TCS Daily

Germany's Economic Suicide

By Joseph Tom Goeller - February 20, 2004 12:00 AM

Suddenly, he is the most unpopular German chancellor in modern history. Gerhard Schröder's six-year honeymoon is over. Since winning re-election by only 6,500 votes in September 2002 he has seen his poll ratings plummet to 25 percent. In addition, in the past nine months 40,000 of Schröder's Social Democratic Party (SPD) comrades have returned their membership. His own party now hopes to limit the damage and its rank-and-file members have forced the unpopular Schröder to resign as their chairman. Many political observers see in this step a "death by installments" of Schröder's political career. But he is a fox that is not easy to hunt down, as he has proven many times.

What went wrong?

Schröder always had a strong lust for power. Since becoming the Chancellor in 1998, he has recklessly used every trick in the book -- including demagoguery that has not been seen in Germany since 1945 -- to stay the head of the biggest and strongest European nation. Right after his first election he faced a serious crisis with his coalition partner, the Greens, and was helped out by the outbreak of the Kosovo war that forged the Greens and the Socialists together.

In 2002, while Europe was discussing further steps towards European integration, he alarmed his country's neighbors, like Denmark, the Netherlands and Poland, with talk of "a German way." He was insensitive enough to use the language of the worst chapter in Germany's past.

He also demagogued the Iraq issue. Without any enemies left after the fall of the wall in 1989 he needed a new one to distract from his own ongoing domestic and international shortcomings. In President George Bush he found his ideal opponent. The nation felt good with a self-confident chancellor. Schröder won sufficient support to stay in power.

Finally, after almost six years in power, he dared to work on what he had been elected to do in 1998: to boost the lame German economy and lower the extremely high unemployment rate. But he made a big mistake. He told his pampered nation that to achieve this goal he had to start to slaughter the Sacred Cow: the welfare-state. Since then it's been all downhill for him.

Shortly before Christmas last year, Schröder saw a glimmer of hope that he once again could prevail. He was able to convince the two opposition parties in the German parliament, to support what he calls "Agenda 2010," the economic reform program with which he hopes to end the long-running recession plaguing Europe's biggest economy. But the proposal has been watered down so much that it most likely will have no impact at all except to kill Schröder's political career.

For example: The opposition in the Bundestag demanded that he has to halve his proposed tax cut of €15.6 billion down to €7.8 billion in order to get their support. Even though the tax cut was, as in the US, at the center of Schröder's reforms, he agreed on this irresponsible request, knowing that he will get only lukewarm if any support from his own party. While the economics and labor minister Wolfgang Clement hoped that the cuts would add up to 0.6 percent to this year's 1.5 percent growth forecast, the German Institute for Economic Research immediately denounced the remaining tax cut as having no effect on the economy in 2004.

It got even worse: Schröder hit hard at traditional SPD voters, especially union members, workers in their fifties and sixties and elderly. He froze pension payments for a year and imposed a quarterly €10 payment for visits to the doctor. The intention was to lower state health-insurance costs and to reduce the misuse of the government-subsidized health care system of many Germans who try to get sick leaves in addition to their generous amount of holidays.

This part of the reform actually worked within weeks. The number of doctor visits declined sharply in January 2004 (now the doctors and pharmacists are against the chancellor). But there has not yet been a reduction in insurance premiums, as Schröder has promised - so the entire nation is outraged.

The litany goes on: The Chancellor dared to propose cutting long-term unemployment to force the inflexible jobless to accept work and he made it easier for small firms with less than 10 employees to hire and fire. This last proved too much for the unions. They immediately rallied their workers. Schröder has never been popular with the unions, which have called him a "comrade of the bosses" and not a real socialist. Now they sense their chance for revenge.

But those who gleefully count the days remaining in Schröder's chancellorship -- and there are many in the SPD as well as in the opposition parties CDU (conservatives) and FDP (libertarians) -- are trapped between the wishful thinking of maintaining Germany's welfare state and the necessity to re-ignite the once strong motor of its economy.

If no one has the courage to end the economic recession with deep, sharp cuts of the welfare state, Germany not only will continue to hurt itself but also kill the European single currency. For three years there has been no economic growth in Germany. It is easily foreseeable that Germany's deficit will continue to exceed the limit of the 3 percent of gross domestic product that the euro zone countries agreed to. Finance Minister Hans Eichel admitted recently that there is no way he'll meet his goal of balancing the national budget by 2006.

The SPD trapped itself. By weakening Schröder it will gain nothing. Strangely enough, Franz Müntefering, who will take over the party chair from Schröder at the end of March, announced "there is no alternative to reform". How then does he think the SPD can sell the unpopular cuts and reforms to the spoiled German public if the once so popular Gerhard Schröder failed?

There are 14 local, state and national elections in Germany this year. The first will be on 29 February in Hamburg, once a stronghold of the SPD, now in the firm hands of the CDU. All actual opinion polls predict one disaster after another for the socialists. And there is no magician on the horizon. The world might see within the next three years how a once prosperous country commits economic suicide.


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