2. The Reform Projects

• 2.1 Improving Innovative Capacity and Strengthening Human Resources
• 2.2 Improved Employment Opportunities for the Low-Qualified
• 2.3 Change in the family and the Employment Crisis as a Challenge to a Policy of Social Integration (Project 3)
• 2.4 Environmentally-compatible Life-Styles and Forms of Economic Life

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2
The Reform Projects

2.1 Improving Innovative Capacity and Strengthening Human Resources

The Commission starts from the assumption that the ability of the technologically advanced sectors of the economy to compete successfully at the international level remains of fundamental importance to the future of employment and standards of living in Germany. We have, therefore, given priority to identifying corporate and systemic factors that are to be counted as strengths, and must be retained, and those which are weaknesses, and must be rectified, if the Federal Republic is to maintain its strong position on the world market and to reduce the dangerously high levels of underemployment. The Commission has focused on the connection between innovation, growth and human resources, including infrastructural factors (in particular as they relate to public administration).

Over the course of the last few decades, the German model in this area has rested on four closely connected pillars: the traditional technological strengths in the economy (e.g. the chemical industry, the car industry, machinery construction), a decentralised scientific research system, a large pool of highly-skilled workers and a dual system of vocational education.

This sector of the economy is now challenged by a wide range of developments, which can be described as a 'new type of structural change'. This refers mainly to three trends:

• For decades, there has been a shift in the creation of value added and employment from manufacturing to the service industries; this shift has not only further accelerated, but it is taking on new directions through the growing weight of information and communications services. The spread of information technology implies, in particular, that the interlinkage between (industrial) production processes and (industry-related) service processes becomes ever closer.

• Secondly, continuous technological development, which has predominated up to now, is fast accelerating; at the same time, companies must possess growing capacities for fundamental innovation. This trend is

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associated with the increasing importance of new co-operative and interdisciplinary forms of generating knowledge.

• The third trend concerns the new quality of economic activity which, in academic and political discourse, is referred to as 'globalisation'. Current globalisation processes are characterised by the fact that, in principle, all stages in the chain for the creation of value added - from mechanical production to research and development - can be located anywhere in the world, according to criteria of utility optimisation and the realisation of competitive advantages.

In the view of the Commission, these structural developments lead to frictions in three areas that we have addressed: blockages in the innovation system; altered demands for qualifications and education; and service provision by the public sector.

The high-tech sector of the German economy is subject to particularly intense international competition. The Commission argues that the Federal Republic of Germany is most likely to be able to maintain its competitiveness, if the profile of its innovation system is distinct from other countries. The idea that Germany's innovation structures should approximate those of its competitors can only lead into a dead end. The German economy must build on the strengths it possesses in its traditional markets and needs to develop these further through first-class technology. In addition, new markets must be accessed, for example in information technology, multimedia and biotechnology. Having assessed the strengths and weaknesses of the German innovation system, the Commission has concluded that the following points will be of vital strategic importance in reducing blockages in the innovation system:

• instead of pursuing unconditional catching-up strategies in new technologies, future technologies need to be connected more rapidly with Germany's traditional technical-economic strengths;

• better use needs to be made of the results of the international generation of knowledge;

• new markets need to be accessed (particularly lead markets) through timely and forward-looking pilot schemes and the creation of appropriate framework conditions;

• changes are required in the research system (trans-disciplinary research, research management, research promotion); and

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• research and technology policy must be opened to international co-operation (support for the international involvement of research institutions,cross-national projects, mobility of students and scientists).

The second decisive point concerns the educational and vocational training system. In the past, the German educational and vocational training system has proved high adaptable to new requirements and demands. Adaptability has been shown both in quantitative terms, for example through the great expansion in secondary and higher education since the beginning of the 1960s, and in qualitative terms, for example through the reforms of vocational training profiles and the expansion and differentiation of further vocational training. The above-average skills of its workforce, particularly in the area of middle-ranking skills, has traditionally been seen as one of the main competitive advantages enjoyed by the Federal Republic. The Commission thinks that the current crisis in the vocational education and training system is a result of the pressures of contemporary structural change. The strength of a production system such as Germany's lies in the continued improvement of product quality; but it is at a disadvantage compared to an organisation-oriented' production model when it comes to adapting to market constellations that require accelerated product cycles and radical innovation.

