expect – to do what they can to create an income and a livelihood for themselves and their family by working. We have made clear that reasonable work in Germany has to be taken up by those legally residing in Germany. We will insist upon this. This is the very point of the Hartz reforms we have launched.


Here perhaps a word on the Federal Employment Agency. The former Federal Employment Service with a staff of more than 90,000 was an organization in which 10 percent of the employees were placing people on the labour market. 90 percent of the staff were administering unemployment. That could not be allowed to go on. Merging the two social systems of unemployment assistance and welfare benefits aims to end this situation. This can only be done if the way the Agency works is fundamentally changed, if the focus is on active placement and not on mentoring.


We have moved forward. In January, hundreds of thousands of applications for unemployment benefit II had to be examined. Let’s not forget that many a one thought this was too tall an order for the Agency staff. But it worked. I think it is right to say a word of thanks here to them for their committed work.


We will manage to improve cooperation between the local authorities and the Agency branches. But that too is a challenge that we have to tackle. We will and we must ensure there is a shift in the staff motivation – of which there are more than 90,000. They have to move away from mentoring and towards active placing those entrusted to them.


Let me make another point here. It is easy to criticize those doing the job. But I don’t know many larger companies who have mastered such a major shift in their core business so successfully in such a short space of time. As I say, I don’t know many companies who have done the same.


When we are talking about the labour market, we have to bring up training in Germany. We have talked and indeed argued about this on many occasions in this Parliament. Our ultimate conclusion is that it is not least the responsibility of businesses to ensure they have a pool of new recruits. Let me say quite clearly: those who do not engage in training are sawing off the very branch they’ll want to sit on tomorrow.


I am delighted that such a massive effort by Government and business meant we were able to tangibly increase the number of training contracts also in companies. I am pleased we managed to make an offer to all those who can be trained. This process must continue. The task of creating training posts has not been over since last year. It is starting this year, and what is more today and tomorrow.


I am grateful to all those who have worked on this both from business and from politics, particularly the President of the German Association of Chambers of Industry and Commerce and – let me say this too – to Franz Müntefering. I am grateful for the success this pact has brought. This is a real success and it certainly wasn’t down to the Opposition. It is a success and we must build on it.


Linked to the Agenda, we also have to talk about what has happened with the health reforms. Here, we can see that what we have done together – people sometimes like to forget this, certainly when the going gets tough – has had a positive impact. I am talking about the health insurance funds here. After all, we have to talk about how to ensure the right conclusions are drawn. In 2003, the health insurance funds ran at a loss of almost 3 billion euro. We now know that they made a profit of 4 billion euro in 2004. I don’t want to mince my words here: the greater part of this profit of 4 billion euro has to be passed on in the form of contribution reductions and thus drops in non-wage labour costs. It has to be passed on in the form of contribution reductions and not – let me say this quite clearly even though I cannot possibly be envious – in the form of pay rises for the board members.


Ladies and gentlemen, sickness benefit and dental prosthesis are to have a new financing mechanism from 1 July this year. This was also a joint decision and I hope we all stand by it. Here you go again saying we did it on our own. But that is part of the health reform, ladies and gentlemen, and will mean that companies will again be able to spend 4.5 billion euro less on non-wage labour costs. I hope they take this on board and in turn take on more staff.


It really is interesting that as soon as one demand has been met, the next ones are already being made. This cannot go on. Lumping together everything in this sphere, companies have been able to save almost 10 billion euro on non-wage labour costs. This makes the companies more competitive, particularly small and medium-sized enterprises. But the response must not be relocation threats rather job creation.


The discussion we were able to follow very intensively in the press over the last few days  – of course I saw it too – concerning protection against dismissal is also part and parcel of the labour market. I believe, ladies and gentlemen, we should make clear once and for all what has been achieved in this sector and what an impact it has had, or at least should have. So what is the situation? In businesses with less than 10 employees, those employed from January 2004 are not included in the relevant regulations concerning protection against dismissal. But let us look now at what options are available on the German labour market. We hear time and again that there is hardly any flexibility. Perhaps it is interesting for those listening or watching to get a proper breakdown here:


Regardless of the person’s age, all companies can offer two-year fixed-term contracts.


