Germany’s Confusion Made Clear

Germany enters the year in an equivocal frame of mind. It knows widescale reform to its social and economic model is essential, but it is anxious about the consequences of any change. That confused message has landed the country with a government newly elected in September 2002, but the same old chancellor, Gerhard Schroder, who has failed in the past to deliver the changes he once promised. With a wafer-thin majority in the lower house of parliament, the Bundestag, and less than half the seats in the upper house, the Bundesrat, Schroder will find it hard to provide striking leadership. Yet he is still likely to have four years in office. What will he do with them?

Schroder's main efforts will be close to home. Germany, once the country of the post-war economic miracle, is acquiring a reputation as the sick man of Eu­rope, with low growth, high unemployment and an un­willingness to contemplate the sort of changes that might get it out of its current difficulties. In his first term of of­fice, Schroder made a good start on tackling the back­log of reforms that had piled up under his veteran conservative predecessor, Helmut Kohl. Under a five-year program of tax reforms starting in 2001, both corpo­rate and personal taxes are gradually being cut to make Germany more competitive (though the cuts scheduled for 2003 are being postponed for a year to make room for spending on catastrophic flood damage in eastern Ger­many in the summer of 2002). He also took a small stab at encouraging more private-pension provisions, essential to ensure that state pensions for Germanys ageing pop­ulation do not become unaffordable, and took a more liberal stance on immigration. But towards the end of the term his zeal seemed to cool, and in one of the areas most in need of reform, the sclerotic labor market, he actu­ally de-liberalized the rules on low-paid, part-time jobs.

So Schroder will have his plate full, in 2003 and beyond. Given his slender majority and the need to ac­commodate a more assertive Green coalition partner, has he got enough wiggle room to achieve the reforms his country badly needs? Not likely, say his detractors; party discipline on the left tends to be loose at the best of times and will be even looser now. He will spend all his time looking over his shoulder, acutely aware that the voters themselves, in a finely calibrated verdict, have indicated that they would like things to stay exactly as they are.

Not so, say the optimists. The small majority will ac­tivate politicians' survival instinct, thereby ensuring tighter discipline. The Greens, with four years' experience as coalition partners in a federal government, have grown up a lot, and in Joschka Fischer, the Foreign Minister, they have an internationally respected figure. The German people may appear to have voted against change, but the opinion polls suggest that, now that the election is out of the way, they expect and will accept reform.

One thing that might make it easier is that the econ­omy will probably do better in 2003 than in the two pre­vious years. In both 2001 and 2002 growth languished well below 1%, and Germany's poor eastern states expe­rienced outright recession. But in 2003 growth might perk up. That may embolden Schroder to aim for something more than just survival.