The Commission recommends changes to the dual vocational education and training system, not its abolition. It should be changed not merely because an education and training system cannot be restructured overnight, but also, and in particular, because it makes sense to retain the strengths of the dual system in a new institutional form, while addressing its weaknesses. Its strengths derive from the close institutional combination of study and work, education and practice in the firm. As such, it avoids the main weakness of the generally school-focused education and training systems in Europe and North America. The strengths of the dual system, which should be retained, lie in the integral manner in which people are socialised into employment, the rapid translation of new skills requirements into education and training processes, effective allocational mechanisms designed to move people from education and training into employment, and a cost-effective method of financing, both in general economic terms and for the individual employer.

In order to avoid renouncing these strengths, while at the same time removing the weaknesses exposed by structural change and the dynamics

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of innovation, the Commission proposes that the vocational education and training system should be transformed along the following lines:

• education and training for a specific profession should be relaxed in favour of more comprehensive qualification profiles;

• school and vocational education should be reorganised above the first level of secondary school (10th form) in order to provide a more flexible combination of general and vocational education processes. This will facilitate improved access from the dual vocational education and training system to polytechnics and universities;

• the current mode of financing, which relies on the contributions of individual employers, must be changed;

• in view of the increasing importance of continuing further vocational qualification as a prerequisite of employment mobility a new stable institutional framework is required (transparency of existing opportunities for obtaining qualifications, sustainability, quality assurance) as well as appropriate funding for continuing further education and training. The Commission proposes to create individual entitlements to further education and training in the form of vouchers, which could be funded along the lines of the French system either from a further education and training fund or through tax credits (the costs of which would not fall on the social security system).

The Commission's third approach relates to the development of a new concept of an innovative state in the area of service provision. In all modern market economies, non-market institutions play a decisive role in the development of economic performance, social welfare and societal evolution. The state and the public sector have a far-reaching impact on the economy as a whole. As a result of its two main functions, the provision of public services and the regulation of market and non-market behaviour, the state's efficiency has a very substantial impact on the effectiveness of social and economic policy and on the potential for innovation or blockage in social and economic development.

Public administration in Western and Northern European countries has traditionally been highly vertically integrated, providing for the administrative integration of the responsibilities for programming, implementation and financing. In addition to the traditional tasks of an authoritative administration, public administration performs a range of very diverse functions, including economic administration, the welfare state and public

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infrastructure provision; in short, it covers a broad spectrum of products and services. In performing these tasks, public administration is directed through conditional legal norms and according to universally applicable standards. It is generally accepted that this traditional administrative model has reached the limits of its performance.

The Commission rejects as a solution the much-discussed concept of the 'lean state'. The latter is mistaken and misleading and is often misused as an pretext for reducing staff and services. In its place, the Commission suggests a model for modernising public service provision that is based on forward-looking international approaches and experiences. The Commission's proposals aim at change in the following areas:

• the state needs to change from being a producer of services into their guarantor;

• development of strategic management skills;

• sustainable and goal-oriented resource allocation;

• cross-sectoral and cross-hierarchical re-engineering and

• the institutionalisation of the modernisation process.

These suggestions reflect the Commission's view that the true weaknesses of the German public sector - so far as its service-related functions are concerned - lie in its relatively insufficient ability to renew itself, a lack of professionalism and insufficient client-orientation. These weaknesses have a significant effect on performance and costs in the economy and society as a whole.

2.2 Improved Employment Opportunities for the Low-Qualified

As compared to, for example, the United States, Japan, Switzerland or Norway, Sweden and Denmark, Germany shows a lower level of employment among people of working age (15 to 64 year-olds). However, this difference can neither be attributed to generally excessive levels of contributions or to a generally low degree of international competitiveness of the German economy. International comparisons reveal no statistical correlation between the level of employment and the burden of contributions; moreover, in economic sectors which are in any way exposed to international competition, German levels of employment are, in fact, significantly higher than in the above countries.

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This does not mean that the internationally exposed sectors (industry, agriculture and production-related services) give no reason for concern: the globalisation of the capital markets and the internationalisation of the commodities and services markets have significantly increased competition amongst companies and, by implication, amongst the countries in which they are situated. More employees are exposed to this competition in Germany than elsewhere. Since 1992 especially, this has led to large job losses.