If it is a start-up – of course, it is right that this is often emphasized – then people can be employed on fixed-term contracts of up to four years. That means, entrepreneurs can employ everyone on a four-year fixed-term basis without the employees having any kind of protection against dismissal.


Finally, let us turn to the situation concerning older employees which is something of particular concern to all of us. For persons over 50 there is practically no protection against dismissal. After all, for the first two years, they can be employed on a fixed-term contract. For people over 52, there are no regulations applying to fixed-term employment. So regardless of such regulations, they can be hired and dismissed at any stage as this group does not benefit from protection against dismissal.


Ladies and gentlemen, this really should finally put an end to the talk about there being no point in employing someone older because they cannot be dismissed if there is a downturn in business. This is a myth in the making.


I want to make one thing clear here. Those who thought – and let’s be honest we all expected this really – that easing this protection against dismissal would trigger a wave of jobs in companies for the over-50s are now seeing the error of their ways. I’m sorry to have to say this.


So in this area there is now no protection against dismissal. Nevertheless the employment level amongst older employees is – believe it or not – a mere 40 percent. This is the figure for the over-55s. Let me add, ladies and gentlemen, what a waste of knowledge, experience, skills and creativity on the part of the economy! We cannot allow this to go on.


I would be very grateful if, against this backdrop, there were the same big headlines pointing out that it is not just an option, but in fact the duty of companies not to dispense with older employees, but to involve them in the production process.


The second major topic that is always linked to the debate on the alleged lack of flexibility on the labour market, is the question of in-company alliances. I think you should take a look at the reality before creating ever more ideological myths. The reality in Germany – and I am by no means just talking about larger companies – is that employees, their trade unions and their works councils are more than able to forge in-company alliances if need be to keep their jobs. They have always been ready to make sacrifices. I wish I could see the same patriotic approach on the other side too.


Moreover, the in-company alliances do not only work when it comes to saving jobs in companies that are up and running. Those walking around without blinkers can see very well how we have managed to get companies to set up in the east of our country through in-company alliances. Let me give you examples. When BMW were considering where to invest, whether in the Czech Republic, Slovakia or in Germany, an in-company alliance was formed concerning working hours and payment which meant the company chose Germany. This shows it really works. I could use the same argument for Porsche and the other car manufacturers, for example, Opel in Eisenach. But I want to mention one such recent decision that only happened because the trade union was flexible enough, and I am talking about ver.di here, to build such an in-company alliance. I am talking about DHL in Leipzig. An interesting case.


Given what we said in the Agenda 2010 debate two years ago, you can see we have moved forward, there are enough opening clauses. And where there are not, we are happy to take legislative action. My plea is: Let us rely on the understanding of the employees, their works councils and their trade unions. They have shown they understand the situation and let us – after all, it has become something of a tradition – draw on Montesquieu and say here too that if it is not necessary to make a law, it is better not to make one.


You see, I believe we should encourage the trade unions and the employees to continue along this path to make companies more flexible. This is happening. But we should be careful that we do not counter this trend by smothering the companies with regulations that often call free collective bargaining very much into question. That we do not counter the trend by settling labour conflicts more on the streets rather than in Parliament and in discussions as we saw last summer. I really don’t want that. I am not going to name any other countries. But you know the score. That is why I believe that we should continue to rely on this proven readiness to be flexible. There are many more examples.


Part of the Agenda was also to restrict non-wage labour costs by keeping pension insurance contributions stable. That’s exactly what we did, ladies and gentlemen, despite all the prophesies of doom. This was only possible through a number of reform steps which people have already forgotten about. I don’t know why. It’s true that we could only keep the contributions stable by linking the fully-funded system to the pay-as-you-go system. 20 million people have taken up a supplementary pension scheme – mainly in companies. 20 million people have set up a fully-funded system and thus shifted the balance away from the pay-as-you-go system based on solidarity towards private provision.


Ladies and gentlemen, the reforms have changed the pension term because we managed to push the effective retirement age back a year. This isn’t enough. But here too perhaps we need to think about whether the nominal retirement age has to be increased. But much more important are the efforts to up the effective pension age. We have to continue these efforts, not least for economic reasons.


We have been able to keep non-wage labour costs for pensions stable because we channelled massive amounts of money to the pension funds from the much-lamented ecotax. So let me warn all those criticizing for the sake of it. Changing this would have a negative impact on the stability of contributions and therefore on the stability of non-wage labour costs.


Let me add, it was us who ensured that the principle of downstream taxation was implemented. A principle which is about easing the burden of contributions on those actively employed. This is going to happen, ladies and gentlemen, and it will have an impact on the stability of contributions and non-wage labour costs.


Anyone who takes a balanced view, who takes seriously the concerns that our unemployment figures no doubt give rise to, and who does not want to paint a distorted image of Germany, must point out that these reforms – which, by the way, have received much attention and are highly esteemed abroad – have led to positive results. Our economic situation is by no means dismal. On the contrary: our manufacturing industry has seen a rise – and not a decline – in new orders. In January, our exports were up by 9.5 percent as compared to the previous year, and this was achieved despite the clearly unfavourable euro-dollar exchange rate. Moreover, it is now internationally recognized that Germany is the only G8 country whose international market share has actually grown in the past years. This is not a sign of weakness, but rather an indication of our economic strength and potential.


It would be a great mistake to allow anyone to paint a distorted image of the state of our nation. We do have problems – this cannot be denied. But we also possess the strength – and this is proven fact – to tackle these problems.


I hope it has become clear that the Agenda 2010 programme is bearing fruit. We must resolutely and with all our strength work hard to implement these reforms, and that is exactly what we are doing.


Nevertheless, we should also think about what additional impetus we can provide – if possible, through a joint effort. Despite the strength of the German economy, global competition has increased – not exclusively due to the enlargement of the European Union, but this has also been a factor. As a result, we of course must also consider what further action can be taken with regard to tax policy.


Before making any comments or suggestions on this, I wish to point out one thing: What developments have occurred in the debate on taxes? The three stages of tax reform have reduced the tax burden on corporations and private households by 56 billion euro. In view of the constant demands that are being made, one must restate this fact again and again.


We have lowered the top tax rate, which stood at 53 percent when we assumed office in 1998, to 42 percent. We have met a long-standing demand of small and medium-sized businesses, namely by establishing a trade tax imputation system for unincorporated firms. We did not receive much praise for doing so, although it would have been well-deserved. Even though it was the right thing to do, our action was never applauded. Crediting trade tax to income tax greatly reduces the burden on small and medium-sized businesses in particular.


We also – and I say this to all sceptics – made significant changes in the lower tax brackets. We lowered the entry tax rate from where it previously stood at 25.9 to its current rate of 15 percent; this was our – yes, I can say it was your achievement. We should not let anyone take this success away from us. As a result, Germany’s overall tax ratio in this area is in the bottom third as compared to the rest of Europe.


However – and this is an issue that some of you are greatly concerned about – we do have a problem with regard to financial corporations, namely that nominal tax rates are relatively high. There is another interrelated problem: due to these high nominal tax rates, corporations attempt again and again to avoid paying the taxes they actually owe through exorbitant transfer pricing, and by shifting profits. If the gap between nominal and effective tax rates is too great, this has two effects: corporations use every chance they can get to avoid paying taxes, and this in turn leads to a shortfall in government revenue.


I therefore propose – and we will require the support of the Bundesrat for this – that we agree to lower the corporation tax rate from 25 to 19 percent. It must be crystal clear that tax loopholes need to be closed with a view to not lowering, but rather increasing, overall tax revenue – thereby keeping the measure’s financing revenue-neutral. I would like to point out how I believe this should be achieved. I think it is appropriate to differentiate between the tax burden on corporations and that on corporation owners. We did this by introducing the half-income method, whereby we succeeded in changing the way in which shareholder dividends and speculative gains are taxed, by increasing taxes for shareholders and at the same time lowering taxes for corporations, which are competing on the global market. I also believe it is appropriate we return to the issue we discussed in 2003 – and I will say this straight out – namely that increasing minimum tax levels may be a way to successfully lower corporation tax rates. I believe that we must finally get serious about reducing tax subsidies – and that as of yet we have not done everything that is truly necessary in this regard. For example, I can imagine that we could clearly limit corporations’ options for offsetting losses, and that we could use the leeway this creates to give corporations more of what they need to compete; we must take action, but at the same time our action must be revenue-neutral, in the interest of consolidating our government budgets. Other options, ladies and gentlemen, are simply not available, but what I just outlined could be a way to achieve this! What I ask of you is to join me in this important endeavour.


