Issue 234 of SOCIALIST REVIEW Published October 1999 Copyright © Socialist Review

Tony Blair's friend and political ally in Europe, Gerhard Schröder, is in deep trouble. A series of disastrous election results, splits and arguments inside the German ruling SPD, and a poll rating that puts Schröder as the most unpopular chancellor (prime minister) since the Second World War, has created a huge political crisis inside Europe's largest social democratic party. This is just one year after he was swept to power on a tide of enthusiasm and expectation. Events in Germany today offer an indication of future problems for the Labour government in Britain.

The SPD leadership has modelled itself on the policies of New Labour. The election of Schröder to the leadership of the party was seen as key to its success, and the solution to the growing problems of German capitalism. Since then Schröder has enthusiastically embraced the Blair agenda. At the beginning of June, Schröder travelled to London to launch a joint manifesto. Entitled 'Europe: The Third Way/Die Neue Mitte', it was a paper full of New Labour phrases expressing an unambiguous belief in free market economics, with its talk of flexible labour markets, deregulation and privatisation.

Since then Schröder has launched a vicious attack against German workers with a budget that slashes over £10 billion off public spending. In Germany today the talk is not simply about Schröder's budget--it is more commonly referred to as the 'Blairite reforms', so close do many people view the two politicians. It is no surprise, therefore, that the growing anger in Germany is also directed against a British prime minister: 'Tony Blair has now become Public Enemy NO 2 [ie: after Gerhard Schröder] for the German left,' said an editorial in the German paper Die Welt recently. The Commission for Basic Values, a think tank set up by the German chancellor and led by Wolfgang Thierse, the speaker of the parliament and deputy chairman of the SPD, denounced Blair's Third Way as not right for ordinary Germans. It pointed out, 'Already the number of people living below the poverty line is twice as high in Britain as it is in Germany.'

