BERLIN, 3 September 2004 — Will Chancellor Gerhard Schroeder stay the course as Germany’s “Iron Reform Chancellor” or is he wavering amid mass protests aimed at his cutbacks of the country’s welfare state?
Views on where the government is heading contrast starkly as Schroeder seeks to defuse weekly demonstrations which last Monday drew 70,000 people angry over moves to slash Germany’s relatively generous unemployment benefits.
Despite opinion poll lows and daily battering by the media — not to mention left-leaning members of his own Social Democratic Party (SPD) — the chancellor appears relaxed and almost serene as he heads into battle.
“Unpopular decisions must be made if they are necessary for the nation,” declared Schroeder in a recent interview, adding: “If we don’t restructure social welfare it will go kaput.”
Schroeder insists he will win re-election in 2006 and seems to be banking on reforms helping underpin an economic upturn and crucially to boost jobs.
Ending three years of stagnation, German GDP is expected to grow by up to 2 percent this year and much the same in 2005.
Barring a major crisis or terrorist attack, analysts expect the 2006 election to be decided by the economy and especially unemployment which is currently a grim 10.5 percent nationwide but almost 20 percent in hard hit eastern Germany.
Hans Mathias Kepplinger, a media communications expert at the University of Mainz, is less optimistic than the German leader.
“All they can do is heroically stick to their path and heroically go down in defeat as the first government to have had a go at making crucial reforms,” said Kepplinger in a Stuttgarter Nachrichten newspaper interview.
Also worried is Dieter Hundt, head of the German Federation of Employers.
“I’m concerned because of reforms being reversed, reforms being stopped, reforms being watered down — zig-zagging is the order of the day,” grumbled Hundt.
But Adolf Rosenstock, European economist at Nomura International in Frankfurt, is more upbeat.
“Schroeder has been written off several times before. But he’s not just flip-flop man — he’s comeback man,” said Rosenstock.
Viewed from a global perspective, Schroeder’s tax, health, labor and jobless benefit reforms may seen modest compared to those pushed through by leaders such as, say, former British Prime Minister Margaret Thatcher.
But given the street protests and rumblings in the chancellor’s own SPD, Schroeder’s insistence this was the most he could ram through seems to again confirm the German leader’s finely tuned political nose.
Rosenstock agrees, saying German society and the economy are reaching the limits of what they can take in reforms. “It’s time for reform time out,” he says.
Employer President Hundt insists, however, that not enough has been done to cure German structural defects.
Speaking at a Berlin news briefing, Hundt said social welfare spending was gobbling up almost 33 percent of Germany’s total GDP and that costs to employers for social insurance were stuck at historic highs.
Germany, he said, faced a brutal choice: Either reform or see more jobs shift abroad to lower wage markets in places like east Europe. Seemingly emboldened by Schroeder’s reforms, German companies are taking action on their own.
Major corporations have declared war on the 35-hour work week which was set as an industry standard in 1998. Siemens and DaimlerChrysler have won working hour increases after threatening to move jobs abroad and Volkswagen has also begun a similar bid. Hundt agrees with most economists that this year’s GDP growth of up to 2 percent is not enough to create the millions of new jobs Germany needs.
But he argues nobody can talk about there not being enough work in Germany given the 400 billion euro ($487 billion) annual market for illegal labor in the country.
“The state must pull these jobs out of the shadow economy and make them legal,” Hundt said.
So is Schroeder merely making tactical concessions by tinkering with his jobless bill and health reforms? Or is he caving in?
Nomura’s Rosenstock sees a tactical rest and retreat phase.
“We are probably now entering a period of consolidation to digest what’s gone on in the last 12 months,” he says.
Rosenstock predicts there will be only one further major reform drive before the 2006 elections: a court-mandated revamping of the state’s compulsory long-term nursing care insurance.
He also argues the weekly anti-Schroeder protests are backfiring because they have fueled a new debate on people abusing Germany’s social welfare system.
The past focus, Rosenstock says, was on foreigners allegedly sponging off the welfare state but now this is seen as a far more general problem.
Indeed, polls show a slim majority backs Schroeder’s controversial unemployment benefits cut and although several eggs have been thrown at Schroeder during recent visits to economically hard hit eastern Germany, none have hit the chancellor.
In contrast, former SPD leader Oskar Lafontaine — who has emerged as one of Schroeder’s most bitter leftist critics within his own party — took a direct hit by an egg this week before addressing an anti-government rally in Leipzig.
