00:00German Chancellor Friedrich Merz just got booed on open stage, trying to explain to Union representatives why pension reform is
00:08unavoidable.
00:11Ladies and gentlemen, this is not me and the government simply being mean.
00:20Ladies and gentlemen, this is demographics and math.
00:28It is simply too much to expect the contributions of two working people to pay for the pension of one
00:36person in the future.
00:42Now, facing trade unionists is always a tough crowd for any Conservative Chancellor.
00:47But here it became tangible how divided the coalition of the Social Democrat, SPD and Friedrich Merz's own Conservative CDU,
00:58CSU, in government really is.
01:03Rarely have all differences been as tangible as they are now.
01:08Reform does not have to mean cuts.
01:11These clashing views have to be bridged to find any kind of government compromise.
01:17Everyone agrees on the need to boost the faltering economy, but the underlying assumptions clash.
01:24One school says the state of the economy dictates how much can be spent on the welfare state.
01:33To put it more clearly, we can only keep the social promises we have made and want to make if
01:40we are able to regain economic strength.
01:45The other camp argues a well-functioning welfare state is a precondition for economic recovery.
01:53One does not achieve growth by offering workers less protection and squeezing them dry.
01:59The problem, these clashing positions highlight the divisions where they should project unity.
02:07All this from two camps that form one government.
02:11Trade union members reject the notion of any cuts.
02:14They believe the government should simply find more money to plug holes in the budget.
02:20We have to come up with a way to fill the state coffers accordingly.
02:23And we have to tackle that by seeing where we can take in more rather than cutting help for the
02:28most needy.
02:30Yes, the government should help businesses, but the money should come from the wealthy.
02:35The coalition agreement, the government's basic policy roadmap, rules out raising income taxes.
02:42And while Matt sees change as the price for Germany failing to do its homework.
02:47We have simply failed to modernize our country.
02:53Now we are paying the price.
02:54All this against the backdrop of major global transformation.
02:58We must be prepared to change in order to preserve what is important to all of us in this country.
03:06His coalition partner is focusing on future-proofing social protection systems.
03:13AI should not be used against employees, but with them.
03:19That way it won't lead to job cuts.
03:25These constant public conflicts have been costing both sides dearly in the polls.
03:31Government approval ratings have dipped to a new historic low.
03:36The biggest test for Friedrich Merz's government coalition is about to come up.
03:41Over the next weeks, maximum months, a proposal is expected by his coalition on pension reform.
03:49The mother of all reform so far sacrosanct here in Germany.
03:54If his coalition can find a compromise on that and even sell it as a win to both sides,
04:02they stand a chance of turning the tide in the polls.
04:08So let's get more expertise on this.
04:11With me now is Professor Anke Hassel.
04:14She is at the Public Policy Institute of the Hattie School of Government here in Berlin.
04:20She also advises the government as part of a high-tech panel advising government decisions.
04:28Professor Hassel, welcome to Deutsche Welle.
04:32Please give us your insight on what expectations are,
04:37what can come out of such diametrically opposed takes on what this reform will require.
04:44Because after all, that's what this government coalition between Friedrich Merz's conservatives
04:50and the Social Democrats, that's what they promised voters.
04:55Yes, thank you.
04:56We all know this is not a marriage of love, but a marriage of necessity.
05:01And this is a coalition of two very different parties.
05:04Friedrich Merz, when he was elected, he was elected on a ticket that he wanted to be more radical than
05:11Angela Merkel,
05:12that he wanted to shift the CDU more towards reforms, but also more liberal reforms,
05:19restructuring the welfare state and kickstarting the economy.
05:24And the SPD is under a lot of pressure, on the other hand, because they've been losing the elections badly.
05:29They've been losing regional elections, but also in the last national elections,
05:33their vote went down.
05:34So they think that they have to protect the welfare state.
05:37They have to provide for stability.
05:39And they have to make sure that the people are not hurt by what Friedrich Merz wants to do.
05:44And that is where the tension is coming from.
05:46So, of course, it's always a popularity question.
05:49As you rightly said, both the traditional big ten parties here in Germany,
05:53the conservative CDU, CSU and the Social Democrats.
05:57And the Social Democrats had to struggle to get across the 5% threshold in those most recent regional elections
06:04that we saw here.
06:05At the same time, Friedrich Merz's conservatives are fighting a battle against a rising far-right alternative for Germany,
06:14which is now in the current polls slightly ahead of his conservative CDU party.
06:19What is your sense?
06:20How much does this inform the process and how much could it slow it down?
06:26Because after all, there was consensus that reforms are required.
06:29Is that right?
06:31There was a consensus, but the consensus was always very thin.
06:35And underneath the rhetoric that we need to reform the welfare state and we need to reform the economy,
06:41it wasn't quite sure what people meant by reform.
06:45So to begin with, there was never a strong narrative that we want to go in the same direction,
06:50that we have the same understanding of what kind of reforms are necessary.
06:53So that is one problem.
06:55And the other problem is, as you said, that both parties are under pressure.
