The German Chancellor urgently needs to listen to the dissenters on his Left, writes Tom Gill
Life has been easier for Gerhard Schroeder.
In September last year, the German Social Democrat leader was riding high after snatching victory from the conservative Christian Democrat opposition at the general elections. At the time, Schroeder held onto power by capturing the popular mood against the war on Iraq. However, these days he seems to have lost his popular touch. The Chancellor’s opinion poll ratings have fallen well below that of his opponents. He has suffered two major local election defeats in recent months. Meanwhile, his critics on the Left are becoming increasingly emboldened.
For months, Schroeder has been dogged by the parlous state of the economy. But his biggest problem now appears to be his Agenda 2010 reforms, which represent one of the biggest attacks on the German welfare system since the Second World War. Polls show most of the Red-Green coalition’s labour market, healthcare and public finance reforms to be unpopular. Media coverage of the measures has focused on how they would dilute the country’s generous provision of social benefits, which are light years ahead of those in Britain’s welfare state.
At the end of September, the Chancellor managed to gain support from SPD parliamentarians to make cuts to the healthcare system only after threatening to resign. Now, with a string of Bills on the labour market, tax, and public finance due to be voted by the Bundestag’s lower house today (October 17) the Chancellor has had to play that card again. And he hasn’t given himself much time. He says the reforms need to have gained parliamentary approval by Christmas.
A back-bench revolt is all the more worrying for Schroeder, since his party only has a four-vote majority in the lower chamber. Not only is the CDU strong in the lower house, it also has control of the upper chamber, which must approve most of the Government’s reforms for them to become law.
And, after its landslide victory in Bavaria, the CDU has a renewed confidence. As a result, it is now driving a hard bargain with the Government.
Angela Merkel, the CDU leader, is insisting that Schroeder’s “flexible” labour market reforms are too timid. She wants him to remove protection against dismissal in companies with fewer than 20 employees. She and Schroeder know that the Left in the SPD will not accept this. Thus, the divisions in the SPD grow wider.
Schroeder aims to reduce taxes and employers’ costs. He argues that this is the only way to pull the economy out of its doldrums. But this would be at the cost of undermining Germans’ living standards, security and protection during and after working life.
In fact, the Chancellor is prescribing the wrong medicine. Germany’s economic woes are in large part linked to the European integration project.
Interest rates, now set by the European Central Bank to accommodate 12 different economies with varying growth and inflation rates, are far too high for German industry.
The straitjacket of the Growth and Stability Pact deficit rules, also designed by Germany, are also coming back to haunt the country. Unable to expand public spending and provide cheap credit to firms, the German economy is stagnating for a second year.
Nevertheless, Schroeder is taking his cue from the Frankfurt-based European Central Bank, which believes that German and other European workers must adjust their living standards lownwards so that firms can have enough cash to pay shareholders, executives and then still have something left to invest.
Schroeder’s current reform drive fails to address another serious problem with Germany’s economy. The euro is accelerating the push by he European Union’s free-market regulators at he European Commission to smash up national narkets for products, labour and capital.
National “protectionism” is out and so local companies with short-term financial problems risk being closed down at an accelerated rate or gobbled up by foreign multinationals.
Protectionism in Germany, as Brussels would see it, has traditionally expressed itself in the lose relationship between banks, businesses, state institutions and trade unions. This is the so-called social-market system that has seen nvestment for profits over the longer term and imong the world’s highest levels of employee iarticipation, productivity and wages.
In its place, Europe’s law enforcers are trying to impose an Anglo-Saxon economic model geared towards short-term financial gain that has created corporate monsters ‘uch as Enron in the United States and decimated manufacturing in Britain. In short, the long-time notor of European growth and wealth — German anufacturing — is being undermined and, with a potential model of industrial democracy fortrhe whole region.
German firms don’t much care about these broader issues, but their sense of self-preservaon has seen them step up the pressure on Schroeder to bat for Germany in both Frankfurt and Brussels. Meanwhile, the country’s trade unions are flexing their own muscles in favour of Germany’s high-wage, high-productivity economic model.
This summer, the powerful IG Metall metalworkers’ union launched strikes to cut the workng week in the car industry in east Germany from 38 hours to the 35 hours of west Germany.
The high levels of joblessness — 17 per cent — in the east ultimately led to the downfall of the trike. Nevertheless, despite predictions of its demise, the 2.8 million-strong IG Metall has bounced back with a radical new leader who is currently leading a series of strikes over pay.
As in Britain, only a sustained campaign for an alternative agenda uniting the unions and the left among the Social Democrats has a chance of baking a real difference in influencing government policy. Encouragingly, when his traitional supporters did mount a united challenge a his first term, the Chancellor ended his flirtation with the Third Way. He then introduced trengthened workplace rights, rallied to the defence of German jobs and took a strong anti-war stance. Already, pressure from unions and le Left have succeeded in watering down some of the worst aspects of the regressive Agenda 2010 reforms.
In contrast with Tony Blair, Schroeder has shown he can listen if the chorus of dissent is loud enough. For the sake of ordinary Germans — nd all who wish social justice to have some lace on the European agenda — we should hope that the Chancellor will be all ears.