Changes Are Approved to Ease Germans’ Costs for Welfare Programs

Leaders from Chancellor Angela Merkel's coalition agreed Monday on a raft of changes to social welfare programs aimed at easing costs for average Germans, to bolster the government's sagging popularity less than a year before parliamentary elections.

Changes Are Approved to Ease Germans’ Costs for Welfare Programs
Thanassis Stavrakis | AFP | Getty Images

Germany, Europe's strongest economy, can easily afford the measures. But they come at a time when Ms. Merkel has been pressing Germany's struggling European partners to slash public spending, underscoring just how uneven the economic outlook is across the continent.

The measures include scrapping an unpopular quarterly medical fee, increasing spending to improve transportation infrastructure and introducing a bitterly disputed child care subsidy. Over all, they are expected to cost $3.9 billion a year.

In contrast, the Greek Parliament will be voting Wednesday on yet another round of austerity measures, this one worth $17 billion — equal to 7 percent of gross domestic product — to meet the demands of international lenders standing between Greece and sovereign default. Unions have announced a series of strikes and protests against the cuts that will decimate the country's already stretched social services net.

The most immediate criticism, however, came from Ms. Merkel's political opponents, who denounced the largess as an expensive attempt to woo voters before next year's election, in which Ms. Merkel will run for a third term.

"Ms. Merkel and Mr. Schäuble preach to the Europeans to drink water, but at home they are enjoying wine," said Sigmar Gabriel, chairman of the center-left Social Democratic Party, referring to Finance Minister Wolfgang Schäuble. That party, along with the opposition Greens, have threatened legal steps against the child care subsidy.

Nine years ago, Germany pushed through its own deeply unpopular austerity measures. They helped steel the German economy against the global economic downturn of 2008. Now, while Greece, Spain and other European economies crumble, Germany has a vigorous labor market that has contributed to record tax revenues for 2012, of about $783 billion. Mr. Schäuble said last week the jump in tax revenue would allow the country to balance its budget next year, but the coalition leaders set that target for 2014 — which is still two years earlier than required by law.

While the picture for Germany is not entirely rosy, the country's relative riches have prompted calls for the government to spend more itself and act to spur private consumption — an uphill battle with citizens who prize saving over spending.

But the political weakness of Ms. Merkel's coalition government provided an opportunity. Dissension has dominated the coalition since it came to power in 2009 and leaders debated for more than eight hours deep into the night to reach agreement. Recent polls show that while the chancellor and her Christian Democratic Union remain popular, her coalition partner, the Free Democrats, have dropped below the 5 percent threshold needed for representation in Parliament.

The child care subsidy, starting in August 2013, will offer monthly payments of about $130 to parents who do not send their 1- and 2-year-old children to state-financed day care. The subsidy has been a pet project of the Bavaria-only wing of the Christian Democratic Union, seeking to maintain the support of its traditionally conservative voter base.

The Free Democrats had previously joined economists and labor representatives in opposing the subsidy, but agreed to support the measure in exchange for dropping the quarterly fees of about $13 that Germans insured through the public health care system have been required to pay since 2004. The move is expected to amount to savings of about $2.5 billion annually for those insured.

Calls for retracting the fee — equally hated by patients who paid it and health providers who were required to deal with the bureaucracy it involved — increased after the public health system reported record contributions this year. In the first six months of 2012, the surplus in public health coffers amounted to about $6.2 billion, largely generated by the country's strong job market.

Recent figures, however, have shown that, three years into the debt crisis, the German economy is cooling. It is forecast to grow just 1 percent this year and next.

Philipp Rösler, leader of the Free Democrats, said the country was setting a good example for Europe by meeting its fiscal target two years ahead of schedule.

"We can hardly ask our European friends, neighbors and partners to balance their budgets in the most difficult of times if we are not able to balance our own budget in times of record tax revenues," Mr. Rösler said.