06:59They are under pressure because they have very bad election results.
07:03They are also doing very badly in the polls.
07:05Friedrich Merz is now the least popular politician in the government.
07:09If you compare their vote share now to what they gained last year,
07:14they have an 11% percentage drop in what kind of vote share they had.
07:19So they face a lot of pressure from the electorate that people really don't agree with what they're doing.
07:27Now, you've also done a lot of social research.
07:30How big is your concern that this very open debate and this very public clash
07:37could eat further into any willingness of a public to carry and to support reforms that will hurt everybody?
07:49The population needs to see that reforms will lead to a positive outcome.
07:55And the positive outcome can either be in the economic realm that the economy is doing better,
08:01that the labor market is doing better, that people find jobs, that people have more secure jobs.
08:05That would be a beneficial outcome and that would help the approval rates for the government.
08:10They could also see that more in the social realm.
08:14If the government could guarantee that something like pensions are stable,
08:19that the health system is stable, that the quality of the health system is not going down,
08:23that would also win them some approval from the electorate.
08:27So reforms should not just be painful for the electorate, but they have to lead to something.
08:34And at the moment, the government does not have a narrative and it does not have a causal story that
08:40can explain
08:41if we do these reforms that will actually be beneficial for all of us.
08:45And that is what the government needs to do.
08:47Well, in fact, there also doesn't really seem to be a complete consensus within this government,
08:53whether there really is a spending problem or whether it's an income problem.
08:58How much of this could be fixed by taxing the rich, as many in the Social Democrat,
09:04particularly in the trade union camp, are demanding?
09:10As you say, they do not agree to what extent they have to increase the income of the government
09:16and therefore increase taxation or to what extent they can just deal with the cutting of spending.
09:22And that is where most of the disagreement comes from.
09:27For the electorate and for the outcome, it is essential that any kind of reform they do is seen as
09:34a fair reform.
09:35And what we see is that on both sides, they tend to cater for their own constituencies.
09:41So Merz has ruled out that he would increase the maximum tax rate and income taxation.
09:46And the Social Democrats have ruled out that they would agree to any kind of lowering or worsening of the
09:53pension system.
09:54So they try to cater for their own constituencies.
09:58But in the end, they need to perform a package.
10:00And the package can only be that you increase taxation to some extent.
10:05And for that, you increase taxation for the higher incomes.
10:10But also, you need to make sure that the spending doesn't get out of control.
10:14And if you look at different policies, if you look at pension policies,
10:18the government has to make sure that with an aging population that social spending for pensions cannot just go up
10:24and up and up.
10:25But also for the health system, we have high spending on health system, but we don't have a very effective
10:30health system.
10:31We need to have more structural reforms that can make sure that the spending doesn't go up, but the quality
10:36doesn't go down.
10:38What's your assessment? What's your prediction? Is this going to happen? What are the chances of success?
10:44I think this is going to happen because the stakes are so high, and that is what the government said
10:49from the very beginning.
10:50The government talked about, Friedrich Merz talked about the last shot.
10:54And what they mean by the last shot is that if there were new elections tomorrow, the vote share for
11:00the AfD would be very high,
11:02and it would be very difficult for any party to form a government without engaging in some way with the
11:08AfD.
11:08And that is what the government doesn't want.
11:11Both big parties, both governing parties would lose major vote shares in an upcoming election.
11:17So they are in this together. They have to find a compromise and they have to find an agreement.
11:22And I'm pretty sure that they will come out with an agreement.
11:25Whether this agreement is strong enough to really solve any of the economic problems that Germany has, I'm not quite
11:31sure.
11:32But I'm pretty sure that there will be an agreement and that there will be a reform.
11:35Now, all these problems were already there, those that you described before Donald Trump became president the second time,
11:43with all the insecurity that Germany has been facing before the war on Iran, which is so shaking the global
11:51economy and could alone be enough to hamper growth here in Germany.
11:56And how much harder did this government's task just become just through these external circumstances?
12:04A lot harder. And as you rightly say, the challenge was there before.
12:10And if you look at the growth rates and the economic development of Germany, the decline started around the COVID
12:17period.
12:18So this is already six years ago. And it then got accelerated with the attack of Russia on Ukraine.
12:26So that was the first shock because that meant an energy shock.
12:30And now with the war on Iran, that is the next shock.
12:34And with the election of Donald Trump as president and all the customs policies that came with it made it
12:41even more harder.
12:41So the German economy is on a sort of stagnating path at the moment.
12:46And each shock makes it actually harder for the government to deal with it because they have to deal with
12:52rising energy prices.
12:53They have to deal with rising social costs, et cetera.
12:57And they have to deal with the labor market, which is stagnating now and actually worsening little by little.
13:04So these are the challenges they have. And, you know, for the government, you know, the pressure is rising.
13:10But the way forward is not as clear as they might think.
13:15Professor Anke Hassel, thank you very much for your assessment of the situation.
13:18Of course, we'll keep up to date on that and check in back with you in a couple of months
13:23time from now.
13:24Thanks so much.
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