Chancellor Schröder is caught whichever way he decides to turn. On the one hand, the great German welfare state together with the huge aid packages to the eastern part of the country, have all but bankrupted the country. A root-and-branch reform is needed in social welfare, taxation, pensions and, last but very much not least, the regulatory structure.
On the other hand, all such reforms reduce welfare payments at a time when unemployment in Germany has gone over 5 million, reaching at 12.6 per cent the highest level since the Second World War.
Then there is the regulatory structure. A good deal of it comes from the EU but a goodly part is home-grown. In fact, much of the EU’s regulatory maze was created to ensure that other countries can keep up (or down) with Germany.
So, what with one thing and another, German business has been moving out of the country, pleading inability to afford the German miracle any more. About the only thing that is left is services, as they, by definition cannot be moved. But they are not safe from cheap and agile labour from the hungrier eastern members of the EU.
Schröder has had one good idea recently: he has proposed a cut in corporation tax, down to 19 per cent, which will bring Germany in line with some of its cheaper competitors but not all. In any case, several commentators have pointed out that there are enough other taxes on corporations to keep the level above the promised 19 per cent. So that is not going to help.
But Chancellor Schröder thinks it should. In an interview in the Bild am Sonntag he has tried to shift blame from the unions and, indeed, himself onto those unreliable businesses. The new reforms, the Chancellor proclaimed, have created a new business climate in the country.
“Therefore, the constant talk of moving production and jobs should stop, and there should be investment in Germany.”The problem is that it is not enough to proclaim that the business climate and conditions have changed, there has to be proof ot that. The fact that he has to plead with businesses not to move out of the country would indicate that they have not yet accepted that what the political says, however many times, is necessarily true.