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Businessweek Archives

Keep German Reforms On Track (Int'l Edition)

International -- Editorials


If he beats Helmut Kohl and wins in the German parliamentary elections on Sept. 27, Social Democratic Party challenger Gerhard Schroder may signal a momentous shift for Germany and Europe. Schroder represents the passage of power to the post-World War II generation--and diminished expectations. The global economic crisis and arrival of the euro will almost certainly force him to focus on the prosaic issues of promoting growth and creating jobs. In contrast, Kohl worked on a larger palette--unifying Germany and stitching Europe's economies together under the euro.

The question about Schroder is whether he will also lead a return to Europe's bad old tax-and-spend policies. If he wins, center-left coalitions will have replaced right-of-center governments in every major European nation except Spain. The temptation will be for Schroder, French Prime Minister Lionel Jospin, and others to cooperate in easing up on deregulation, fudging the tough budget-deficit limits mandated under European Monetary Union, and keeping taxes high. Indeed, in a speech in June to Schroder's party, French Finance Minister Dominique Strauss-Kahn suggested that Germany and France work together to avoid "social dumping" by low-tax nations such as Ireland once EMU arrives.

Schroder must resist that temptation. If he wins, he has a chance to do something Kohl never did: lead his nation to accept the pension, tax, and labor-law reforms it so badly needs. If he tries, he'll face considerable opposition from old-line Socialists in his own party. Opinion polls show that Germans are weary of Kohl after 16 years in office--but are not weary of the tax reform and telecom deregulation he belatedly pushed. These reforms may not be Kohl's grandest legacy, but they're the part Schroder should try hardest to continue. Germany, and Europe, would be the better for it.

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