In order to win back these jobs or to retain existing jobs, major efforts to improve the ability of companies to innovate and to improve their productivity will continue to be necessary. For employees, this will mean even greater demands on their professional skills and job flexibility. It is likely that employment opportunities for low-skilled employees will continue to diminish in those economic sectors that are exposed to international competition. The Commission assumes that even if it is possible to defend successfully the qualified jobs in the sectors of the economy that are exposed to international competition, there will be very few employment opportunities in these sectors for low-qualified or less capable blue and white-collar staff. At the same time, however, in those sectors that are least exposed to international competition (they include, for example, jobs in trade, catering and hotels and, in particular, in education and health care), international comparisons show that German employment levels are exceptionally low compared to the United States. There are two reasons for this discrepancy:

In the sector of highly-skilled employment, and, therefore, above all in education and health care, the number of jobs is static. German jobs in these sectors are very largely funded from general taxation and from social security contributions. Instead of expanding the number of jobs in line with rising need, government policy since the 1970s has been concerned with reducing staffing levels and containing costs. This trend could be changed only if these services were to be funded to a far greater extent than at present through charges and direct payments by those who can afford it. The Commission has looked no further into this particular matter.

Instead, we have focused on job opportunities for lower-qualified employees whose expansion is hindered by the particular structure of the German welfare state. Unlike in Sweden and the other Scandinavian countries, publicly-funded social services are not well-developed, since family-related services are largely provided by the mothers, wives and

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daughters of the sole family breadwinner. And unlike in the United States, there are few simple jobs left in the private sector, paid at low market rates, because the social state guarantees a subsistence-level income and because of high wage-related costs in Germany.

The Commission has concluded that, as things stand, the Swedish model of a massive expansion of public-sector employment is not a feasible option for Germany. At the same time, however, the creation of a low-wage job market in the private sector, with pay below subsistence level, such as the one which exists in the United States, is neither acceptable from a normative point of view nor politically feasible. It is, however, possible to remove the obstacles that the German welfare state erects to the employment of the low-qualified at pay rates above the subsistence level.

The Commission has concluded that the best overall solution for ensuring a subsistence-level income without harming job creation would be Joachim Mitschke's "Blirgergeld" (a kind of negative income tax). In addition to the current social assistance benefit, this would integrate a whole range of further, tax-funded and income-related benefits by making a single needs-related cash payment to the household unit. In the case of people who are not in work and who do not have an income of their own, this would correspond to the concept of a single, tax-funded form of basic security. From the perspective of employment policy, however, the main advantage of this system lies in the way of in which a person's income from paid work is taken into account. Until now, tax-funded social benefits have either been cut in line with additional earnings or are only paid below a set income ceiling. Under the "Blirgergeld" model, a recipient's own income would only be 'taxed' at a fixed rate (say 50%). At all stages, therefore, the incentive to enter employment and interest in career development would be maintained (assisted by a public and private-sector offer for further education and training). At the same time, labour costs to employers could be significantly reduced without employees' income falling below subsistence level. However, the political costs of such a change would be very high, as it would involve simultaneous changes in tax law, social legislation and collective wage agreements.

In this respect, a second option considered by the Commission, which is limited to subsidising low-paid jobs, would be easier to realise. This proposal involves no major reform of social legislation and does not tie subsidisation to the level of need of the employee's household, as defined by social legislation. Instead, it considers solely the (hourly) wage paid by the

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employer. Below a legally defined level, say DM 18 per hour, these wages would be subsided in the form of a regressive state contribution financed out of general taxation. This proposal would be particularly simple to implement, if the public contribution took the form of a regressive reduction in the level of social security contributions paid by both the employer and the employee, so that, for example, no contributions would be payable on wages of under DM 10 an hour. These contributions would be progressively reduced on wages of between DM 18 and 10 per hour, with direct transfers from the tax office to the social security offices. The system would not affect the remainder of social legislation, tax law or collective age agreements. The current debate concerning the possibility of unburdening the social security system of its responsibility for .non-insured benefits' could be used here, if additional tax contributions were employed not to reduce all contributions across the board, but be targetted in the form of far larger cuts in the contributions levied on low-wage jobs. The reduction in the wage costs of simple work would be sufficiently large to make it profitable for companies to seek new markets for simple services and, thus, to create large numbers of additional jobs.

Both these proposals are based on a fair-minded distributional policy. The Commission expects that in the light of the existing structure of the job market and the Germany social system, the exclusion of the low-skilled from employment will continue, even in the event of greater economic growth. But the social and political integration of these people is particularly dependent on their participation in employment; thus, anticipated developments indicate a major risk. As the number of regular jobs falls increasingly short of the demand by those prepared to work (and particularly of the young), social policy can no longer be limited to providing those excluded with a non-work-based income above subsistence level. Instead, the number of simple jobs that provide socially useful and recognised forms of work must be permanently increased. At present, these jobs must come first of all from the private sector. If the market-based incomes from such jobs should prove to be inadequate from a social point of view, then these incomes will have to be augmented by means of a distributional policy oriented towards integration, instead of destroying such jobs.

