Germany: Schroder Is Scrambling Back To The Center

From the beginning, German Chancellor Gerhard Schroder's plans for a government of the Neue Mitte veered wildly off track. Schroder lost control of his pro-business agenda when Finance Minister and Social Democratic (SPD) leader Oskar Lafontaine axed pension and health-benefit reforms that would have helped create jobs. Then the Greens, Schroder's unruly coalition partner, riled German utilities by proposing to cancel their international contracts for reprocessing nuclear fuel. An uproar followed. Topping it all off, the SPD-Green coalition lost five seats in February's Hesse state elections, costing Schroder his upper house majority.

But Schroder may have a second chance. Already, he's trying to find his way back to the center, returning to the Tony Blair-like policies that allowed him his election victory in the first place. And he's showing signs of a new toughness with his left-wing allies, whose excesses Schroder must curb before he can reclaim real leadership of his government.

TELEGENIC. The Chancellor has begun the realignment task by sending up a trial balloon on tax cuts. He would bring the tax on corporate profits down from 45% to 25%-30%. He has also acknowledged that the SPD-Green coalition badly misinterpreted its victory over Helmut Kohl's center-right Christian Democrats as a mandate for radical change. In fact, as polls showed, voters were more tired of Kohl than of his policies. No matter. Nearly drunk with power, the Red-Green coalition rushed to ram through a left-wing agenda, from an ecology tax to dual-citizenship laws, without taking the time to build up popular support.

Schroder wants to turn these missteps to his advantage. The smooth-talking, telegenic Chancellor remains popular in the polls. It also helps that the Greens are the ones who lost votes in Hesse, not the SPD. That gives the Chancellor a chance to distance himself from the radical wing of the Greens: He has publicly chastised Green Environmental Minister Jurgen Trittin for breaking ranks on nuclear fuel.

Sensing Schroder's shift, some business leaders are even urging him to dump the Greens and forge a new pact with the Free Democrats, the business-friendly party that was aligned with Kohl. The prospect of such a tie-up, though not likely now, may help curb the Greens. "He's in a comfortable position now," says Ulrich Schroder (no relation), an economist at Deutsche Bank in Frankfurt.

PUPPETEER. The Chancellor's other big task is to contain the ambitions and left-wing policies of Lafontaine. Here, the recent SPD disasters help. Even though he was once seen as the puppet master of the Chancellor, Lafontaine can no longer attack Schroder without wrecking the government coalition, which would set the SPD back for two decades, says Hans-Ulrich Derlien, professor of public administration at Otto-Friedrich-University in Bamberg.

And Lafontaine's hard left policies may give Schroder a chance to reassert himself. Lafontaine is vocal in his belief that the welfare state need never shrink and that the workforce never gets paid enough. Thanks to his urging, the metalworkers union negotiated a pay deal that boosts wage costs by 4.2%. But these goals are looking spectacularly flawed. With unemployment at 11.5%, Lafontaine is failing to deliver on his promise to create jobs. Schroder can now argue that his pro-business policies are urgently needed. Business confidence is crumbling, and the economy may grow a scant 1% this year. Only by showing the electorate that he was serious about finding the Neue Mitte will Schroder win the support he really needs to revive the flagging economy.

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