Postwar Germany built its economic success on social consensus among business, labor, and government. Now Chancellor Helmut Kohl, one of its arch proponents, is putting that consensus on the line. His push to slash $33 billion of government spending next year and prune $13 billion from Germany's extensive welfare net has brought screams of outrage from labor unions, the opposition Social Democratic Party and Green Party, and even Catholic bishops.

The furor is understandable. The cuts, equivalent to about 2% of Germany's $2.3 trillion economy, are large and painful. But they are just the start of the makeover Germany needs if it is ever to be the sleek economic machine it was in the days of the Wirtschaftswunder--economic miracle. Widespread tax evasion, an unemployment rate of nearly 11%, and the flight of investment and manufacturing jobs abroad all signal that the old German model needs repair.

Kohl's strategy has political risks. His governing coalition has a mere 10-vote majority in the Bundestag, and the opposition controls the upper house Bundesrat that can veto tax legislation. Because nearly $15 billion of savings must come from a pay freeze on Germany's 3 million state and local government workers, there may be a public-sector strike in the summer. Such strikes torpedoed similar budget-axing efforts in France last year.

But Kohl has fire in his belly. Having reunited Germany, he wants to unite Europe. His program is just tough enough to get Germany to meet Maastricht Treaty criteria, which require European governments to limit budget deficits to 3% of gross national product as a prelude to a common currency in 1999. Even so, it remains woefully short of ensuring that Germany is competitive in the next century.

Germany needs nothing less than a revolution in its economic setup. The country needs a tax system that rewards enterprise and effort rather than tax-dodging and bilking, a welfare system that encourages self-reliance instead of dependence, a wholesale deregulation of the economy, and the abolition of most of the $120 billion of subsidies paid out annually to invididuals and companies. It is a daunting task.

Kohl is no economist, but he knows Germany is on the brink of a vicious downward cycle unless the old ways end. In November he will become modern Germany's longest-serving chancellor. But the jury is out on whether he will be its greatest. That depends on whether he succeeds in not only uniting Germany but also readying it for the 21st century.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE