Gerhard Schroder

Chancellor, Germany

Once again, Gerhard Schroder was sticking it to the opposition. Cleverly dispensing favors such as government jobs to local politicos, Germany's Social Democratic Chancellor inspired enough defections among opposition Christian Democratic legislators on May 11 to win passage of his pension reform package.

It was yet more proof that in German politics, Schroder rules. With the possible exception of Britain's Tony Blair, Schroder is the most secure leader of any major European country, with an unchallenged lead in public opinion polls and superb prospects for a second term in elections in autumn 2002.

In less than three years, the wily Schroder has done far more to modernize the German economy than his predecessor, Helmut Kohl, managed in 16. Schroder has rolled back taxes, begun the job of creating a flexible, partly private pension system that can cope with an aging and shrinking population, and made it easier for companies to hire foreign high-tech talent.

With all this, he has not lost touch with his social democratic constituents. He has expertly sold these reforms to Germany's change-averse voters, offering reassurances that government will continue to shield them from the harshest consequences of globalization.

Now, Schroder, who had little experience outside Germany when he took office in 1998, is taking the lead in a Continentwide debate about the future of Europe. Germany's European partners are unlikely ever to fully accept his vision of a federal government that looks a lot like Germany's, with decision-making concentrated in a popularly elected parliament instead of an appointed EU commission.

But Schroder is realistic enough to know that. His achievement has been to force the issue onto the European Union agenda, when other members of the partnership seemed overcome by inertia. Indeed, Schroder's strong line on Europe is forcing French Prime Minister Lionel Jospin to take the issue seriously, after months of embarrassed silence. For his part, Britain's Blair is careful about breathing the "E" word to his euro-skeptic electorate--especially just before an election. By contrast, Schroder, smoking Cuban cigars and often flashing an ever-so-slightly ironic smile, is the picture of self-confidence. He even has palatial new digs in Berlin, an office complex-residence that upstages the nearby Reichstag, seat of parliament.

Though he now easily sports the trappings of a political uberboss, Schroder did not come easily to power. His father was killed in World War II, and Schroder's mother raised five children alone. Schroder worked construction jobs to pay for law school, coming to prominence as a leader of the Social Democrats' youth organization. Before becoming Chancellor, he was prime minister of the state of Lower Saxony.

Friends say Schroder, who is no workaholic, took time to adjust to the more frenetic pace required for the leader of Europe's biggest economy. He remains someone who seems to enjoy the interplay of politics more than the detail work of policy.

Still, Schroder has been able to accumulate a formidable trove of political capital. Now the big question for Germans is: How will he invest it? They will probably have to wait until 2002 to find out. "He won't be doing anymore major reforms before the election," predicts Munich-based management consultant Roland Berger, who has acted as an informal adviser to Schroder.

Unfortunately, much work remains. Schroder hasn't done anything to dismantle the labor regulations that make it difficult to lay off workers when business is slow. That makes German companies reluctant to hire, helping to keep unemployment over 9%. But Schroder won't touch serious labor reform until he's reelected.

And then? Many top executives are hopeful. "He has a good understanding of how the national economy works and what will get him economic growth," says Edward G. Krubasik, a management-board member at electronics giant Siemens. If so, Schroder could go down in history as the man who made Germany fit for the global economy.

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