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Merkel’s Business Wing Sees Chancellor in Hollande’s Footsteps

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Nov. 21 (Bloomberg) -- Chancellor Angela Merkel is making Germany more like France by bowing to Social Democratic demands on economic policy to secure her third term, her party’s main spokesman for business said.

Merkel, who won elections on Sept. 22, is risking jobs and jeopardizing gains in German competitiveness begun under Gerhard Schroeder, her Social Democrat predecessor, Kurt Lauk, the head of the business wing of Merkel’s Christian Democratic Union, said in an interview.

“In some ways, we’re going the French way now, probably with similar ‘success,’” Lauk said. “The CDU is helping the SPD roll back its own Agenda 2010 reforms” that overhauled Germany’s labor market and welfare programs under Schroeder.

Merkel signaled today that she will accept the SPD’s demand for a national minimum wage. She may also back curbing companies’ hiring flexibility and cutting the retirement age to 63 for some workers, reversing a remedy she tried to administer on troubled euro-area countries.

German unemployment near a two-decade low contrasts with France, the euro region’s second-biggest economy, where joblessness is at a 14-year high and Francois Hollande has the lowest approval rating for a French president since 1958.

Hollande has failed to carry out the “essential reforms” that led to improvements in other European countries and may miss his pledge to stem the rise in French unemployment by the end of the year, the Paris-based Organization for Economic Cooperation and Development said in a report this week.

In Germany, Merkel’s readiness to compromise with the SPD risks reversing policies that made Europe’s biggest economy stronger, the government’s Council of Economic Experts said in a Nov. 13 report.

“A minimum wage of 8.50 euros ($11.50) will hurt employment especially in eastern Germany,” Achim Dercks, deputy managing director of the DIHK chambers of industry and trade, which represent 3.6 million companies, said in an interview yesterday. “A quarter of the workers there earn less than that amount, so many jobs are at risk.”

Merkel, who has led two coalition governments since 2005, said deal-making is required to secure her third.

“The voters have neither given an absolute majority to the business wing of the CDU, nor to the left wing of the SPD,” she said in a speech to a conference in Berlin today. “To those who think that the outcome won’t be so good, I say: from the point of view of businesses the outcome would be much worse in other constellations.”

The proposed nationwide minimum hourly wage may destroy as many as 1 million jobs, Hans-Werner Sinn, president of Munich’s Ifo economic institute, told Focus magazine this week. Ifo’s business confidence gauge fell for the first time in six months in October.

“Companies will have no choice but to shift production to other countries step by step if they lose the urgently needed flexibility in the labor market that allows them to adjust to fluctuations,” Lauk said yesterday.

Of the more than 2 million jobs in the car industry, as many as 200,000 are work contracts, a form of employment the prospective coalition may restrict, he said.

Daimler AG, the maker of Mercedes cars, “must think about moving production to other sites,” Chief Executive Officer Dieter Zetsche told the Bild am Sonntag newspaper in an interview published Nov. 17, citing plans to better protect temporary workers and leased workers and to curb work contracts.

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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