DEMOGRAPHY IS DESTINY: CHANCELLERYQS

UNCLAS SECTION 01 OF 03 BERLIN 001699

SIPDIS

STATE FOR DRL/ILCSR AND EUR/AGS; LABOR FOR ILAB
(BRUMFIELD); TREASURY FOR OASIA

SIPDIS

E.O. 12356: N/A
TAGS: ELAB ECON EFIN PREL PGOV GM
SUBJECT: DEMOGRAPHY IS DESTINY: CHANCELLERYQS
PERSPECTIVE ON DEMOGRAPHIC CHANGE, SOCIAL
INSURANCE, AND LABOR MARKET REFORMS


1. Summary: Germany, like many industrialized
nations, faces the enormous twin challenge of
remaining competitive in a global economy while
coping with the social and economic impact of
demographic change. German policy makers
confront a sobering demographic trend: the
population of Germany is shrinking by 150,000
every year. The Federal Chancellery, however,
is stepping up to the plate -- recognizing that
its falling population will require a full
range of policy reforms from greater financial
support for child-rearing to enhancing access
to work for the elderly to cutting back its
social security system. The Chancellery is
looking closely at various U.S. models,
including the Earned Income Tax Credit Program
and U.S. pension schemes, and is seeking closer
ties with U.S. policy makers in these areas. So
change is in the air, but GermanyQs population
profile will limit the governmentQs freedom of
action. End Summary.


2. On September 6, EMIN, ECON Counselor and
Labor Specialist met Dr. Ulrich Roppel,
Director General for Social Affairs, Health
Policy, Labor Market, Infrastructure, Education
and Science, Family Policy, Religious Affairs;
in the Federal Chancellery in Berlin. Close to
Merkel, Roppel is the Chancellery QbrainsQ on
the demographic policy debate.

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German Demographic Trends
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3. On average, Germans are living longer
(women 81 years, men 76 years) and having fewer
children (in 2005, the birth rate was 1.4
children per woman, less than the replacement
rate). The eastern German states are
experiencing an especially alarming decline in
the numbers of births since unification.
Consequently, ever fewer people are paying into
the social security system. Shortages of
skilled workers are also looming. Given a
projected growth of retirees from 24% now to
37% of the population by 2050, experts warn of
enormous financial challenges for GermanyQs
pension, healthcare, and long-term nursing care
programs.

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The Chancellery Steps Up to the Plate
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4. How, then, is Germany responding? Roppel
expressed optimism about the possibility of
meaningful reforms of social insurance, labor
market and education systems in Germany under
the current CDU/CSU-SPD coalition and predicted
improvements even before the next national
elections. He was confident that the German
people would gradually accept the necessary
economic and social reforms. Roppel said that
while demographic change bears financial risks,
it was also an opportunity to rethink old ways
and introduce new means to cope with these
challenges. In his view, demographic change
would affect every field of policy-making.
This would involve not only providing greater
financial support for child-raising, but also
improving older peopleQs access to work,
through for example, lifelong learning
programs.

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Where Reforms are Most Needed
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5. Roppel singled out three major areas where
the government must take action:
-- increasing the labor force participation
rate, particularly of women;
-- improving worker productivity through
reforms of the education and training systems

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(Qhighly inflexible, we could do much betterQ);
and
-- transforming GermanyQs pay-as-you-go social
insurance program into a hybrid program in
which private savings would supplement the
current system.


6. Roppel acknowledged that while there was a
broad consensus in Germany on the need for
reform, definition and implementation of reform
would be difficult. QThe status quo has many
supporters,Q he said. He referred to the
recent increase in the retirement age from 65
to 67, which, although implemented (over 17
years beginning in 2012),had met stiff
opposition from lobby groups. In that context,
he criticized the government for not
introducing a more flexible retirement age.

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Reforms Will Come, But . . .
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7. Nevertheless, Roppel insisted that we would
see reform measures progress, even before the
next elections. (Note: he predicted the
current coalition would be reelected). He was
forgiving of German politicians, despite their
QobsessionQ with short-term solutions in
response to the concerns of their voters.
Sometimes, he said, tackling tough issues needs
time and long-term strategic thinking; one
should not be discouraged when proposals are
not immediately accepted. Roppel believes that
Germans would accept changes if they were given
a clear plan of action. He laid out areas
where the government can stimulate job creation
and also do a better job of preparing workers
through lifelong education.


8. Of course, it wonQt be easy. In addition
to the common tendency of politicians to put
off until tomorrow what you should do today,
Roppel pointed out, GermanyQs demographic
profile will severely narrow its policy
options. What is more, the experience of
former Chancellor Schroeder is not an
encouraging precedent; voters did not take
kindly to the structural reforms that he
initiated, and many say it cost him the
election. As Roppel noted, GermanyQs
consensus-oriented society makes it difficult
to enact far-reaching reforms.

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Cooperation with U.S. is Highly Valued
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9. Roppel expressed strong interest in meeting
with American counterparts in the foreseeable
future for in-depth exchange of views and
experiences. He noted that Germany so far has
not yet developed plausible and feasible
answers of how to deal with the problem of
Qworking poor,Q that is, how to entice welfare-
dependent citizens back into the workplace. He
believes that an Earned Income Tax Credit
program like that in the U.S. was a promising
approach to help people return to the labor
market. He also praised U.S. approaches to
pension reform. Roppel would especially like
to cultivate stronger ties with U.S. government
representatives and think tanks to strengthen
this relationship.

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Comment
--------------


10. Roppel struck us as a thoughtful and
forward-leaning thinker with a practical grasp
of what Germany needs to do. Given his strong
curiosity about how the U.S. is approaching
similar challenges, the Embassy will look for
opportunities, including a possible IV for

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Roppel, to bring him together with U.S.
counterparts. End Comment.

TIMKEN JR