TCS Daily

What Price Victory?

By Nico Wirtz - June 9, 2005 12:00 AM

To those not too familiar with the German political and social landscape, the overwhelming victory of the Christian Democratic Union (CDU) in the state of North-Rhine-Westphalia may have seemed an opportunity to turn the country around and resort to much needed meaningful reform. After all, had not the CDU/CSU blasted Chancellor Gerhard Schröder's "Agenda 2010" as not going far enough?

Yet, at face value, the North-Rhine-Westphalia election result reflects the opposite, and, a closer look reveals that it was less a victory for the CDU/CSU than it was a defeat of reform efforts, be they ever so small.

When Schröder initiated his reform policies under the slogan "Agenda 2010" in March 2003, most observers saw them as the litmus test for the his Social Democratic Party's (SPD) internal and external cohesion. The outcome was different from what the party leadership had hoped for: Public outrage culminated in last month's election results in North-Rhine-Westphalia, which had been the party's stronghold for 39 years, and the SPD itself became the scapegoat for the failure of the entire body politic to reform the Federal Republic. Germans still fail to see that there was and is no alternative to fundamental and structural reform in Germany.

While Germans in general realize that something has to be done, their idea of what this might be remains very vague. Conversely, Germans have a clear idea of what is unacceptable to them. Tolerable reform does not a) bear direct financial costs and b) does not further temper with dearly established social welfare benefits - After all, "ENTITLEMENT" is still spelled in capital letters. In spite of many examples of successful reform through the introduction of choice and competition in other countries, these ideas continue to be an anathema to the German electorate. Thus, even the modest steps taken by Schröder's government as part of "Agenda 2010" were seen as too radical by most.

While a victory for the CDU/CSU, and thus a coalition government between the party of Angela Merkel and Edmund Stoiber and the Free Democratic Party (FDP), seems all the more likely (albeit more a rejection of Schröder and his policies than support for the opposition), groundbreaking laissez-faire elements can hardly be expected to be part of any coalition agreement.

Should a coalition of CDU/CSU and FDP govern the country at the federal level after September 2005, the German government would have more institutional political leverage to fundamentally change the Federal Republic of Germany than ever since the early days of Chancellor Konrad Adenauer (CDU). In addition to the Bundestag, CDU/CSU and FDP would then also control the Bundesrat (which represents the interests of the Länder, or states, within Germany's federal structure). In terms of institutional majorities, CDU/CSU and FDP could pass nearly any political reform package without the threat of a veto by the political opposition in the Bundesrat.

In political reality though, bare-knuckle reforms will not be coming down the pipe. Too great is the country's reluctance to radical deviations from the formerly known.

The Free Democratic Party (FDP), being the only viable political force willing to implement greater choice and competition in all areas that require urgent reform, will face an uphill battle. Coalition talks with the CDU/CSU - by all means a more likely political ally of the Free Democrats than the SPD - will be difficult to conduct and agreement difficult to find.

With the CDU/SCU more cautious and static on issues such as tax policy, welfare reform, deregulation and the like than the FDP, common ground meaningful liberalization of crucial areas such as retirement policy, education and health care policy will be a hard sell during the FDP's negotiations with the CDU/CSU.

Interesting reform proposals coming from within the Free Democratic camp, such as Health Savings Accounts, partial privatization of Social Security, competition inside of Germany's education system, weakening the influence of counter-productive political meddling by Germany's labor unions, or reducing public sector employment, are out of the question for the CDU/CSU. In many respects, the CDU/CSU is still dominated by a philosophy of political reluctance, and hesitation to fundamental change and a policy of "weiter so!".

Additionally, contrary to the FDP, which has fully formulated reform packages for virtually every political issue ready for implementation, the CDU/CSU was shockingly caught off guard by Schröder's call for early elections. It will be interesting to see whether the CDU/CSU can formulate a reform concept for the social and economic landscape of Germany between now and September.

Whatever the election outcome this fall, a turning of the tides cannot be expected any time soon. Should the SPD win re-election, one can expect a continuation of Schröderesque piecemeal policies tamed by elements to appease the party's left wing.

On the other side of the political aisle, the lack of consensus between the CDU/CSU and FDP on crucial issues, and the reluctance of the general public to go along with any meaningful reforms, will prevent a CDU/CSU-FDP coalition government from delivering much progress. At least for the CDU/CSU, political longevity will dictate the course of action, in order not to jeopardize the re-gained governing power.

Until the general public realizes what is at stake for Germany in a long-term perspective, and politicians feel their reform concepts may resonate with the electorate, the German malaise will continue, and potentially even worsen.

So far, only the FDP has been actively engaging the electorate. Since 1998, the party has been pushing the message that superficial treatment of the symptoms does not heal the patient and that those problems will compound if the root causes are not seriously confronted. This is absolutely right, yet until now, the party has been unable to drive the argument home. Thus, every day, the country's problems continue to grow: on the labor market, inside the government-run retirement system, and the unsustainable health care and welfare system....

The more of a classical liberal influence the FDP can bring to bear past September 2005, the speedier Germany will be able to overcome the economic and social malaise that has been strangling the country for more than a decade.


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