Berlin GERMANY’S Social Democratic chancellor Gerhard Schroder, the first leader to enter office since the country was reunited in 1990, faces reelection in September, and he’s in deep trouble. He’s in deep trouble because his country isn’t as reunited as it looks. There are, in fact, two Germanies even today, but the frontier that runs between them is economic rather than geographical. The first is the Germany of the soziale Marktwirtschaft, the elaborate network of rules contrived by politicians, plutocrats, and unions to maximize wages and (thereby) quell unrest. Perhaps the system’s typical product is people like the complacent and visibly well-fed Dieter Schulte, president of the Deutscher Gewerkschaftsbund–Germany’s equivalent of the AFL-CIO. At an afternoon conference for a delegation of visiting journalists in the Foreign Office in Berlin, Schulte devotes most of two hours to explaining why making the labor market more flexible would be folly for his country. It’s true that the basic package of salary and benefits is now approaching $50 an hour for senior industrial workers, but, given the superb quality of German workmanship, Schulte opines, only a “foolish businessman” would consider that any reason to hire a Polish immigrant, or to engage in deregulation–such as keeping stores open a mere eight hours a day. (“How about customer convenience?” asks one not-with-the-program American journalist? “If he wants to, a customer can generally get to the stores during regular working hours,” Schulte replies.) Schulte’s constituent unions have taken his message to heart. In early February, IG Metall–one of the four unions whose wage settlements create a domino effect of upward cost-of-living adjustments for all unionized workers in the country–entered salary negotiations demanding a 6.5 percent pay hike. The second Germany is that of the less formal sector–the one that escapes elaborate regulation. This is the economy of the Pergamon late-night restaurant on Berlin’s Friedrichstrasse a block north of Unter den Linden, the Times Square of Central Europe. Over the course of an hour, only one table gets taken–by a party of two. The two patrons between them order a Turkish meat pie, a cheeseburger, an iced tea, a bottle of German beer so large it practically has to be rolled to the table on a hand-truck, two double espressos, and dessert. The bill comes to seven Euros, five dollars and change. Somehow, that’s supposed to pay the rent, buy the food, and compensate the four Turkish-looking immigrants who toil there. Free market dogmatists would say that something’s got to give–that the first economy is strangling the second. And the free market dogmatists are being proved right in spades. Germany’s growth rate has been at zero in recent months, dead last among the European Union’s 15 countries. There is economic contraction in several regions, particularly in rural eastern Germany. The country’s half-dozen leading economic think tanks, of all political ideologies, are revising their economic forecasts downward. Last week saw the release of January’s unemployment figures. They had been much dreaded, and they turned out to be far worse than anticipated. There were 326,400 new jobless, bringing the total to 4.29 million, and the unemployment rate to 10.4 percent. This news came just as Schroder’s Federal Labor Office was revealed to have been falsifying statistics to show vastly more new hiring than is actually going on. Poor Schroder: When he ended Helmut Kohl’s 16 years of Christian Democratic Union rule four years ago, it was largely on the strength of a read-my-lips challenge that anyone who cannot bring Germany’s jobless tally below 3.5 million deserves to get booted. Now the Christian Democrats are singing that same tune. Across the fa ade of the CDU party headquarters on the western edge of Berlin’s Tiergarten, they have draped a gigantic banner reading, “How many more unemployed, Mr. Schroder?” alongside a tally updated daily. What’s more, in Bavaria’s Minister-President Edmund Stoiber, the Christian Democrats have a candidate who plays to the moment. (Stoiber is actually a member of the CDU’s Bavarian sister party and permanent ally, the Christian Social Union.) Under Stoiber’s stewardship, Bavaria has maintained booming automotive and agricultural sectors, and has led Germany’s economy into new sectors such as biotechnology. More important, Bavaria’s unemployment rates are not just relatively low by German standards, but low in absolute terms–roughly 5 percent across the state, and under half that in the vicinity of Munich. Stoiber will also be helped by a record of skepticism towards open immigration. He is not the xenophobe that he’s often cast as in the foreign press; during an interview in a Munich restaurant two years ago, he spent more time bragging about the aggressiveness with which Bavaria prosecuted racially motivated hate crimes than he did on his favorite theme of bogus asylum applications. But with Germany receiving over half of Europe’s asylum-seekers, such positions will win votes no matter how modestly or gently they’re enunciated. And at a time when Germany’s connection to Mohamed Atta and other perpetrators of the September 11 attacks is giving citizens the jitters, tough-on-crime messages are bound to fall on sympathetic ears. In the Hamburg legislative elections the week after the World Trade Center attacks, Judge Ronald Schill (a hitherto little-known crank nicknamed “Judge Merciless”) saw his new party (which no one had even bothered to name) enter the city-state’s government with 20 percent of the vote. That Stoiber’s nomination will provide aid and comfort to Germany’s small but worrisome hard right appears unlikely. On the contrary, he provides enough of an alternative to Schroder to slow the movement to splinter parties, which tend to drum up recruits around ad hoc grievances in the months before elections. Stoiber won the nomination in a hard-fought backroom battle against the CDU’s most popular politician, party chief Angela Merkel. Merkel is respected inside and outside the ranks for her cleanup of various Kohl-era financial scandals. Moreover, as the most prominent national politician from the Neue Lander (East Germany), she was touted as the party’s best chance of bringing vast new coalitions into its fold. But under the circumstances, the party reckoned the Neue Lander would take care of themselves. Unemployment is at 20 percent in parts of the old East–quite a feat, considering that the region’s cities on average have lost a third of their population in the last decade. No one questions that the East is where the swing voters are. Schroder and Stoiber have both done their splashiest early campaigning there. But after Helmut Kohl’s nation-sweeping landslide in 1990, the year of unification, eastern voters have become predictably unpredictable. Cut off from the memories of church and union hall that create multigenerational party loyalties among western voters, they tend to embrace a fairly simple throw-the-bums-out ethic. Schroder’s Social Democrats won the region solidly in 1998, but polls show that, were the election held today, they would fall to third, behind the Christian Democrats and the ex-Communist party of Democratic Socialism. Europe complicates the Social Democrats’ problems. It was Germany that insisted in the mid-1990s on tough budget-balancing requirements for European Union member states, limiting budget deficits to 3 percent. Now it’s Germany, the economic basket case of Europe, that is closest to busting those budget caps, with deficits of 2.6 percent–so stimulus packages are out of the question. Germany cannot even afford to honor its economic commitments to a common European military. The post-Kosovo plan to jointly fund and order 73 Airbus military transport planes was the brainchild of German defense minister Rudolf Scharping. But now that Germany’s seven partner states have approved the deal, Germany is $3 billion short, and finds it politically impossible to vote the remaining money. The contract is on hold. Schroder has until September to find about a million jobs. In a recession economy where daily wages approach the average annual income of Malaysians, that will be quite a task. If Schroder can either create or (more likely) credibly promise such jobs, he will be reelected. If he can’t, the international center-left–whose ascendancy over Western democracies began to crumble with the election of Bush, and continued with Silvio Berlusconi’s rise to power in Italy–will take another casualty. For Schroder is at low ebb, in a situation not dissimilar to the one Bill Clinton faced in 1994. Like Clinton, he is a deft enough politician that no one should count him out. But given the dire state into which he has driven the economy, deftness may not count for much. Christopher Caldwell is a senior editor at The Weekly Standard.
