THE END OF WELFARE?

Beneath its perpetual sense of malaise, a quiet revolution is sneaking up on Germany. Two weeks ago the upper house of Parliament passed the final phase of Chancellor Gerhard Schroeder's Agenda 2010, the landmark reform package aimed at getting Germany back on the track to growth. So far, the measures have been mostly superficial, hardly shaking up the country's ingrained culture of entitlement. But the new law, to take effect in January, packs an unprecedented punch. It no less than eliminates Germany's long-established system of virtually lifelong unemployment benefits, shifting up to 2 million recipients onto the far less lucrative welfare rolls. Full unemployment benefits will be cut from 32 months to 12. Some Germans are calling it "the end of welfare as we know it."

That may be premature. But there's no overstating the importance of what's happening. Since last year, all of Germany's 16 Lander, or state governments, have reversed a decades-old trend toward cutting working hours. Instead, they've increased civil servants' workweeks from 38 hours to as much as 42--with no additional pay. In late June, Munich-based Siemens hiked hours from 35 to 40 at its mobile-phone plants. Companies like DaimlerChrysler and truckmaker MAN say they'll follow suit. Two thirds of German workers--who have labored the least and cost the most in the world--now say they are willing to work longer for less if it means they keep their jobs. For the German weekly Die Zeit, it's no less than "a German revolution."

As with any revolution there promises to be blood. Germany's unions are dead set against the changes. Last week, 60,000 workers at DaimlerChrysler held warning strikes to protest management's plans. But Germany's unions aren't as powerful as they used to be. Membership is down from 11.8 million in 1991 to just 7.4 million, and a majority of Germans no longer see them as a beacon of workers' rights but as a destructive impediment to reform.

The big question is what comes next. By themselves, the changes will not get Germany's 7 million jobless back to work. Schroeder has avoided urgent issues such as loosening the work rules that make companies loath to hire, or reforming the wasteful system of subsidies for the formerly communist East. His strategy seems apparent: hope that the first round of reform yields results before the 2006 election, while steering clear of fresh controversy.

That's unlikely to help either him or Germany. The new welfare law will prod people to look harder for work. "But to revitalize growth and create jobs the government's reforms are not enough," warns Jochen Pimpertz at the German Economics Institute in Cologne. Still, real change is finally underway. And it appears Germans are ready to accept the consequences.

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