Schroeder's Millstone [Election in Germany]

The Economist ^ | August 9, 2002 | The Economist Editorial

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Schröder’s millstone

Aug 8th 2002
From The Economist Global Agenda

Yet more gloomy economic figures released in Germany this week will make Gerhard Schröder's uphill battle for re-election, which he launched on Monday, more difficult

GERHARD SCHRÖDER kicked off his general-election campaign this week at the head of a dispirited party with many people in Germany convinced that he will not win re-election as chancellor when voters go to the polls on September 22nd. No one denies that he has a battle ahead of him. The ruling coalition, which comprises Mr Schröder’s Social Democratic Party (SPD) and the Green Party led by foreign minister Joschka Fischer, is trailing in the opinion polls.

Then on Wednesday August 7th came the one thing Mr Schröder fears the most—bad economic news. Newly published government figures show another rise in unemployment and an unexpectedly large drop in manufacturing orders. Even a rise in industrial production in June, revealed in figures released on August 8th, did little more than reverse a decline in May. Industrial production was down in the second quarter of the year, and will probably mean that GDP shows little if any growth over the same period.

Yet it is the jobless figures which pose a particular problem for Mr Schröder. In the 1998 election, he promised to cut unemployment, arguing that, if his government failed to do so, it would not deserve to be re-elected. Bold words and, with hindsight, unwise ones. Unemployment did fall in the early part of Mr Schröder’s term. But as the chancellor now realises, Germany’s economic fortunes are closely linked with those of the rest of the world and with the United States in particular. As America slipped into recession last year, so did Germany. Unlike the United States, however, Germany has not enjoyed much of a recovery, even a weak one. Europe’s largest economy is now barely growing. The widely-reported headline figure for unemployment—before seasonal adjustments have been made—is now above 4m, within a whisper of the level Mr Schröder inherited from Helmut Kohl four years ago. At 9.7%, the rate is one of the highest in the euro-area, and substantially above unemployment in Britain or America.

The German finance ministry tried to put the best possible gloss on the very large drop in manufacturing orders, which were down by 3.2% in June compared with May—more than double the fall predicted by economists. Officials pointed to the fact that the rise in orders had been unusually high in May. In fact, when the three-month figures are analysed, the picture looks less alarming. But the level of overseas orders is especially important for German manufacturers: any prolonged downturn in America, for example, would be painful. And the ordinary voter is not going to notice anything other than headline totals reported by the media.

What is now obvious to German voters is that Mr Schröder has failed to deliver the more dynamic economy he promised. He has also managed to upset both the unions—the SPD’s traditional supporters, who feel he hasn’t done enough for their members—and employers, who argue he has not done enough for them, and has failed to tackle the problem of over-regulation which has long hampered German competitiveness. A series of high-profile strikes earlier this year, the first large-scale walkouts for many years, did enormous political damage to Mr Schröder’s government, although it was not itself directly involved in them.

The government has also failed to tackle the problem of the gap between the relatively better-off western Germany and the depressed former eastern Germany. Unemployment in the east is around 20%. The slight improvement in the eastern provinces which was revealed in the latest figures is unlikely to impress many voters. Recognising that it needs to do more in the east, Mr Schröder’s campaign managers have decided to focus particular efforts there, with an emphasis on job-creation programmes and public-works projects a key element of their electoral agenda.

Mr Schröder’s opponent, Edmund Stoiber, prime minister of Bavaria and candidate of the CDU-CSU coalition, has sought to exploit the chancellor’s vulnerability on the economy. Mr Stoiber, who some characterise as grey and boring, makes the most of his reputation as an efficient economic manager—Bavaria is the most successful and prosperous region in Germany. He aims to persuade voters that what he has done in Bavaria he can do for Germany as a whole.

Yet Mr Stoiber’s personal ratings trail behind those of Mr Schröder, and the chancellor’s popularity is one reason why he may yet, like all previous post-war German chancellors, win a second term. The speech that Mr Schröder made to launch his election campaign was confident and assertive. He criticised the failures of big business, and defended German-style capitalism against demands for faster deregulation by citing the example of ordinary Americans deprived of their pensions while corporate bosses had made off with millions. “That is not the German way,” he proclaimed.

The chancellor has also gone on the offensive on foreign policy, insisting that Germany should not be afraid of adopting its own position on international affairs. The first post-war chancellor to send German troops on active duty overseas—during the Kosovo crisis—Mr Schröder made it clear he did not support American policy on Iraq, disparagingly referring to new adventures abroad. Mr Stoiber’s more supportive approach to America is unlikely to be as popular in Germany.

In the end, though, with many ordinary Germans anxious about jobs and uncertain about the future, the economy is likely to remain the main battleground, not foreign policy. The gloomy economic data released this week, just as the election campaign begins, suggest that Mr Schröder faces a difficult task persuading German voters that he can deliver more in the next four years than he has in the last four.

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Who on top on Monday? [Could someone please assist me in posting the chart from the article that appears in the first paragraph? I'm using the source code but it doesn't appear to be taking. Thanks in Advance]