Friday, July 08, 2005

Hartz and Mindz?

I couldn't resist the pun, particularly recalling the late president Johnson's quip during the Vietnam War era, when he is alleged to have said, "when you've got them by the balls, their hearts and minds will soon follow".

Well, it seems the German media has got scandal-ridden Volkswagen by the balls, and personnel chief Peter Hartz, at least, has followed – offering to resign following reports that he had allowed senior member of the works council to use company funds for overseas "jollies", prostitutes and – in one case – to build a house for his mistress.

According to Bloomberg, Hartz is offering to fall on his sword in order to preserve the carmaker's tattered reputation, saying. "It is self-evident that I now must take responsibility for the events that have happened in my area of supervision and suffer the consequences."

Interestingly, this news was not at all badly received by the markets. Shares of Volkswagen in Frankfurt rose 88 cents, or 2.3 percent, to €38.78, valuing Volkswagen at €15.6 billion.

But the political fall-out from this affair can hardly be over-estimated, as the company is under criminal investigation, while Peter Hartz remains pre-eminent as Schöder's principal advisor on economic reforms. Putting it in context, the relationship between Schröder and Hartz is roughly analogous to that between Margaret Thatcher and professor Alan Walters.

In 2002, Hartz led a government panel that recommended labour-policy changes for Schröder to spur economic growth and reduce unemployment by half by 2005 (See here). The latter part of the programme – known as Hartz IV came into force on 1 January of this year, sparking widespread demonstrations - the so-called new Monday demonstrations - while the unemployment rate increased, from 9.8 percent in June 2002 to 11.7 percent last month.

Schröder is still standing by his man, saying that Hartz "deserves, without doubt, credit for his innovative wage policy," and official federal government spokesmen are refusing to comment on Hartz's offer to resign. However, as new revelations are appearing daily in the German media, it is hard to see how Schröder can avoid being dragged down by the scandal. The media has got his Hartz, and the German voters' "mindz" can only follow.

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