Why Germany's Opposition Likes Schroder Down But Not Out

It's the kind of comeback that politicians the world over dream of. Germany's Christian Democratic Union (CDU) lost its hold on the Chancellor's office to the Social Democratic Party (SPD) barely a year ago. But in recent weeks, the Christian Democrats have won four regional elections in a row against the Social Democrats, dealing a humiliating blow to Chancellor Gerhard Schroder. The victories give the Christian Democrats control of the upper house. How they use their newfound clout will determine the fate of reform in Germany. And if the Christian Democrats play their cards right, they could spearhead a resurgence of the center-right in Europe.

This is a tricky situation. Schroder, defying the left wing of his party, is proposing a tough budget that would cut taxes and spending. But his inability to deliver economic growth thus far has infuriated voters, who have turned to the Christian Democrats in protest. As a result, the CDU now has the power to block or pass Schroder's budget. If the budget passes, it could be the start of serious reform, but the Christian Democrats hardly want to sponsor a Schroder comeback.

Thus the CDU has already rejected the idea of a formal coalition with the Socialists. A coalition would pin some of the blame for the tougher reforms on the CDU, especially efforts to curb health-care spending. "We don't want [a coalition] and we don't need it," says CDU Chairman Wolfgang Schauble. "Voters have assigned us the role of opposition for four years, and we are fulfilling this task well now."

BALANCE. But the CDU will offer some support to Schroder's program, especially the budget cuts favored by business. Besides, the CDU doesn't want to push Schroder into a corner where he's forced to call an early general election immediately. The party has yet to choose its candidate for the Chancellorship and agree on the main thrust of its next manifesto. Tensions between Schauble and other would-be Chancellors, such as the more progressive deputy chairman, Volker Ruhe, are already evident.

Also angling for power are the CDU's rising stars, who have come to the fore over the past year and who have political ambitions of their own. Among them is Angela Merkel, an East German, who as general secretary of the party has masterminded the string of CDU election victories, and opposition budget spokesman and deputy parliamentary party chief Friedrich Merz, who has proven to be a shrewd and capable opponent of the government's financial policies.

"VIRTUAL COALITION." So CDU leaders say they are willing to negotiate with Schroder to get the policies they like onto the statute books quickly and revise those they don't. Key reforms, such as the budget and tax changes, are likely to get through, but not plans to restrict health care spending. "What we'll see, in other words, is the emergence of a `virtual' coalition," says Hans-Olaf Henkel, president of the Federation of German Industry. "It will be a grand coalition of people who support the modernization of Germany, who favor reform. And that would be a very positive development for industry."

Maybe. But how long would such a coalition last? Certainly not until the next election, which is officially due in 2002. The economy is now reviving, and the last thing the CDU wants is for Schroder to get the credit. So the betting in Berlin is that the party will try to sort out its internal problems and engineer the Chancellor's downfall well before then--possibly as early as next May. That's when another election will be held, for the state parliament in North Rhine-Westphalia, Germany's socialist heartland. If Schroder does badly there, the CDU will take off the white gloves.

Before it's here, it's on the Bloomberg Terminal.