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2.3 Change in the family and the Employment Crisis as a Challenge to a Policy of Social Integration (Project 3)

The current problems facing German social policy can be discussed with reference to the welfare triangle of the market, the state and the family. They can only be grasped if they are seen as a result of changes in the traditional, internally consistent, German welfare model that was shaped by the reforms of the 1950s, but whose basic features can be traced back to the guiding social policy ideas of the Bismarck era. In a very simplified version, these guiding policy ideas can be described as follows:

• The job market is dominated by the 'standard employment' of skilled male workers and, increasingly during the course of this century, skilled white-collar employees in trade, banking and insurance. After a relatively short vocational training period, both blue- and white-collar staff enter secure, full-time employment. Thanks to their good vocational skills and supported by strong trade unions, co-determination and advanced industrial relations, they can expect both good wages, sufficient to 'maintain a family', and high job security until they reach retirement. The employment of women plays a relatively small role and is mainly limited to the time prior to marriage.

• The social security systems, too, are based on the standard work model of full-time male employees who are the sole family breadwinners and on whose income all the other members of the nuclear family depend. Accordingly, in the German model, social policy focuses on securing the income of standard employees and their (legitimate) families against risks such as invalidity, sickness, unemployment, old age and death of the breadwinner. This security is provided mainly through insurance funds that are regulated by legislation and rely on wage-related contributions. The benefits provided by the insurance funds (transfers and services) also cover the needs of family members.

• In the areas of housekeeping and looking after the family, it is mainly the female family members who contribute the socially necessary services of regeneration, care, bringing up children and nursing. Marriage and the family are seen as a permanently stable, economic and solidaristic partnership based on trust and mutuality in which resources are shared and problems are mastered together.

The standard employment model and standard marriage remained the guiding norm in personal and collective action until far into the 1970s. The

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post-war economic boom made it possible for most West Germans to live according to these norms. The stability and prosperity produced by the standard employment model and standard marriage for a long time managed to conceal the restrictions that the gender-specific nature of the division of labour imposed, especially on women.

The present problems facing social policy result from the fact that, since the 1970s, the two central parameters on which the German social model has been based - stable employment, stable marriage and family - have changed. As a result, the traditional welfare triangle has lost its internal consistence, functionality and acceptability. We shall describe these changes in brief.

Although the changes in German family structures have been less radical and slower than in other Western countries, a number of similar trends have emerged. As job opportunities and income levels become more differentiated, the share of men in the Federal Republic who are able to act as sole breadwinners in their families on the basis of secure, full-time employment is declining. At the same time, the traditional division of labour in families has increasingly come into conflict with the growing desire of women for equal opportunities to fulfil themselves and to achieve social recognition which, in our society, is associated with gainful employment, paid income and a professional identity. Many women (and men) are today putting off marriage and the starting up of families, many permanently forgo both; the birth rate is dropping, separation and divorce are on the increase, and the number of one-parent families is rising. The continuous growth in female employment, and in particular that of mothers, is mainly due to the increase in part-time work. By contrast, the total volume of paid female work has hardly changed. Unlike in the United States or the Scandinavian countries, in Germany the number of jobs for women that will allow them to be self-supporting, through full-time or large part-time jobs, has generally not grown in the way women's political demands for economic independence have led us to expect. The provision of part-time employment has so far mainly served to use up the .passive reserves' of non-employed married women. This is one reason why despite growing female employment, the number of registered unemployed has hardly declined.

By contrast, the family and women's policy pursued in the GDR, over a period of 40 years, favoured an equal opportunities model based on general employment for all men and women. Even today, the full-time employment rates of women, and particularly mothers, is significantly higher in eastern

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Germany than in West Germany; their contribution to household incomes is not significantly lower than that of East German men. Eastern German women's working lives are still oriented towards full-time employment and are far less varied than those of West German women. However, in both eastern and western Germany, the employment expectations are becoming more differentiated. A significant proportion of women are oriented towards the traditional male pattern of skilled full-time employment with realistic promotion and career prospects. On the other hand, in our society, the attraction of the traditional woman's role also remains strong, and many women are not prepared to let their role as mothers take second place to the demands of the labour market. In West Germany, in particular, many women do not wish to work during the phase of their life that is dominated by motherhood or they will only contemplate part-time work; but this does not affect the significant increase in the importance of employment before and after this period. Where younger generations are concerned, growing emphasis is being placed on women's desire for a radical change in the division of labour within the family. Also, men are more prepared to entering relationships in which both partners may enjoy equal opportunities, and bear equal responsibilities, as far as paid employment and family-related work are concerned.