In addition, I think we must make adjustments to what I mentioned during my initial comments on tax policy, namely the trade tax imputation system. When we first put this system in place, we said it would make trade tax fully creditable up to a multiplier of 390 points. We are currently witnessing an interesting development: lowering the top tax rate has a negative effect on the crediting of trade tax to income tax. The rate currently stands at approximately 340 points. I think that, with a view to promoting small and medium-sized businesses, we should restore the old rate. This can be done by increasing the trade tax imputation factor from its current value of 1.8 to 2 percent. I am in favour of doing so and, ladies and gentlemen, I hope the Bundesrat will actively support this.


Finally, I would like to address an issue that has occasionally already been discussed in the Bundesrat and that I believe action must finally be taken on: We have intensively discussed the founding of start-ups and how we can simplify the procedure for their establishment. This is a subject worthy of discussion. However, we must also talk about how we can maintain those enterprises that currently exist. In the years to come, many enterprises will change ownership – which is also referred to as succession. To make it perfectly clear, I am not referring to private inheritance, but to changes of ownership within enterprises, in particular small and medium-sized businesses.


I am in favour – and I know, Minister-President, that Bavaria is also in favour – of implementing the model that has been discussed, namely of a 10 percent annual deduction in the inheritance tax that would normally accrue, provided that the enterprise is maintained. I know, Minister-Presidents, that this has been discussed in Bavaria and in North-Rhine/Westphalia. I think it can and should be done. I know that colleagues in the Länder will have to accept responsibility for this move – for it is they who will be affected by the loss in tax revenue. The measure absolutely makes sense. The Federal Government will support such a bill, and if you so request, we will also introduce it. However, the Bundesrat must then not make any attempts to throttle this initiative and ensure that it passes. It is simply unfeasible for such laws to be introduced to the Bundesrat only to then have them voted down. As I see it, this has occurred true to the motto that a bill will be introduced as long as it is certain to be defeated. This is not the way things should work. Please, therefore, let us pass and implement this piece of legislation, which small and medium-sized businesses in Germany are waiting on!


In addition, we suggest that we enable the KfW Mittelstandsbank to grant credits to small and medium-sized business owners for innovative projects at an interest rate 2 percent under the market rate. This, I believe, would be a package to strengthen the competitiveness of these businesses that could be implemented immediately. In any event, we must take action in this area, and the board of experts has been charged with putting forward proposals on this issue.


Indeed, we are faced with the problem that in a united Europe, extremely different tax rates apply – I am speaking of direct taxes – as well as exceptionally variable tax bases. We are working hard to establish a common base for direct taxes – and incidentally this is difficult not only for the new Member States, but also for some old Member States. In view of the decision-making processes in Europe, this is not an easy task, and it will take time. That is not our fault. However, when I look at some other countries, then I see how much work needs to be done. I will repeat: This by no means applies only to the new Member States who joined the European Union on 1 May of last year. Other Member States, both large and old ones – I am thinking of islands and other states – will be highly reluctant to cooperate; those are the facts.


I want all this to be taken into account and request that the board of experts develop concrete proposals as soon as possible – I hope by the autumn of this year. It has already made one, relating to how harmonized tax bases could be used to achieve a corporation tax system that applies to all legal forms of corporations. This is an important point. Experts refer to this as the “dual income” tax system, whereby taxes are not calculated according to the legal form of a corporation, but rather based on the division of income between capital income and labour income. We are working on the relevant proposals, which are scheduled to be completed by the end or preferably the autumn of this year.


We will then have to talk about how to implement them. When that time comes, we must bear one thing in mind: certain tax rates will need to be fixed. Under certain circumstances, small and medium-sized businesses could possibly see an increase in their tax rates compared to their current levels. This would be wrong. That is why we must examine the facts very closely. The board of experts has been requested to draw up a special report, and it will certainly do so.


