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April 1997

Germany gears Down: With reforms to grease the country's economic cogwheels

All of the many reforms that are effecting present day Germany.

Everywhere you turn in Germany these days, it seems you hear the buzzword "reform." Discussions on downsizing state-run systems saturate the media and fill the air at Stammtische around the country. Germany's bloated health care, tax, retirement, education and postal systems are further weighed down by a record postwar unemployment rate of more than 12 percent that's on the rise. Even the language is being slimmed down and reformed. Here is a brief overview of the major reforms under way: HEALTH CARE: What's the cure? Around the world, the German state health care system has been held high as a model of "socialized medicine" that not only covers basic dental and medical treatment but also massages or healing programs (Kuren). However, Germany's health care deficit is skyrocketing, last year reaching more than DM six billion. In an ongoing effort to cure its health care malaise, the government's 1988 three-stage reform and 1992 restructuring included a halt on licensing for doctors and budget ceilings on prescriptions. But these measures only worked for a couple of years. Late in 1996, when doctors surpassed their prescription budgets, the state health insurance plan cracked down, refusing to pay; so physicians and medical personnel walked out or postponed patient's treatments. In January 1997, a third phase of the health care reform took effect. The most important features are: higher premiums and prescription fees, lower dental and eye care allowances and 10 percent less sick pay. Specific "hardship" rules for low-income persons and the chronically ill are also part of the reform (see MF 2/96). Health Minister Horst Seehofer now proposes doing away with prescription ceilings and, instead, raising the insured's health care premiums and co-payment on medicine and services, while giving insurance companies more leeway to choose the treatments they want to cover. In the future, state plans and patients will have to concentrate on the quality, rather than the quantity of medical care in Germany. RETIREMENT: Double trouble A drop in the birthrate, combined with a higher life expectancy and a high level of unemployment means more pensioners and fewer workers paying into the system: the demographic imbalance of the German population makes financing the national retirement fund nearly impossible. A special "pension reform commission" under the chairmanship of Labor Minister Norbert Blüm set about to reform the pension system. At the beginning of 1997, retirement fund payments were raised from 19.2 to 20.3 percent. Unfortunately, the increases are not enough to offset the deficit, and a new law raised the retirement age back up to 65; those who stop working earlier will receive lower pensions. Already, the Free Democrats are proposing cutting pensions from 70 to 64 percent of last-earned income. In addition, Finance Minister Theo Waigel suggests raising the tax rate on pensions. "Pensions are safe," proclaimed German billboard ads not long ago. Although Blüm's commitment to pensioners might be called heroic, his promise won't help the generation born after 1940 who must pay twice: for someone else's pension now and for their own pensions in the future. TAXES: Take a break Is Finance Minister Waigel's tax reform a masterpiece or just a quick fix? Waigel plans to slash income taxes, from 53 to 39 percent in the highest bracket and, at the low end of the income scale, from 25 to 15 percent, while reducing corporate taxes of 45 to 47 percent down to 35 percent. He'll offset the lower revenues by raising the value-added tax, doing away with many tax write-offs and shelters, taxing night-shift and holiday bonuses, and raising tax rates on pensions and life-insurance annuity. Waigel insists that decreasing Germany's high taxes - among some of the highest in Europe - will improve the economy, making it more attractive for investments, and thus create jobs. He faces a balancing act of plugging loopholes without scaring off corporations and mega-earners (like sports stars) or their money out of the country. The opposition doesn't agree with some of the measures, but seems more willing than usual to compromise and, in hopes of getting the sluggish economic cogwheels working again, might pass the tax reform by the end of this year. POST OFFICE: No mail today Germany's familiar mustard-yellow mail boxes are an endangered species, likely to fall victim to the next stage of the country's Postreform. If the ruling coalition and postal ministry have their way, the Deutsche Post AG stands to lose its monopoly on mail delivery beginning in 2003, when private companies will be allowed to handle letters weighing more than 100 grams. What effect will competition have on mail delivery? One only has to look to private package carriers to get an idea; they specialize in profitable corporate accounts, offering speedy parcel service at a comparatively high price, while disdaining private customers. Postal-workers' unions and the Deutsche Post AG ranted that they'll lose thousands of jobs should they lose the letter monopoly. Meanwhile, the postal company is already walking the road to reform. Especially in rural areas, it is outsourcing transactions and eliminating unprofitable branch post-offices or consolidating them into "modern customer service-centers." Under the plan, up to one-third of the Munich area's 113 branch offices will close in the next few years. Also, the second stage of the postage hike will take effect in July 1997, when it will cost DM 1.10 to mail a letter and DM 1 to mail a postcard in Germany; the prices of letters to foreign destinations will stay the same. On the bright side, a test of over one million letters showed that mail reliability last year reached a new high, with 91 percent of letters arriving at their destination the next day. UNIVERSITY: Making the grade Overcrowded lecture halls, students who study on average two years longer than those in other countries, professors who are more interested in research than in teaching, lack of resources: students, professors and politicians agree that German universities aren't making the grade. Education Minister Jürgen Rüttgers has long recommended a federal reform of Germany's university system, but most ministers prefer changes at the state level. Bavarian Education Minister Hans Zehetmair recently came up with the cornerstone of his university reform, which basically borrows ideas from the American system of higher education. Competition and efficiency are the key words of his reform: universities will become leaner, run by a Hochschulrat modeled after the American Board of Trustees and will include representatives of the industries; universities will also have more freedom in budget and personnel decisions. Changes are in store for students, as well. Although the idea of tuition was dismissed (currently there is no tuition, just a registration fee of approximately DM 50 per semester), students will have to take entrance exams, and their performance will be checked periodically through mandatory intermediate exams. At present, students take sink-or-swim comprehensive finals. Those exceeding the prescribed number of semesters (which is likely to be lowered) will have to pay higher fees or even be tossed out of the university. And even professors can't escape scrutiny: they will lose their civil-servant status, be assessed by students, receive achievement-oriented pay or be hired on temporary contracts. Zehetmair's ideas are coursing through the state cabinet and parliament and, if ratified, the reform could take effect next year. SPELLING: Love it or ignore it In July 1996, the ministers of education and cultural affairs from Germany, Switzerland and Austria approved new spelling and grammar rules due to become "standard" by August 1998 and "official" by the year 2005. Public and political opposition is snowballing: contra-reformers in several states are gathering signatures to call for a public referendum. On another front, 34 members of the Bundestag have introduced a formal petition requesting that official government bodies retain pre-reform German, arguing that a country's language is a national matter and cannot be decided by the education ministers, who represent the states. Even Bundespräsident Roman Herzog has no desire to relearn the language, and Minister of Finance Theo Waigel wants the whole thing put on ice, saying Germany's got more important reforms to worry about.

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