The reluctance of most SPD supporters to sign up to the Blairite market has resulted in a series of disasters for the SPD in both local and state elections. There is now open talk of a leadership challenge to Schröder next spring. In September the SPD was defeated in the state elections in Brandenburg and Saarland. Elections in Thuringia and Saxony, both eastern states, were a catastrophe for the SPD, as it came third behind the former Communists, the PDS. The SPD received only 11 percent of the vote in Saxony. The crisis is particularly acute in the eastern part of the country, where the economy has not recovered following the collapse of the old regime. But the western part also shows deep disaffection. In district and city elections in Germany's most populous state, North Rhine Westphalia, the SPD lost two strongholds--Cologne and Dortmund-for the first time since 1945. The budget is the central reason for the SPD's slump in popularity. In an echo of New Labour's disastrous European election results in June earlier this year, polls showed that many of the SPD's traditional supporters refused to vote, such is their lack of enthusiasm for Schröder's government. Schröder described the budget as the biggest reform package in federal German history. But pensioners and the unemployed will be hit hardest. For the first time in Germany since the war, old age pensions will no longer be linked to average earnings and instead will rise only in line with inflation. This, more than anything else, has led to the deterioration of pensioners' living standards in Britain. Likewise, unemployment benefits and social security payments are to be decoupled from wage levels. This is a complete U-turn from Schröder's promises in the run up to the general election 12 months ago. Then, he attacked the outgoing government's plan to reform Germany's pension system, and promised that under a Social Democratic government the old, sick and unemployed could expect a better deal. Today, he talks of 'sacrifices by all Germans in order to make a fresh start possible', and, 'Germany's future is at stake. We all have to grit our teeth.' However, in this recent budget there was no sacrifice demanded from Germany's bossescorporation tax was cut from 40 percent to 25 percent, saving them an estimated DM8 billion annually. Schröder is also resisting calls to tax the rich. The budget is an attempt, backed by Germany's ruling class, to come to grips with the problems that beset the German economy. On top of this are the problems of the euro, which has slipped in value since it was introduced at the beginning of the year. The strength and success of the euro are heavily dependent on the German economy. If this continues to falter, the whole monetary union project may be brought into question. The immediate future for Germany's economy looks bleak. The government expects CDP to rise by only 1.5 percent this year, unemployment persists at over 4 million--10.3 percent of the workforce-and prices are Tony Blair has now become public enemy number two for the German left set to rise by 1.5 percent next year. On top of this is the enormous problem of the budget deficit, which soared after unification. Since then it has swollen further. Interest payments now account for 22 percent of state spending, compared to 12 percent in 1982. At DM82 billion, interest costs are the biggest item in government spending after social security. Schröder's intention is to have a balanced budget by 2006. The strategy is to deregulate the economy, cut back on government intervention (or, as Schröder put it, 'cut back on bureaucracy') and let the free market solve Germany's economic problems. The SPD government is under intense pressure from Germany's bosses, who want to make industry more competitive. For a number of years now they have been complaining about too much regulation of the economy, the strength of the trade unions and a lack of reform of the social security system. Otmar Issing, the chief economist at the European Central Bank (ECB) and former chief economist at the Bundesbank, recently complained about Germany's 'overly generous' welfare system. The ECB's president, Wim Duisenberg, has said that Germany's problems are not because of the economic cycle, but are the result of too little basic reform to social security and the labour market over the long term. On top of this, Germany's bosses are less than happy that the manufacturing union IG Metall recently won its 3 million members a pay rise of roughly 3.5 percent, way above inflation. The crisis comes a few months after Germany's bosses secured the resignation of Germany's finance minister Oskar Lafontaine, the most prominent figure on the left, who was at the forefront of urging more interventionist Keynesian policies to solve the problems of German capitalism. This put him at odds with the bosses, especially when he proposed increasing taxes for big companies. In response they threatened to close down whole enterprises and cut back on investment. Following a meeting between Schröder and employers from the nuclear industry, where they called for a reversal of government policy, Lafontaine was forced from office. Big business was jubilant at securing the scalp of Lafontaine--bosses opened champagne and share prices rose at speeds which set a postwar record. But having secured a U-turn in government policy, they are now demanding more. In particular they are pressing hard for further deregulation of the economy. Recently this has come to a head over the issue of shop opening hours. Germany is one of the few countries in Europe which still has strict laws, especially over weekend opening. During June, shop owners in the state of Saxony decided to open all weekend. This led to a direct confrontation between shop owners and the unions, with the unions going to the courts to try and force the Saxony state government to adhere to national opening times. The issue is yet to be resolved, but the stakes are huge. Retailing is the third largest sector of the economy, with 3.3 million employees and annual sales of DM964 billion. The HBV union, which represents the majority of retail workers, is one of the strongest unions--a defeat for them and a victory for the bosses will have ramifications for workers elsewhere. But the issue of shop opening hours goes beyond the retail sector itself, as the Wall Street journal reports: 'However mundane it may sound, Sunday trading cuts to the heart of whether Europe's biggest economy can cast off its highly regulated ways and push through far reaching structural changes that the European Central Bank and economists call key to the continent's long term economic health. How Germany settles the debate over store hours will speak volumes about its desire to curtail its powerful unions and improve its competitiveness.' The prospect over the coming months, therefore, is for further battles between Germany's bosses and the unions, in a country where the government is seriously divided. Schröder is in a very weak position inside the SPD--nothing sums this up better than his response to the recent election defeats. Following the rout in Brandenburg and Saarland he appointed a loyalist and right winger, Franz Müntefering, to take over the post of SPD party manager. Yet just two days later he followed this up with the appointment to the cabinet of Reinhard Klimmt, the outgoing premier of Saarland, who was a vocal opponent of Schröder's reforms, and who many saw as the torchbearer of the left after the fall of Lafontaine. Klimmt's appointment is a sign of the pressure on Schröder and the weakness of his position. However, there is also overwhelming pressure on Schröder not to retreat from his reforms. Largely this is coming from Germany's bosses, but ideologically there is a lot at stake for Schröder, who has committed himself to embracing Blair's agenda. Already this is producing splits between Europe's social democratic parties. Members of the French Socialist Party blame the Third Way/Neue Mitte manifesto for the collapse of the left vote in the European elections. 'We were asked to put our names to a document inspired largely by Mr Blair's Third Way,' said Pierre Moscovici, the French minister for Europe. 'We refused.' French prime minister Lionel Jospin added, 'It was a bad manifesto. It corresponds neither to my ideas nor to those of the French government Third Way? New Centre? No thank you.' But the conflicting pressures in Germany mean that the crisis is progressing with speed. Partly this is because in the past Germany's bosses were not able to go on the offensive against their working class, as Britain's bosses were able to do during the 198os under Thatcher. Partly also it is because of the continuing problems of the German economy which still borders on the brink of recession. Schröder's government shows that as the system is increasingly beset by crisis, the reformist parties are still not able to deliver even the most limited reforms that most workers want. There has been a complete retreat from traditional reformist policies and an increasing willingness to go along with the demands of big business. As the tensions between Germany's bosses and workers intensify, and as the crisis of the government deepens, it will become increasingly apparent to larger groups of workers that a more fundamental challenge to the system is needed to achieve the changes that so many people need.