A Breakthrough for Germany at the SPD Congress?

Sorry, today I’m not going to cover the G8 summit on Lake Geneva, at Evian. From the press coverage you indeed get the impression, as Elisabeth Bumiller of the New York Times (registration required) puts it, of “a messy family reunion,” where the main thing people are interested in is who avoids whom, who smiles at whom, who shakes whose hand and how enthusiastically, etc. This even in the German press, as in Die Welt’s Versöhnlicher Handschlag (“handshake of forgiveness”), or the FT Deutschland’s Bush schenkt Schröder drei Minuten (“Bush grants three minutes to Schröder”). Then, on the other side of the police barricades, you just have whatever credibility the arguments of the “anti-globalists” retain being trashed along with the cars and shop-windows that are the target of that minority of demonstrators who see the occasion as another chance to have some violent fun and quite likely get away with it, since the police can’t bash or arrest them all.

Apparently the summit continues on into today, so the press coverage will likely merit a better look later on. German Chancellor Gerhard Schröder didn’t even make it out to the lake until late last night, but he had a good excuse: He was busy at a special congress of his Social Democratic Party (SPD), gaining party approval for an ambitious program of retrenchment of Germany’s welfare state that he calls “Agenda 2010.” That, as even the Guardian points out in today’s leader, is the sort of major development that merits attention.

Currently, Germany is being squeezed on all fronts economically and fiscally. Its macroeconomic situation is not good; unemployment is now at 12%, it is officially in a recession because its GDP has fallen now for the last two quarters (with no growth forecast for the rest of the year), and it has a shortfall in projected tax revenues of €126 billion over what its government expects to spend over the next four years. Officially, it’s not allowed to borrow so much to make up that difference – Eurozone “Stability Pact” requirements allow a budget deficit of only 3% of GDP, although it’s increasingly apparent that Germany (together with France, and maybe other Eurozone members, such as Portugal) will simply violate that. What’s more, there is a risk that Germany could experience deflation; indeed, it is already doing so, as retail prices fell slightly in both April and May.

The larger question is: Can Germany change? Can it think up the sort of serious belt-tightening measures it needs to get out of trouble, and then implement them – or is the generous welfare state too ingrained in the German political culture? Are the Germans still too comfortable to recognize the danger and take the painful measures required? Then the minor question is, of course, whether the present Chancellor, Gerhard Schröder, a man more-often noted, rather than for holding ironclad political principles, for doing whatever needs to be done to be (re-)elected, is up to the job of pushing through the bitter medicine.

It seems that he is. It had been known for some time that yesterday’s special SPD party congress in Berlin was going to be the occasion for Schröder to put forward some rather drastic proposals (drastic, that is, in the context of Germany’s generous social insurance system) that most of his leftish Social Democratic Party would not like: unemployment insurance to be cut back to 12 months (from the present “as-long-as-it-takes, even forever” – but if you’re over 55 you get 18 months); unemployment insurance to be fused with other social insurance to ensure better control; long-term unemployed to be required to take offered jobs, under penalty of a fine for refusing; contributions to the government health insurance fund to be raised for employees and lightened for employers. And Schröder made it clear that, if he were refused, then the SPD could get started finding someone else to be the country’s head of government.

From events yesterday, it seems that he has gotten his way: the party congress approved these proposals, meaning that they are to be submitted to the legislature to become law. Which does not mean that they will become law; the SPD does not have a majority in the Bundestag, the lower house, by itself but with its governing coalition partner, the Greens. And the SPD and the Greens together do not have a majority in the upper house, the Bundesrat, where representation is determined by the political coloration of the various German states, or Länder. So there is a lot of politics still left to be done. But at least there’s no longer any reason for Schröder to take early retirement; he left for Evian pronouncing himself sehr froh und glücklich – “very happy and fortunate.”

Die Welt follows up on the reaction elsewhere in Germany to the SPD approval of Schröder’s Agenda 2010. Angela Merkel, head of the CDU (the main, right-wing opposition party), criticized Schröder’s program as not going far enough – she would prefer measures to make it easier for German employees to be fired, and complained that it says “nothing about the future of pensions” – but said that there is generally much there to provide a basis for cooperation with the SPD. On the other end of the political spectrum, Michael Sommer, chief of the DGB (the Deutsche Gewerkschaftsbund, or the national labor union organization), was not pleased – even though it’s also true that many of the delegates to this special SPD congress that approved the Agenda 2010 are affiliated to the DGB. “The fireworks will happen in the fall,” he promised, i.e when Schröder’s government undertakes to get these measures passed by the two houses of the German legislature. (That’s my slightly-free translation of how he was quoted; for you German purists, he actually said “die eigentliche Auseinandersetzung findet im Herbst statt).”

Berlin’s Der Tagesspiegel breathes a huge sigh of relief over the events at the special SPD congress. Schröder has shown himself to be a fighter, writer Tissy Bruns opines – when he absolutely needs to be. But it took the threat of disaster to bring Schröder, his party, and his country to this point in the first place. At least he has now opened a door to reform that no one can close again. Still, that is only the beginning of the beginning: many more measures of the same nature are needed to truly pull Germany back from the brink. (That is the theme of Der Tagesspiegel’s interview in the same issue with Rezzo Schlauch, medium- and small-business adviser to the German government.) And all of them will still have to run the gauntlet of Germany’s political special interests, who know what buttons to push to get the public to rally to the defense of their prerogatives.

As for the Financial Times Deutschland, it faults Schröder’s reforms in its article entitled Absurdes Ökonomieverständnis – “Absurd Understanding of the Economy” – mainly for in fact being too far-sighted. “Above all, the [present economic misery will not be brought to an end by the structural reforms of the Agenda 2010.” What is also needed is some sort of short-term measure to restore flagging demand in an economy in recession. In this light, the re-introduction of the wealth tax, which is a further measure contemplated by Schröder’s government, is precisely counter-productive: the government should be putting more money in people’s hands to spend, not taking it away.

The FTD also casts a jaundiced eye on the special SPD congress itself. Schröder may have gotten what he wanted approved, the paper writes in another article, but he can hardly count on having gained the “new mentality” in favor of change that he called for. Strangely, the FTD in this article continually refers to the SPD delegates as Genossen, which was the old word for “comrade” used in the DDR. Methinks this betrays the paper’s hopeless right-wing bias, so that it would never have been convinced that Schröder truly won over the Genossen yesterday, no matter what the FTD reporter might have observed.

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