VZCZCXRO2767
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHRL #1706/01 2531321
ZNR UUUUU ZZH
R 101321Z SEP 07
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC 9233
INFO RUEHC/DEPT OF LABOR WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCNMEM/EU MEMBER STATES
RUCNFRG/FRG COLLECTIVE

UNCLAS SECTION 01 OF 03 BERLIN 001706 
 
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: CHANCELLERY'S 
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. policymakers in these areas.  So 
change is in the air, but Germany's population 
profile will limit the government's 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 "brains" on 
the demographic policy debate. 
 
------------------------- 
German Demographic Trends 
------------------------- 
 
¶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 Germany's 
pension, healthcare, and long-term nursing care 
programs. 
 
------------------------------------- 
The Chancellery Steps Up to the Plate 
------------------------------------- 
 
¶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 raising children, but 
also improving older people's access to work, 
through for example, lifelong learning 
programs. 
 
----------------------------- 
Where Reforms are Most Needed 
----------------------------- 
 
¶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 
 
BERLIN 00001706  002 OF 003 
 
 
reforms of the education and training systems 
("highly inflexible, we could do much better"); 
and 
-- transforming Germany's 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.  "The status quo has many 
supporters," 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. 
 
---------------------------- 
Reforms Will Come, But . . . 
---------------------------- 
 
¶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 
"obsession" 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 won't be easy.  In addition 
to the common tendency of politicians to put 
off until tomorrow what you should do today, 
Roppel pointed out, Germany's 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, Germany's 
consensus-oriented society makes it difficult 
to enact far-reaching reforms. 
 
-------------------------------------- 
Cooperation with U.S. is Highly Valued 
-------------------------------------- 
 
¶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 
"working poor," 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. 
 
------- 
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 
 
BERLIN 00001706  003 OF 003 
 
 
opportunities, including a possible IV for 
Roppel, to bring him together with U.S. 
counterparts.  End Comment. 
 
TIMKEN JR