What I ask is that we quickly tackle this issue. All my suggestions do not block the way to establishing a fundamentally new corporation tax system, along the lines of the one I have presented. We should agree to implement these ideas.


Ladies and gentlemen, let me make another related comment: If we join forces on this issue – which in view of the tight government budgets on all levels will require an enormous effort – then I expect that you do not respond by simply making another demand. When the government will have created a framework that is truly sufficient, then the constant talk of corporations leaving Germany to relocate elsewhere and moving jobs out of the country should stop, and investment in Germany should begin. That is what I expect from German industry.


The second area that we must address is a short-term increase in investments. The Agenda 2010 programme was put in place to provide a long-term structural foundation; however, ladies and gentlemen, we must also do something in the short term. I will not go into all the details here – now just wait, as you can see I am mentioning enough fine points.


We must speed up the process for establishing start-up enterprises. To name just one example: by amending the GmbH Law, we will be able to substantially reduce the minimum amount of capital that is required for founding a company. We will set up an electronic commercial register that will enable start-up enterprises to be established within days as opposed to months. This is all about reducing red tape.


In addition, we must make every effort to increase our commitment with regard to transport infrastructure. That is why we will appropriate an additional 500 million euro annually in funding to help finance a two billion euro programme over the next four years – with a view to improving our transport infrastructure.


In this area, we have not yet done everything we can to also enlist private funding. That is why I think it is important to examine if private corporations could be used to smooth out infrastructure investments, as has been done in Austria.


With the help of the Transport Infrastructure Planning Acceleration Act that has been prepared by the parliamentary groups, we will attempt to raise billions of euro in private capital through Public-Private Partnerships. By combining our forces with those of industry, we will implement specific projects such as the A1 in North-Rhine/Westphalia and the A4 in Thuringia, and we will do so more quickly than tight government budgets would permit.


We will introduce legislation that aims to simplify the procedure for investment and that will considerably speed up this process. It will focus on all regions our country, and it will be enlarged to also include investment in our electricity networks. We will urgently require such investment in the coming years, and we must work to more swiftly expand these networks, as well.


With the amendment of the Energy Industry Act, on which the coalition parliamentary groups have reached an agreement with the help of some of their colleagues in the opposition, we will achieve more legal certainty for the power supply industry. Believe it or not, we will achieve – and power companies have declared their intentions to this effect – the investment of 20 billion euro by the year 2010 in new power plants, electricity networks, and the upgrading of existing plants. I consider this development to be both extraordinarily positive and necessary.


I will now address an issue that I believe to be important and that – rightfully – has been much debated. I am speaking of how we should proceed with so-called “green biotechnology”. Together with the first Biotechnology Act, the second Biotechnology Act will constitute a reliable legal framework for investment in this area.


I know, ladies and gentlemen, that with regard to liability questions, this law does not fully meet the expectations of the industry – which is intended to, and will, invest in this field. Many have said the public sector should assume liability. But would this truly be the right solution? Can we distribute risk in this manner in all new industrial endeavours, or does it rather make sense to say we will establish a reasonable framework – while at the same time expecting that industry also establish funds on the basis of this legal framework that will regulate industry liability. It is my impression that strange arguments are sometimes put forward, whereby the public sector is expected to assume every responsibility, especially if this would be to one’s own benefit – while on the other hand the same voices insist the government must loosen controls and not meddle in industry’s affairs.


I believe these two Acts provide a fair balance of interests and establish a framework that enables investments to be made. I know that a large German corporation will soon announce new products. I am also prepared – and we have already declared our willingness in the Bundesrat to do so – to create a legal framework, to then proceed based on this framework, and to review the situation in two years’ time. We shall see if, on the basis of European legislation, adjustments will need to be made in this field or not. Above all, however, we must make sure that we do not exercise the same reluctance in all areas of biotechnology – this also concerns red and white biotechnology.


I ask you to recall the debates that were held here in the German Bundestag on therapeutic cloning in which I witnessed a reluctance – I say so with all due respect – that I for one cannot subscribe to. I wanted this to be said. I know, Mr Gerhardt, that we agree on this issue. It is not a problem if for once we agree on something. I want to state this clearly here, so that everyone can see that only the centre of this Parliament – that is, The Greens parliamentary group – is reluctant on this issue, and everyone else merely aims to adopt a pragmatic economic approach.