The transformation in the labour market and in the family confront a social security system whose structure has not been fundamentally overhauled since the 1950s. The internal consistence of the German welfare triangle is, therefore, being lost - with far-reaching consequences for people's ability to plan their lives and for their opportunities in life, but also for the legitimacy of the social system. Generally applicable solutions are not yet available, and they cannot be proposed here. Nevertheless, it is important to identify the (sometimes contradictory) requirements that a new consistent configuration of the German welfare triangle would have to meet.

The Commission sees the following requirements confronting future social security systems:

• In future, the social security systems must be funded and provide benefits and services in a manner that promotes and facilitates the uptake of paid employment of whatever kind instead of making this more difficult or impossible.

• This means that the structure of the social security system must not discriminate either against the transfer between part-time and full-time employment or against the transfer between self-employment and paid em-

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ployment. Ideally, the system will also not discourage international job-mobility.

• It follows that in future, the social security system will have to be based on the individual and must not assume stable family groupings. At the same time, however, care will have to be taken to ensure that the system in no way hinders the creation of stable partnerships and two-parent families. For example, this implies that if either partner should decide to leave (full-time) employment, individual contributory duties and service and benefit entitlements would be based on the principle of mutuality. These guiding ideas would need to be discussed separately for the individual systems (pension, health and unemployment insurance).

• All this suggests that social security systems should be funded not merely from income derived from paid employment, but from all forms of income.

• Finally, a comprehensive, individually-focused social security system must also provide a basic, collectively-funded guarantee to cover problems that may destroy people's life plans and other forms of income poverty. In this connection, we refer to the discussion of the "Bürgergeld" proposal in the Commission's Project 2.

2.4 Environmentally-compatible Life-Styles and Forms of Economic Life

Despite some environmental policy successes, the link between the well-being of people and social prosperity, on the one hand, and an ever higher consumption of materials and energy, on the other, still underlies the development of industrial society. Priority, therefore, still needs to be placed on breaking the link between society's demand for materials and energy, on the one hand, and economic activity, economic growth and the quality of life, on the other.

The fact that protection of the environment is also in the economic interest of the individual is demonstrated by the success of German companies in the area of low-emission, environmentally-friendly products, technologies and processes. Comprehensive strategies that concentrate on the considerate use of resources and high utility values offer advantages in terms of international competition and positive employment effects. The success that has so far been achieved in this field should be a sufficient

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incentive for the further development of these options. It will be of major importance that the fragmented political system succeeds in connecting technical innovation, behavioural changes and institutional innovation.

In this area, the Commission is recommending four approaches to increase the efficient use of resources and to accelerate ecological structural change. Two of these approaches focus on internalising the external costs and effects of economic activities through: (a) the elimination of environmentally harmful incentive structures by an environmental tax and contributions reform; and (b) improving liability for environmental damage through the introduction of compensation funds. The other two proposals aim to promote environmentally-friendly innovation through (c) government support of innovation and innovative business strategies and (d) the initiation and support of environmentally-friendly innovative processes in other countries (joint implementation). Only when all these proposals are working together can their full environmental and economic benefits be realised.

In the Commission's opinion, an environmental tax reform, which has now been under discussion for some years, will be a major factor in decoulping the exploitation of the environment from economic growth. Making the exploitation of the environment more expensive while also reducing the cost of employment through a neutral-yield reform of the tax and contributions system promises to harmonise ecological, economic and social interests, in line with the guiding idea of sustainable development.

Current environmental liability law is characterised by major shortcomings as regards the prevention of damage to the environment, the recognition of those who cause environmental damage, and compensation for damage to be paid to those who suffer from environmental damage. Thus, it leaves significant gaps in liability. The Commission, therefore, suggests that a compensation fund should be established. In the event of collective responsibility for damage, such a fund would be particularly well-placed to internalise these costs to groups of polluters and to compensate those who suffer pollution adequately.

