Emmanuel Navon
Germany's choice
Germans not yet ready for large-scale economic change
The tight contest between the two candidates to the German leadership says a lot about the dilemma faced by German voters: on the one hand they realize that their economic model is no longer working, but on the other hand they are not ready to pay the price of the necessary reforms.
Dr. Emmanuel Navon is an adjunct Political Science lecturer at Tel-Aviv University, a senior fellow at the Institute for Policy and Strategy at the Interdisciplinary Center Herzliya, and a partner in a consulting and investment firmAfter the humiliation and destruction of the Second World War, Germany started from zero – indeed, the year 1945 is called in Germany Stunde Null or "hour zero." West Germany soon became an economic and social miracle: High growth, low unemployment and inflation, and a unique model of cooperation between employers and workers' unions. The Germans were rightly proud of their economy and of its symbol: The Deutsche Mark.
Two phenomena cut short of this success starting in the early 1990s: The reunification of Germany and globalization. Western Germany "swallowed" a communist economy and did not expect the pain to last that long.
The German taxpayer poured billions into the reconstruction of the East's economy, only to get in "return" a 10 percent unemployment rate (something unheard of in Germany.) In addition, West Germany was asked by France to pay a political price for the transformation of Germany into a country of 80 million people: The abandonment of the Deutsche Mark and the adoption of a single European currency (the Euro.)
In order to soften the deal, the Germans demanded draconian conditions for the adoption of the Euro, such as limiting national budget deficits to 3 percent of GDP. Today, they curse themselves for this condition which ties their hands precisely when their sluggish economy is in dire need of fiscal flexibility.
But the double price that Germany paid for its unification (inheriting the East German economy and adopting the Euro) only partially explains the country's economic woes. Indeed, there is a second reason for the end of the German miracle: The current globalization of the world economy, which undermines mercantilist countries that have not yet undone their socialist straightjacket.
A country in which hiring workers does not make sense business-wise because of inflexible employment legislation, that scares investors because of absurd taxation, whose social security system does not protect the poor but encourages laziness and profiteers, and a country whose aging population makes the financing of the good old welfare system impossible, is a country that is not able, in a global capitalist economy, to compete with those who did go through a liberalization process, such as China and Britain in the 1980s or like Ireland and Spain in the 1990s.
Such a country suffers from high and structural unemployment, from low growth, from built-in budget deficits, and from a social security and health insurance system about to collapse.
Such is Germany's situation today (as well as other countries such as France and Japan.) The Germans understand this, but they are not ready to pay the price of liberalization. They haven't yet hit the bottom, like Britain in the 1970s, the same Britain that turned to the IMF in 1976 like a third world country, and in which a government minister once explained on TV how to shave in the dark, because power shortages had become so common in Britain as a result of endless strikes.
Schroder's fate is sealed
The British chose Margaret Thatcher because Britain wasn't functioning. The Germans are no there yet. Besides, being liberal in Britain is almost a cultural thing, while the Germans and the French love bashing what they call "Anglo-Saxon capitalism" and priding themselves on their "social model."
And so we have the paradox of a Social-Democratic Chancellor (Gerhard Schroder) who started breaking apart German socialism (just like Shimon Peres did in Israel in the mid-1980s.)
His timid reforms were bitterly opposed by the Left. Tony Blair converted to Thatcherism after the work had been done by "that lady." Schroder faces a tougher predicament: There is a limit to the extent a Socialist Chancellor can dismantle the welfare state.
And this is why his fate is sealed. His old nemesis, Oskar Lafontaine, left the Social-Democratic Party and started, with the Communists, a new left-wing party that sells to voters conspiracy theories about the alleged "collaboration" between Schoder and "international capitalism" (because of Lafontaine's lavish lifestyle, his advisors felt the need to explain to voters that "you don't need to be poor to fight poverty.")
On the one hand the Left is angry at Schroder, but on the other hand the Germans are not ready yet for Thatcher. That's why Schroder is down in the polls, while the Conservative candidate, Angela Merkel, cannot expect a clear-cut victory.
Merkel has been having a hard time convincing German voters, not only because she's a Physics professor from East Germany without any real governing experience, because she is a Protestant female in a party dominated by Catholic males, or because her haircut and attire are out-of-style (even though she definitely improved her look lately.)
There are simply not enough Germans who are ready to accept the required reforms she is proposing. The choice of Paul Kirchhof as her "shadow" finance minister didn't help either: He promised a flat 25 percent income tax and vowed to get rid of 418 tax loopholes and subsidies. He also called for the privatization of public pensions. Such reforms are necessary to generate growth and full employment, but they are still considered eccentric and do scare the average voter.
This is why Angela Merkel is only expected to win with a small majority, which will compel her to form a "grand coalition" with the Social Democrats. She vows to oppose such a coalition, but she may not have a choice. In such a scenario, Germany will have to do with cosmetic reforms until its economic situation continues to worsen and until the Germans decide, maybe, to finally give Ms. Merkel the chance that the British gave Margaret Thatcher.