I think we should try to achieve a reasonable balance. With the first and second Biotechnology Acts, we have done so for now. Let us therefore not carry on yesterday’s debates, but instead allow these products to be released and seek to make advances in this field. We will then see if after two years the legal framework will need to be adjusted or not. In any case, we should allow things to get under way. I think that is the task we now face.


While speaking of investments, we will ensure that the KfW CO2 Building Modernization Programme can be maintained at its current level until 2007; this means a total of 720 million euro, which, judging by our current experiences, will trigger investments amounting to approximately 5 billion euro. The funding has been secured and the Bundestag can guarantee that the programme will go ahead.


In the area of small and medium-sized businesses, and above all for the craft industry, some 60,000 jobs must be secured – and if possible new jobs must be created. In view of our current situation, this is not a matter to be taken lightly.


Ladies and gentlemen, I would like to say a few more words about the fresh momentum I believe we need to inject into the labour market in the light of the discussion on Agenda 2010 and the tasks of the Federal Employment Agency.


I think those who played a particularly active role on the mediation committee at the time have come to realize that we must re-examine the opportunities of the long-term unemployed to top up their income.


We submitted proposals to the committee. By the way, I would like to say that I treat the counterproposals with great respect. That they also contain ideas worth discussing is undeniable. For we must resist the temptation to allow people to pursue these forms of employment for too long by providing them either with transfer payments or with ways to top up their earnings. This is an important point raised by those who were sceptical at the time, and which we should not simply dismiss out of hand. I believe it is possible to find a happy medium. We should work together to achieve a balance. For on this issue too we need the approval of the Bundesrat if we intend to change the situation, and I am in favour of doing so.


Over the coming weeks we will have to take decisive steps to promote job placement schemes, initially for under-25s. You are aware that those who fall under Volume II of the Code of Social Law – those who receive unemployment benefit II – are entitled to receive a training place, participate in a training course or be given a job. If we start by focusing all our efforts on the long-term unemployed, we could succeed in honouring this right. To this end the Federal Employment Agency has around seven billion euro at its disposal. We should redouble our efforts to include those who come under Volume III of the Code of Social Law – those who receive unemployment benefit I or who are not entitled to financial assistance because they still live with their parents and rely on this safety net for their financial support.


My priority – and on this the Federal Minister of Economics and Labour and I see eye to eye – is that we focus the resources of the Federal Employment Agency on two areas. First, we must succeed in giving young people hope for the future. Incidentally, that is also a demographic necessity. If we don’t manage to rescue the 600,000 and more under-25s from their disillusionment, we will bitterly regret it, because very soon we will find that the human resources we need to generate further growth are not available. That is the crux of the matter. It would also be an economic disaster to abandon these people to a fate of anonymity and to leave them without prospects.


Second, we must focus on the older employees, the over-55s or over-58s, especially those in eastern Germany. Here, too, we must boost job placement activities. And that is what we shall do. We must also cooperate with those who are in a position to create additional jobs in the business sector, and who have an obligation to do so. For example, we plan to make available 250 million euro to be used to do more in particularly worthwhile sectors. I believe that forms of competitive thinking such as best practice are also appropriate and viable in this area, and should be extended.


I have considered the issue of fixed-term employment. From time to time labour market flexibility is a subject of debate, but the core issues are not really addressed. I personally believe we must do something about one particular aspect of fixed-term employment. We must make it easier for people to work under fixed-term contracts by lifting the blanket ban on previous employment with the same company. I believe that this development is right and sensible. I advocate restricting this ban to two years so that consecutive short-term contracts cannot be concluded indefinitely.


Ladies and gentlemen, in connection with the labour market I would like to draw your attention to an issue which disturbs us all – the recently disclosed circumvention of the agreements on transitional periods concerning the freedom of movement for workers, which we concluded prior to European Union enlargement, and the circumvention of the Directive of the European Parliament and of the Council of 16 December 1996 concerning the posting of workers in the framework of the provision of services.


