On November 22, Angela Merkel is going to become Germany’s first woman Chancellor. It is unlikely that her rule will last long and that her politics will be anything but murky. This is not her fault, but that of the German voters. The results of the September 18 general elections left Merkel’s Christian-Democrat CDU and its Bavarian sister party CSU no choice but to form a so-called “Grand Coalition” with its rival, the Socialist SPD, the second largest party of the country. Merkel would rather have governed with the smaller free-market Liberal FDP.
Germany is Europe’s biggest economy. If Germany goes well, Europe goes well. Unfortunately, today Germany is the sick man of Europe. It is being dragged down by a public deficit caused by 15 years of throwing government subsidies at the former communist East Germany in an effort to raise the East to the standards of the West. The new government has to slash an unemployment rate of 11% (4.5 million jobless, mainly in the East) and find at least €35 billion to stem the public deficit. The €35 billion shortfall is predicted on tax revenues if the economy grows at 1.8%, though experts warn it might be higher if growth be only about 1%.
During the election campaign the CDU-CSU announced that it would raise VAT (value-added tax), a kind of sales tax, in order to be able to lower non-wage labour costs and income taxes. The Socialists, however, opposed a VAT raise and advocated higher tax rates for the rich. As a compromise, the two parties agreed this week to raise VAT from 16 to 19% and impose a “rich tax” on top earners. This has led Bernd Pitschetsrieder, the chairman of Volkswagen, to comment sardonically that the two parties have combined “the worst elements of each party’s program in the government program.”
As the new coalition is a marriage of convenience rather than love, it is unfortunate that their baby is bad-looking and stupid. When an ugly and intelligent person marries a beautiful and foolish one, they sometimes end up with good-looking and bright offspring. Not, however, this time in Germany. Merkel’s baby, the new government’s program presented to the nation last Thursday, is so ugly that her “Grand Coalition” came under immediate attack from various quarters: trade unions, professional organisations, industrial leaders and the press from the left to the right. They all reproach Merkel for tinkering with the problems instead of applying radical solutions. In fairness it must be said that there are some good elements in the government program, such as raising the retirement age to 67 from 65.
Nevertheless, the general impression is that, instead of restoring consumer confidence, the measures announced by the new coalition will dampen consumer spending. “All they have come up with are lies and everyone feels the same way, regardless of whether they have a big income or not,” said Wendelin Wiedeking, the chairman of Porsche. Bild, Germany’s largest newspaper, called the government program “a declaration of bankruptcy.” The Berliner Zeitung wrote: “We can only hope that this will be a coalition contract that will not last long.” The President of Germany’s Chamber of Industry and Commerce, Ludwig Georg Braun, has said that the proposed tax increases mean that any improvement in Germany as an industrial centre is out of the question. If consumers have less money, they will spend less and the economy will suffer.
Merkel’s Christian-Democrats are being criticised for abandoning their plans to liberalise the labour market. Unqualified people often have no way of working legally, since the state-imposed costs make their labour too expensive for employers.
It is unlikely that the Merkel government will survive long. This is undoubtedly the reason why CSU leader Edmund Stoiber refused to take up a ministerial position in the new cabinet. Stoiber – a social conservative but opposed to radical economic liberalisation – prefers to remain Prime Minister of the state of Bavaria rather than become a “super-minister” of Economics in the new government.
Regarding foreign policy the government program is vague. There is a promise to improve relations with the United States. The two coalition parties have also agreed to adopt a neutral approach to Turkey’s bid to join the European Union. During the election campaign, the Christian Democrats had said they opposed Turkey joining the EU.