There’s a pretty compelling story in the Washington Post today about Germany’s path to prosperity over the last decade or so, one that goes a long way in explaining why the German population is so overwhelmingly opposed to providing more bailout money for Greece, Ireland, Portugal and other spendthrift European nations.
Germany reaps rewards of entitlement cuts
The financial crisis has turned Europe topsy-turvy, with governments freezing pensions, unions voting away privileges and a web of safety nets disappearing one strand at a time.
But as the role of the state is being reexamined, one country stands apart: Germany, where reforms a decade ago made the country less generous than some of its peers but also helped ease the blow when the rest of the world stopped snapping up BMWs and Bosch washing machines.
Now, as its neighbors are being forced to retrench, and the future of the euro appears imperiled, Germany’s social services are running surpluses, helped by taxes that are among the highest in Europe and difficult sacrifices its citizens have made to jump-start their economy.
Many Germans are peering across their borders and wondering why others can’t do the same, putting intense political pressure on Chancellor Angela Merkel not to appear too generous with bailouts.
A decade ago, Germany faced stagnant growth, forecasts of rising joblessness and the spiraling cost of unemployment benefits that paid many workers more than half of their old salary indefinitely. The country was lagging behind many of its neighbors.
Then-Chancellor Gerhard Schroeder staked his political legacy on a painful series of reforms that slashed benefits for people who were unemployed for more than a year, aiming to push them back into jobs. Other reforms privatized portions of the pension system, cutting guaranteed benefits. More recently, the retirement age was pushed to 67, from 65.
That improvement can be measured on balance sheets, as numbers have turned from red to black. In the first quarter of 2011, the latest for which figures are available, the government collected more money for its health insurance programs and unemployment funds than it paid out, running a $140 million surplus for its social programs overall.
There are some pretty amazing statistics in this report (some of which are included in this excellent graphic) and U.S. politician probably just shake their head when they see German unemployment at six percent, average worker tax rates at over 40 percent, with surpluses for both their jobless benefits and medical care programs.