By proposing innovative business strategies under the title of 'use, don't buy', the Commission wishes to provide a practical example of how environmental, economic and social goals can be harmonised under certain circumstances. Since more and more German companies are already having to take back their products after use, they will increasingly concen-

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trate their efforts on discovering ways of increasing the lifetime of their products. Services provided during the lifetime of products as well as services aimed at extending the lifetime of products (such as recycling-friendly construction, repair, modernisation and fleet management) will become significant sources of revenue. A bigger step forward would be the sale of the right to use products instead of the sale of the product itself, which would shift the economic focus from product manufacture to product management. The extension of the lifetime of a product, if taken in conjunction with a lower energy and materials input and the closure of the circulation cyle of materials in production, promises a big decrease both in the use of resources and in environmental damage. One may also expect that by reducing the circulation of materials in favour of product management, there will be a net increase in jobs.

The Commission does not think that measures to speed up environmental structural change and to increase the efficient use of resources will suffice to ensure sustainable, environmentally-compatible development in Germany. There must also be a change in energy-intensive and material-intensive consumption patterns and life styles so that people's quality of life can be further delinked from the circulation of materials in the industrial economy. A significant starting point for new environmentally-compatible life styles needs to consider the construction and maintenance of buildings, roads and other parts of the infrastructure, which together take up half of all raw materials used and devour a major proportion of all energy used. Foodstuffs also offer considerable possibilities for energy savings, as a reduction in the share of meat and an increase in the share of fruit and vegetables consumed would lead to significant reductions in the amount of energy and materials consumed in their production; this would, in addition, have a positive effect on public health. As far as private transport, road haulage and air transport are concerned, their harmful environmental effects have long been recognised, but opportunities for reducing them are far from being exhausted.

The Commission believes the concept of 'opportunity structures' will be able to inject new vigour into changes in life styles. Behavioural change does not come about merely through the introduction of guidelines or education, which can also mobilise resistance, but also by changing the practical framework conditions of individual action. 'Make the environmentally friendly choice the easy choice'. Particularly in areas where habits are most

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deeply entrenched, such as transport, food and the use of daily appliances, it is important that the more environmentally-friendly options should be given technical, organisational and logistical support.

The Commission thinks that in view of the global environmental threats and risks, far greater efforts must be made to achieve effective international consultation and co-operation in environmental policy. In particular, the use of new economic incentives and the introduction of institutional innovations in environmental policy provide opportunities for greater sustainability at the national, European and global levels.

According to the joint-implementation approach, countries will be able to comply with their own obligations to reduce emissions (e.g. COL) both by action at home and in other countries. This will facilitate the reduction of emissions in places where action is most cost-efficient and ecological effective.

The Kyoto Protocol that is part of the UN Climate Framework Convention explicitly mentions internationally tradeable emission certificates; this instrument must now be developed in more detail. Essentially, this instrument allows the regulation of a global volume of emissions, that is agreed in a binding manner, through issuance and trade in licensed and transferable emission rights (licenses). This creates a market where none exited before - a market that introduces economically efficient solutions, gives incentives for innovative methods of protecting the environment, and guarantees real relief from the pressures on the environment. Such a market can also be geared to producing a net transfer of resources from industrialised to developing countries through funding and technology in exchange for licenses.

In the Commission's opinion, there is much to be said in favour of such a market-based solution to steering emission volumes. This applies, in particular, to joint implementation in the initial phase and to tradeable certificates in the final phase of global environmental agreements (especially within the context of the climate convention), at both the European and the global levels.

Institutions of international environmental policy exist mainly in the form of horizontal, national self-co-ordination, if only because of the lack of bodies capable of hierarchical direction. As regards to international environmental policy, the decision-making process traditionally takes the form of negotiations, which are based on voluntary agreement to the development of problem-solving regulating mechanisms. The need for consultation

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and co-ordination has grown significantly with the rise in international environmental agreements and has led to many suggestions for institutional innovation and reform. In this respect, we can refer especially to the establishment of funds for the regulated transfer of technologies and finance from the north to the south as a direct steering instrument and also changes in indirect procedural steering (such as capacity building and new forms of decision-making). More far-reaching institutional reforms are under discussion, including the setting up of an international Council for Environmental Matters, similar to the UN Security Council, the creation of an ecological institution modelled on GATT, the environmental reform of the World Trade Organisation (WTO), and the creation of an Environmental Court to decide on environmentally-relevant disputes and to penalise those who damage the environment.

In the Commission's view, the Federal Republic of Germany needs to take a more active part in these discussions than hitherto. Germany's stance on these questions of international environmental policy is only believable and convincing, if it is matched by domestic action, i.e. if there is a new drive for technical and social innovations in environmental protection at the national level.