In the meat industry and, increasingly, in the ancillary building trade, specifically in the case of tilers, but also in other sectors, employers are evading provisions designed to protect German workers by claiming fictitious self-employment and resorting to similar tactics, inflicting serious damage on our economy, as well as on the foreign workers concerned, who are employed under unacceptable conditions. We must set up so-called task forces so that we can ruthlessly exploit all the legal methods at our disposal to put a stop to this practice. This also requires cooperation between the Federation and the Länder. We don’t just need law and order in home affairs, we also need law and order on the labour market, and we must ensure that this is in place.


In this context allow me to comment on discussions about a European project which not only concerns people in Germany, but also affects our neighbours. I am referring to the Services Directive. To begin with, it is obvious that the violations I have just described have nothing to do with the Services Directive, because it does not yet apply. It is also clear that it will not enter into force in the form Mr Bolkestein, the former EU Commissioner, envisaged. I agree wholeheartedly with the French President – and, incidentally, with others – that we cannot allow the freedom to provide services, which we should certainly support in principle, to lead to social dumping in Germany, we cannot allow abuse of the security standards we have built up, with good reason, to protect our workforce, and we cannot allow the private welfare associations and those responsible for the care of the elderly and infirm to be manoeuvred into a position in which they can no longer compete because they have been pushed beyond their limits. That cannot be the idea behind the freedom to provide services in Europe, and we will not let it happen here. I am optimistic that both the European Parliament and the European Commission will eventually realize this.


Ladies and gentlemen, I would also like to devote my attention to another topic – the question as to how we approach our future obligations in the education sector, on the one hand, and in the field of research and development, on the other. I believe we will soon come to the conclusion in this Parliament, and I hope, too, among the German public, that the fate of the German economy, the chance of maintaining and, wherever possible, multiplying wealth in Germany depends on our ability to mobilize funds to invest in the future. We must move away from outdated subsidies and towards forward-looking investments. Looking at Europe, we can see that Germany’s investment in research and development is above average – we are ahead of the major industrial nations which are our chief rivals, but lagging well behind the Scandinavians, for example. It goes without saying that if we want to stay at the top, if we want to continue to lead the way in the global economy, we have to invest more in research and development. And we have to act now. We cannot save it for a rainy day. That is why I say that anyone who talks about cutting subsidies, if they want to be taken seriously, cannot ignore the fact that they must sacrifice the owner-occupied homes premium for the sake of research and development. And don’t come back at me with, “We’d use that to finance a massive tax reform!” In the first year the savings would amount to a mere 300 million euro, making that a truly difficult feat. I maintain that by scrapping that subsidy we will be able to mobilize between six and eight billion euro in future.


The only sensible option is to take these funds and invest the whole lot in research and development at federal level, and in education at the level of the Länder. The attempts to throttle the plan in the mediation committee must therefore be abandoned. The money for the owner-occupied homes premium must be channelled exclusively into research and development as well as into investment in education.


Let me be absolutely clear on this. In my opinion, the allocation of the four billion euro we are providing for all-day childcare is highly questionable. I feel it is irresponsible, for the following reason. Investment in this area – in childcare – is indeed necessary to support the children who do not receive the backing they really need from their families. Many factors contribute to this, as we sadly observe time and again. Anyone who mentions PISA, which regrettably is already almost forgotten, must first explain how we can give every child a chance in life, regardless of their social background. Education is the way to achieve this. If it is not possible any other way, then we have to achieve it through education and childcare.


One of the biggest mistakes we could make – and I hope that more and more economists begin to realize this – would be to fail to recognize that without investment in childcare we would run into tremendous economic problems because we would then be unable to tap the potential of women and hence that of the German economy to the required extent.


Investment in all-day childcare is not only a question of gender equality, although that is one key factor. Above all it makes perfect sense from an economic point of view. Nobody in business can foster the belief that they can generate the workforce potential we need in this decade alone solely by means of controlled immigration, which I support. Nobody must harbour this illusion. It would overstretch our society’s capacity for integration. We must therefore acknowledge that both for reasons of equality and for reasons of economic sense we ourselves and business must invest in childcare, otherwise this potential cannot be exploited. And that would cripple our economy.


On the subject of municipal investment activities, in today’s Financial Times Deutschland – I apologize to the others – I saw some interesting statistics on the development of trade tax, to which the municipalities are entitled. It now amounts to more than 28 billion euro, four billion euro more than last year. I’ve been informed that that is a post-war record and represents an increase of 18 percent on the previous year.


Now, I have a request to make to the Minister-Presidents. Discuss with your interior ministers whether it would be possible for the municipalities to channel at least part of this considerable increase into necessary investments instead of adhering rigidly to a cameralistic system.


Incidentally, that is not all. If 95 percent of those who were previously receiving public welfare have been transferred to unemployment benefit II through the change in legislation – I will refrain from commenting whether that has always been interpreted as sensitively as it could have been, after all, I’m not a man of harsh words – then massive savings have also evidently been made in this area, and these could and should be used for the renovation of schools, the renovation of municipal facilities and for the repair of municipal roads. We have the chance to stimulate investment in this area and thus inject new life into investment activity. We must make the most of this opportunity.


Future investment will involve – and this is a really difficult issue – sorting out long-term care insurance. We intend to achieve this by autumn this year. As a coalition we plan to present a joint programme which will put the financing on a transparent and secure footing and find an appropriate balance between out-patient and hospital care, and which will also benefit some of the most seriously affected – dementia sufferers. We have to take action in this area, and we intend to make a concerted effort. But that will only be possible if we are able to agree on a common concept.


I would like to say a little more about the concept which I believe corresponds to the social welfare system reform programme and the improvement of the framework conditions for business. I am referring to the federalism reform. I think we ought to make a new start.


It is a fallacy that the Federal Government – yes, I – was opposed to this reform from day one. But fallacies are sometimes very persistent. Let me state in no uncertain terms that in this case I am not interested in competences, I am interested in what is happening. That also applies specifically to the education sector. I want to make this quite clear. We need to try again on this issue. The commission chaired by you, Minister-President Stoiber, and Mr Müntefering, has produced positive findings. You were able to reach a consensus on 85 to 90 percent of these issues. I ask myself why we can’t at least implement these aspects, but still!


On behalf of the Federal Government let me say that I will support every proposal – even on the difficult issue of competences in education – on which you and your co-chair reach an agreement. You need have no doubt that the two of us will see it through. Whether you manage that with your fellow Minister-Presidents is a different matter entirely.


I feel this is vital, because a federalism reform really calls us to reinforce what we have achieved and will continue to achieve in the area of social policy and the economy by establishing corresponding state structures, leading to increased transparency in the area of competences and thus also with regard to responsibilities, and to more efficient federal structures. This is essential if we want to make progress. I will be among the staunch supporters of a new approach along these lines, which I am strongly advocating.


I hope I have made one thing clear. We are in an extremely difficult situation with regard to the labour market statistics. We can explain them away to some degree. But even if we do explain them, as I have done, unemployment is still far too high. That is the great challenge our country faces. All those who have taken a stand on this issue have said that it is not an economic problem. I believe that is not quite correct in this apodictic sense. It is indeed an economic problem, but not first and foremost, admittedly. It is more of a structural problem. But we have responded to this structural problem with Agenda 2010 and the new ideas I have proposed.


We must keep one point in mind – in closing I would like to mention this specifically one more time. We in Germany and in Europe are in a relatively good position compared to other regions of the world because we have retained a European social model in various forms within the European Union. This enables people both to share in the hard-earned wealth and to participate in political decision-making processes. I believe we would be making a grave error if we were to abandon the principle of the social state and with it the principle of social cohesion on the basis of extremely short-term considerations triggered by very real concerns. That would be a serious mistake.


What we have set in motion and what we have planned to do is not easy. The coalition will be able to realize some plans independently. Where that is possible, it will do so. However, varying majorities in the Bundestag and the Bundesrat mean that to achieve the rest it needs the cooperation of all those who have a stake in this cooperation because they want to move our country forward. I am willing to do my part, and I hope that we have got off to a good start here in the German Bundestag.«


Policy Statement by Federal Chancellor Gerhard Schröder in the German Bundestag  “Shouldering responsibility for our country: building a stronger Germany”;  Berlin, Thursday, 17 March 2005,  Translation