The liberal market reforms Gerhard Schroeder announced on March 14, 2003 led to talk of social inequality in Germany and the emergence of a new underclass. Nevertheless, unemployment is now down and economic growth is up.

While center-left members of his Social Democratic Party praised the measures this week, the SPD's far-left wing, the Left party and the labor unions had harsh words for the Agenda 2010.

SPD party leader Kurt Beck said Thursday in a speech marking the anniversary of the reforms that Schroeder's address five years ago had signalled "the start of major successes in the areas of economy and the labor market."

"Now we have to work towards bringing the Agenda's successes to all the people," said Beck, whose popularity is at an all-time low, according to several recent surveys.

Foreign Minister Frank-Walter Steinmeier said there had been no alternative to the far-reaching reforms made to the social and labor systems over the past five years.

"We had to choose this policy, knowing that it could lead to pain and loss," he said.

Reaganomics from the left

The Agenda 2010, which has been compared to Reaganomics in the US and Thatcherism in Britain, aimed to improve economic growth and reduce unemployment by slashing not only income tax but also unemployment benefits and pensions.

The move met with approval from the conservative Christian Democratic and the liberal, free-market Free Democratic Party, but immediately drew resistance from Schroeder's own Social Democrats. He'd been elected in 2002 promising not to cut social benefits.

Thousands of the SPD's center-left members abandoned the party as a result, though the far-left stayed on, shifting the party's core. Due to inner-party pressure, Schroeder resigned as party chair in February 2004. He remained chancellor, however, until 2005 when he was forced to acknowledge defeat and call for early elections, paving the way for Christian Democratic Chancellor Angela Merkel.

Schroeder's massive cuts, particularly to unemployment benefits, led to talk of deepening economic inequality and the emergence of a new underclass.

The discourse was fuelled when the Friedrich Ebert Foundation, a political foundation closely associated with the SPD, published a study in late 2006 indicating that four percent of people in western Germany and 20 percent in eastern Germany were living in "precarious" economic conditions and felt "left behind" by politicians and society.

Nevertheless, unemployment sank from 10.6 percent in 2005 -- the highest it had been since German reunification -- to 8.3 percent in 2007.

Schroeder warns against leftward lean

Former Chancellor Schroeder on Thursday defended his Agenda 2010 as being "good and right." Referring to the fundamental shift to the left that his party has taken, in part due to the controversy surrounding the reforms, he added that "the SPD can only achieve a majority if it's anchored in the middle of society and doesn't abandon this position."

Franz-Juergen Weise, chairman of the Federal Employment Office, said in an interview with the Friday edition of the Leipziger Zeitung that the structural reorganization of his agency has resulted in "18 million euros ($27.75 million) in savings, solid financing for unemployment insurance [and] lower premiums."

In contrast, Michael Sommer, the head of the Federation of German Trade Unions, commented that the Agenda 2010 had widened the economic gap in German society.

Critique from SPD's biggest rival

The bulk of the criticism, however, came from the left. Today, hundreds of thousands of full-time employees "earn less than those who receive Hartz IV unemployment benefits," said SPD member Ottmar Schreiner in ZDF.

"That was made possible in part by the Agenda," he said.

Oskar Lafontaine, who left the SPD in 2005 to found the growing Left party, condemned the Agenda, saying that "five years of Agenda 2010 mean five years of neo-liberal dead-ends and the destruction of social peace and the people's trust in politics."

The success of Lafontaine's new Left party, comprised in part of dissatisfied former SPD members, represents a mounting political threat to the SPD. It currently has 53 seats in the federal parliament and is represented in 10 of Germany's 16 state parliaments.