Tuesday, May 11, 2004

Whatever happened to ....

… the once mighty German economy, the motor of Europe? It seems to have become somewhat rusty. The Wall Street Journal Europe in its editorial today (May 10) points out that “[w]ithin one week, the German government went from Keynesian deficit spending to a bizarre mix of supply-side economics and tax hikes and back to the current muddle of tinkering with some minor reforms”.

The problem lies in that curious push-me-pull-you that is the German red-green coalition cabinet. The two parts keep falling out, disagreeing, coming up with different policies and it is left to Finance Minister Eichel to make some sort of a sense of it all. Mostly, there are suggestions of higher taxation, a fatuous idea, since German taxes are among the highest in Europe and it avails them little.

Unemployment is at 4.4 million and the growth forecast has once again been cut to 1.5 per cent after two years of stagnation. The federal budget will most likely break the EU deficit limit for the fourth year in a row. The famed Growth and Stability Pact, a German idea in the first place, is a dead letter as far as Germany is concerned.

Schröder has proposed the odd reform but, mild though these are, they have upset the traditionalists in his party. So he has pushed through one new initiative recently – the only one for months. There is now a law that says companies that do not offer enough training programmes for young job seekers can be fined. This law is likely to add ever more layers of bureaucracy. And, what is more, it will apply to companies that cannot afford to offer training, being too small, and those that offer it but cannot find enough takers.

On the other hand, it is probably slightly more sensible than Schröder’s other proposal, which is to tax brothels. It is not known precisely how much that would raise but the sum is unlikely to be sufficient to set the spluttering motor running again.

Schröder’s Social-Democrats are expected to do rather badly in the forthcoming European and regional elections. The Chancellor may well be another leader to go to the Summit in Dublin, badly mauled by his own electorate just a few days before that.

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