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Germany’s Political Stagnation

A year ago, Angela Merkel, Germany’s charming new chancellor, was in the final phase of her election campaign. The incumbent, Gerhard Schröder, lagged so far behind her Christian Democrats (CDU) in public opinion polls that she thought she would win a landslide victory and could therefore afford to expound the cruelties of the liberal austerity program delineated in her electoral campaign. She even announced a value-added tax increase (which her new government has, indeed, decided to implement in 2007).

But German voters did not appreciate her honesty. When she named the law professor Paul Kirchhof, who advocated a flat tax, as her candidate for finance minister, Merkel’s electoral cakewalk turned into a nightmare. She lost nearly her entire lead, and in the end won by only a tiny margin – a margin too small to form her preferred coalition with the liberal Free Democrats. Instead, she had to form a coalition with Schröder’s Social Democrats (SPD), though without Schröder himself.

Merkel’s first year of government will soon be over. It has been successful in terms of international relations. She won the respect of her European Union partners and managed to salve Germany’s damaged relationship with the United States. Her unpretentious manner and intellectual capacity (she holds a doctorate in physics) quickly won her the respect of many, even of Vladimir Putin, whose language she speaks fluently.

However, Merkel has disappointed everyone who hoped that she would continue and even expand Schröder’s domestic economic reform agenda. While her party program speaks of opening union contracts, relaxing job protection, and, in particular, overhauling the incentive structure of the welfare system, her government has been mostly silent about these issues. The cautious steps toward wage subsidies that her government has taken are mere window dressing and cannot be taken seriously.