Schroeder’s fight for survival

Chancellor Gerhard Schroeder’s surprise resignation from the powerful post of Social Democratic Party chairman may have doomed ambitious reform plans for Germany.
Schroeder quit last week amid sagging opinion polls and anger of Social Democratic (SPD) left-wingers over his economic, healthcare and labour reforms.

SPD parliamentary leader Franz Muentefering, who is due to take the party’s helm, vows reform will continue without compromise.

But experts not only doubt whether additional reforms are in the pipeline but express concern that the government may backtrack.

Rainer Guntermann, European economist at Dresdner Kleinwort Wassterstein bank in Frankfurt, predicted no further major reforms during Schroeder’s current term.

“Any further radical, pro-business reforms are off the agenda until after the next (2006) election,” said Gunetermann, adding: “We already had low expectations … but they have now been reduced further.”

The Frankfurter Allgemeine newspaper also took a pessimistic view.

“A policy of cutting taxes and further liberalisation of labour markets hardly has chances of being approved,” said the paper. *quote1*

Indeed, the Frankfurther Allgemeine – an influential conservative daily – said the best the government could now do was prevent SPD leftists from forcing through demands for raising inheritance tax, imposing a new wealth tax and blocking pension reform.

The news magazine Der Spiegel, which dubbed Schroeder “half a chancellor” after his resignation, also said reforms were in trouble.

“This could be the beginning of the end of the reform process,” said the magazine. “The expectations … are clear: put on the brakes, block new moves and divide up (wealth).”

Peter Pietsch, senior economist at Commerzbank in Frankfurt, said the government would come under far more intense pressure to accept increasing inheritance tax which is key SPD leftist demand.

“It will be more difficult to keep up the reform pace,” said Pietsch, adding: “Many things have been started – but not completed.”

Adolf Rosenstock, European economist at the Japanese investment house Nomura in Frankfurt, warned Schroeder’s SPD would be a greatly diminished force if it ended 2004 the way it is starting the year.

There are 14 state, local and European Parliament elections in Germany this year. Schroeder’s SPD has been hovering around 25 percent in the polls for months while the opposition conservatives are just under 50 percent. *quote2*

Traditional SPD voters were infuriated over Schroeder’s reforms passed last year which imposed small payments for visits to the doctor, cut income tax for people with both low and high incomes, reduced jobless benefits and made it easier for smaller companies to sack workers.

Some 63,000 SPD members quit Schroeder’s party last year leaving it with 650,000 members nationwide.

Meanwhile, Germany’s unemployment rate rose to 11 percent last month after the economy contracted by 0.1 percent in 2003. The government predicts GDP will grow by up to 2 percent this year.

Both Rosenstock and Guntermann said the real test for Schroeder would be on planned pension reform this year.

Given Schroeder’s slim majority in parliament a major reform could be defeated by his own party and thus force early elections, said Guntermann.

But he noted the government’s most likely policy would be back- pedalling when it came to any major steps.

“It’s all going to be about how to preserve the SPD from becoming a casualty of reform,” concluded Rosenstock.

DPA

February 2004

Subject: German News, Gerhard Schroeder, German politics, reform