So what did we do? My reform program, Agenda 2010, saw Germany respond to two challenges: globalization and demographic changes in German society. We changed areas of the welfare system, in particular health care, pensions, and unemployment security. Also, Germany’s short-time working program played an important role, where the state now shares the costs with industry to keep skilled workers on the payroll during economic downturns, thus enabling them to scale up quickly when the economy picks up.
We also made pensions and health insurance more flexible and placed greater emphasis on the responsibility of the individual in keeping costs down.
For the German welfare state, this step marked a paradigm shift that many believed would carve away hard-earned benefits. In fact, we were able to strengthen the system by making Germany globally competitive and ensuring that benefits remained affordable for our aging population. At the same time, we raised expenditures in education, research, and innovation. This gave a further boost to the German industrial base. Implementing these reforms was politically challenging – they cost me my job – but the result has shown it was worth it: Germany is now the best situated of all European economies. France, Italy, Great Britain, and others now have to catch up with this reform process, but under much more difficult conditions.