Posted on 09/25/2002 10:32:23 PM PDT by Forgiven_Sinner
FOR Gerhard Schröder, the next election campaign starts now. That might seem an odd assessment of the German chancellor’s election victory. He has, after all, managed to secure a second four-year term for the ruling coalition of his own Social Democratic Party (SPD) and the German Green Party, led by Joschka Fischer. But the election was closely fought and the margin of victory so slight that at one point during the count it looked as if Mr Schröder had lost. His conservative challenger, Edmund Stoiber, prematurely claimed victory.
Mr Stoiber is now likely to return to his old job as prime minister of Germany’s most prosperous region, Bavaria. But he conceded defeat with a warning for Mr Schröder: the governing coalition has such a small majority that Mr Stoiber reckons it will not survive for more than two years at most.
Mr Schröder knows it will be tough going: he said as much at his party’s victory celebrations. Much the biggest problem is the German economy. Germany is now the sick man of Europe, recovering so slowly from last year’s recession that growth this year is barely detectable. Business confidence is weak, unemployment remains stubbornly high and economists—though not Germany’s political leaders—believe major economic reform is urgently needed. The German stockmarket reacted badly to the news of Mr Schröder’s narrow victory.
Gerhard Shröder's coalition government of Social Democrats and Greens has much to prove after Mr Shröder's narrow victory over Edmund Stoiber's Christian Democrats.
The chancellor’s most immediate problem, though, is one wholly of his own making: his decision to oppose any invasion of Iraq, either with or without the authority of the United Nations. One of Mr Schröder’s achievements in the early part of his first term was to develop a more independent and assertive line on foreign affairs. He led Germany into its first foreign armed conflict since the second world war, in Kosovo, and its first foreign war outside Europe, in Afghanistan. In one sense, his hard line on Iraq is a further sign of his desire to make Germany more assertive in foreign affairs.
But it was also regarded by many as a populist move, designed to tap anti-war sentiment in Germany at a point in the election campaign when Mr Schröder’s victory was far from certain. And it has provoked an ugly quarrel with the United States. President George Bush pointedly did not make the traditional call to Mr Schröder congratulating him on his victory. Donald Rumsfeld, America's defence secretary, rammed home earlier comments from the White House spokesman by saying that Mr Schröder's behaviour has “poisoned” relations between the two countries.
Mr Schröder has already acted to patch things up, sacking his justice minister, who had accused Mr Bush during the campaign of behaving like Hitler by trying to distract attention away from domestic problems by threatening war on Iraq—a statement which caused outrage in Washington. That move was dismissed by American officials as too little, too late. On Tuesday September 24th Mr Schröder flew to London for a two-hour meeting with Tony Blair, Britain's prime minister, who, Mr Schröder seems to hope, can help patch up relations between Germany and the United States. Mr Blair gets on well with both Mr Schröder and Mr Bush, and during the German election campaign not only supported Mr Schröder but said that he had been asking “perfectly sensible” questions about America's plans for Iraq, and that he had a right to take a different line.
As the likelihood of some kind of military action against Iraq grows, however, the chancellor may come to feel he has painted himself into a corner. He will not want relations with America to deteriorate further, and he will want to ensure that Germany is not left out on a limb in Europe, if Britain, France and Italy back a UN-authorised invasion. Finding a way out of the confusion will be difficult, however, given the domestic popularity of his own opposition to a war with Iraq, and the popularity of his own coalition partner, the Greens, who firmly oppose America's war plans. Mr Fischer, whose party significantly increased its electoral support (in contrast to the SPD which lost voters), is likely to stay as foreign minister.
Ultimately, though, it remains the economy on which Mr Schröder’s fate will hang. After a promising start in his first term, Mr Schröder lost the appetite for pushing through difficult reform. He has presided over a sharp rise in unemployment—back almost to the levels of four years ago, when he first took office. German leaders have tended to blame many of the economy’s current problems on the global downturn. Last year’s American recession, coupled with yet another in Japan, certainly made Germany’s predicament worse.
So too has the monetary policy of the European Central Bank. The “one-size-fits-all” approach which the creation of the euro made inevitable has been particularly painful for Germany, whose economy would benefit from further cuts in European interest rates. And the stability-and-growth pact, which imposes limits on government budget deficits in the euro area and which was pushed through by Germany in order to forestall fiscal irresponsibility in countries like Italy, has had unwelcome—and unforeseen— repercussions in Germany.
Germany looks almost certain to miss the stability-pact targets this year: but even trying to stick to them, as Mr Schröder’s government is committed to doing, has further reduced the government’s freedom of manoeuvre when some short-term economic stimulus would help the economy.
Germany’s economic problems go far deeper, though. Most of Germany’s political leaders remain fond of an interventionist approach to government economic policy. Most economists agree that the German labour market needs much more ambitious deregulation than the Schröder government has yet been willing to contemplate, and more even than the recommendations of the Schröder-appointed Hartz commission which produced a wide-ranging report on labour-market policies in August.
Corporate deregulation is needed too. Germany’s business leaders have been reluctant to embrace fully the reform programme set out in the so-called Lisbon process which aims to make the European Union the most competitive region in the world by 2010. That was always an ambitious objective—now with a stagnating European economy and the visible distaste of many European governments for the detailed elements of the reform agenda, the target looks wholly unrealistic.
Germany is not alone in its reluctance to reform. But it is the biggest economy in Europe, and the third largest in the world. What happens to Germany matters greatly to its neighbours. A weak government might find it more difficult to push through unpopular reforms—even if it wanted to. Mr Schröder said in his victory address that there were hard times ahead for Germany. They may not yet be hard enough for the reforms that Germany needs.
I'll enjoy watching Schroeder twist in the wind.
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