The German economy was officially in recession yesterday, as latest figures show the second quarter of negative growth in 2003.
This bears out the analysis underlying the federal government's approach to radical labour market, social welfare and taxation reforms agreed by the cabinet this week. Unless they are put into legislative effect without delay in negotiations with opposition parties there is a danger they will be stillborn and the recession will deepen.
According to the federal chancellor, Mr Gerhard Schröder, Germans face a stark choice: "Either we reform ourselves or we will be reformed by unchecked market forces." He has appealed to the main opposition party, the Christian Democrats, for their co-operation in putting the legislation through the upper house of the parliament - the Bundesrat. While its leader, Mrs Angela Merkel, is inclined to help him implement reforms her party has supported, more conservative factions of the party, including powerful provincial premiers, are less willing to do so. There is opposition too from left-wing sections of Mr Schröder's party, as well as from interest groups affected by the wide-ranging changes.
They include substantial cuts in unemployment benefit reducing availability from 32 to 12 months, after which it will be merged with long-term benefits for the jobless; some 10 per cent of Germans are without jobs, a figure which rises to well over 20 per cent in many eastern German towns. It will be easier for smaller companies to sack workers. Job centres are being restructured and those who refuse job offers or training will be penalised. Cuts in subsidies, pensions, civil service pay, healthcare and local authority finance add up to what Mr Schröder describes as the "greatest change in the social history of Germany". It is quite a statement considering its welfare state goes back to Bismarck, who introduced it from above to head off socialism from below.
In compensation there will be a €15 billion tax cut, increasing average take home pay by 10 per cent next year. The government's calculation is that this will give a spending boost to the economy, reinforcing business confidence after a successful reform programme. Other Europeans are watching anxiously to see if such a radical shake-up makes the difference its authors proclaim.