Germany's Economic Malaise

A month before his re-election last month, Chancellor Gerhard Schröder seemed a certain loser. People resented his failure to keep his promise from 1998 to reduce unemployment. Now, with Schröder back in power, it's Germany's economy that seems the certain loser.

Chancellor Schröder's job, as everyone now recognizes, was saved by floods in eastern Germany and his opportunistic crusade against America's Iraq policy. Each allowed him to preen successfully as a crisis manager.

But the price of switching the terms of the debate away from economics is that the Chancellor now lacks a mandate to undertake serious labor market and other reforms. Indeed, Mr. Schröder committed himself strongly to trade union demands during his campaign.

At the beginning of his first term, Schröder appeared to be a modern social democrat who understood business. When he ousted his first finance minister, Oskar Lafontaine, Germans became optimistic about reform and an economic upswing.