Europe trims generous perks to spur economy

In and of itself, the news may not mark a revolution: The German state will soon stop paying for its citizens to visit health spas whenever they feel the need to reinvigorate themselves.

But the move heralds a much wider shift, as Germany and other major European nations join a wave of reform sweeping the Continent, and start to overhaul the social safety net they can no longer afford.

And even as they say farewell to cherished benefits, European citizens appear resigned to their disappearance. Stuck in a low-growth rut for the past three years - the worst such stretch in a decade - they say they are ready to relinquish some of their perks if that will set their economies right.

"Some fundamental changes are going on," says Ulrich Schröder, chief European policy analyst at Deutsche Bank in Frankfurt. "There is a similar tendency across the Continent, an increasing readiness for reform."

Not that anyone is proclaiming the death of the welfare state, which has characterized Western Europe since the end of World War II. German workers still enjoy twice as many holidays as their American counterparts, mandatory state insurance schemes guarantee everyone almost cost-free healthcare from Britain to Greece, and French government pensions will remain generous however they are reformed.

"The reforms are not an attack on the welfare state so much as an adjustment," says Willi Leibfritz, a senior economist at the Organization for Economic Cooperation and Development in Paris. "They are adapting the welfare state to new challenges."

The fact is, though, that in the face of an economic downturn and the need to keep budget deficits under control, big European governments have begun to follow their smaller neighbors down the path of structural reform that bankers and businessmen have been urging for years.

In France, parliament voted last Thursday to approve a contentious pension reform that will bring public sector employees - who account for more than 25 percent of the workforce - into line with the private sector, and make them work for 40 years to qualify for a full pension, up from the current 37.5 years. By 2020 everyone will have to contribute to the pension system for 42 years.

Without the reforms, Prime Minister Jean-Pierre Raffarin had warned, the pension fund would be bankrupted within 20 years.

In Germany, where workers have traditionally enjoyed the firmest job security, the highest wages, and the most comfortable social benefits in Europe, Chancellor Gerhard Schröder has spent the past six months cajoling his Social Democratic Party and the trade unions into accepting a broad package of reforms dubbed Agenda 2010. They cut unemployment, pension, and health benefits, and make it easier for companies to hire and fire, in what amounts to a policy U-turn by the center-left government.

Already the government has set up agencies to hire out temporary workers to businesses at well below normal trade-union wage rates. And a bill now before parliament would slash full unemployment benefits to 12 months from 32 months. In hopes of spurring private initiatives, the government has cut taxes and red tape for people wanting to set themselves up in business - prompting 33,000 Germans to do so this year.

Under an agreement the government reached with the opposition last week, Germans will have to start paying small sums toward their medical costs, such as an $11 a day charge for in-patient hospital care. Overall, the reforms should save the national health insurance system around $25.5 billion by 2007, the government says.

Also on the agenda is pension reform, and Economy Minister Wolfgang Clement recently dared suggest that Germans ought to work longer hours and take fewer holidays.

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