Is Schroeder running out of luck?

One of the maxims of recent German political life is that Gerhard Schroeder is lucky.

But midway through his second term as leader of Europe’s biggest economy the 59-year-old Chancellor’s luck appears to be running out. His ruling Social Democrats are facing a series of election disasters this year as a marathon season kicks off this weekend with a poll in the city state of Hamburg.

Two years ago, Schroeder enjoyed a personal approval rating of more than 70 percent. But with economy struggling to gain growth and uncertainty if not deep hostility towards the government’s reform program, this has shrunk to just 27 percent today.

Moreover, a key economic indicator released this week showed business confidence in the country chalking up its first fall in ten months in February as industry leaders’ expectations of business conditions slipped.

Drawn by the Munich-based Ifo institute, the drop in the index highlighted growing business concerns that a surging euro and a slowdown in the pace of economic reform could set back Germany’s recovery, which Schroeder is betting on to help turn around the current political tide in the country that has driven his government’s poll ratings down to record lows.

*quote1*Indeed, the surprise drop in the Ifo report’s February reading appears to point to worries among the nation’s industry leaders that the reforms considered necessary to overhaul Germany’s lumbering economy and to shore up growth might now be abandoned or pushed onto the backburner.

Indeed, despite the insistence of Schroeder and other senior members of his Social Democrat-led coalition that Berlin remains committed to reform, analysts believe that with the government having to fight 14 tough state, regional and European elections this year, another round of unpopular economic reforms are unlikely in the foreseeable future.

“Any further radical, pro-business reforms are off the agenda until after the next (2006) election,” said Rainer Guntermann, economist with the investment house Dresdner Kleinwort Wasserstein.

“We already had low expectations … but they have now been reduced further,” he said, with the Schroeder strategy now aimed at stopping the government from becoming a casualty of the reform process.

Earlier this month Schroeder handed over the powerful job of chairmanship of the Social Democrats to a loyal deputy, in the face with a rebellion by party member members over his ambitious Agenda 2010 reform plan.

This includes reforms to Germany’s inflexible labour market such as liberalising the nation’s strict hire-and-fire laws as well as far-reaching changes to the country’s cumbersome tax structure and its
crumbling health and welfare systems.

*quote2*So deep is the anger about the reforms in the ranks of Schroeder’s party that in 2003 alone, more than 60,000 Social Democrats quit their party, amid claims by some party stalwarts that the Schroeder-led government is betraying the party’s Social Democratic traditions.

Sensing blood, the Social Democrats’ powerful leftwing have been calling for steps to roll back the reforms with moves now underway to introduce into the upper house of parliament, the Bundesrat, a measure calling for higher inheritance tax. But with the conservative opposition holding a majority in the Bundesrat this is highly unlikely to be passed.

Moreover, as a measure of the anxiety created in the electorate by the reforms, opinion polls show that if national elections were hold now a centre-right coalition comprised of the Christian Democrats and the Liberals would romp home to victory in a landslide win with  Schroeder’s Social Democrats garnering a meagre 24 percent of the vote.

Adding to the sour political mood in the country have been big cuts in government services and funding as a result of Berlin’s efforts to meet the strict budget targets for euro member states.

Social Democrat officials are already bracing themselves for a debacle in this year’s marathon round of elections, which kicks off at the end of this month with a state ballot in Hamburg.

Some polls are already pointing to a big win for the opposition Christian Democrats. But the SPD still hopes that combined with the vote for Greens that it might just be able to garner enough support to form a new coalition government in the city.

Also encouraging for Schroeder’s hopes of convincing the electorate of the necessity of his reform agenda, 55 percent of German voters tell pollsters that they want to see further significant reforms.

Schroeder has already flagged plans to make a major statement next month on the government’s reform strategy. Although this is widely expected at the moment to focus on soft reform issues such education and the need to boost research and development.

As a result the real test for the Schroeder reform drive could come later this year when the government has to decide about whether to press on with much-needed surgery to the pension system and the next round of tax cuts.

Given Schroeder’s slim parliamentary majority and the battle involved to push the Agenda 2010 through both the parliament and the SPD, a major reform involving pension cuts could be defeated by his own party and thus force early elections.

February 2004

Subject: German news, Gerhard Schroeder, Social Democrats, elections, reforms