Germany's Edmund Stoiber: Less Than Meets the Eye?

He may not be the economic savior the country hopes for

Germany's economy may be sputtering, but there's no sign of that on Munich's Maximilienstrasse. The BMWs and Porsches purr past luxury hotels and tony shops selling essentials such as exotic tea, grand pianos, and fur coats. And the wealth isn't just a veneer. Unemployment in Munich, the capital of Bavaria, is a mere 3.9%, compared with 9.6% nationwide. If Bavarian Prime Minister Edmund Stoiber unseats Social Democratic Party (SDP) Chancellor Gerhard Schröder in national elections on Sept. 22, this prosperity will be why. Thanks to his record in Bavaria, which has grown faster than the country as a whole for much of his nine years in office, Stoiber enjoys an image as a good economic manager who could jolt the nation out of its rut. "Stoiber has proved, as prime minister of Bavaria, that he can solve these problems better," says Hans-Wolfgang Boch, a 53-year-old high school teacher who was attending a Stoiber rally being held in Frankfurt.

With the election too close to call, Stoiber may yet have his chances to show his skills in the national arena. True, as the campaign heads into its final week, Schröder has again seized the initiative by staking out his firm opposition to a U.S. invasion of Iraq. Stoiber is scrambling to respond. But he and his aides are also doing their best to refocus voters on the economic issues. Many pollsters say that, come election day, Germans will be more concerned about jobs than Saddam Hussein.

But if Stoiber wins, enthusiasm for his economic record may well prove misplaced. The global recession is knocking the wind out of Bavaria's economy, throwing doubt on its usefulness as a model. Growth fell from 4.3% in 2000 to 0.9% last year. That was a steeper decline than in the rest of Germany, which fell from 2.9% to 0.6%. And while Stoiber promises to cut taxes, slash bureaucracy, and deregulate the labor market, a look at his program, his biography, and his record in politics show that he is closely tied to the status quo. His economic views are rooted in the paternalistic, interventionist tradition of postwar Germany. As recently as Sept. 5, a top Stoiber aide negotiated loans allowing Grundig, a chronically unprofitable Bavarian maker of consumer electronics, to stay in business. Such rescues convince many observers that, if elected, Stoiber is likely to tweak the system, not revolutionize it.

Reasons for the economy's sluggishness are well documented: a social safety net that protects Germans from the worst effects of global capitalism but hobbles business with high taxes and inflexible labor rules. There's little evidence Stoiber, who declined requests for an interview, wants to make big changes, especially in a period of global volatility. "Both Schröder and Stoiber have a deep-rooted distrust of free markets and the functioning of competition," says Munich management consultant Roland Berger, who has advised both men on economic policy.

Anyone who expects a revolution from Stoiber should visit Oberaudorf, a village near the Austrian border surrounded by steep mountain peaks. Here Stoiber was born and grew up in the lean years after World War II. In the March town council elections, the conservative Christian Social Union (CSU), which Stoiber heads, outpolled the center-left Social Democratic Party 5 to 1. Yet in European politics, the label "conservative" doesn't mean anti-government. Asked if Parliament should roll back laws that make it hard for employers to lay off workers, Deputy Mayor Horst Ritter, chairman of the Oberaudorf chapter of the CSU party, shakes his head doubtfully. "That's a social question," says Ritter.

As an adult, Stoiber has remained immersed in this mix of traditional social values and big government. In fact, all of his career has been spent in the public sector. In 1971, after finishing his law studies, Stoiber worked at the Bavarian Ministry for Regional Development & Environment, rising to chief of staff in the minister's office. In 1974, he was elected to the state parliament, representing Wolfratshausen, a community 15 miles south of Munich, where Stoiber and his family still occupy half of a modest two-family house. In 1978, he became general secretary of the CSU, which operates only in Bavaria but campaigns jointly with the center-right Christian Democratic Union on the national level. "Stoiber is a Bavarian politician in heart and soul," says Paul Brauner, deputy mayor of Wolfratshausen.

In 1993, Stoiber won a nasty intraparty battle to become Bavaria's prime minister. The region's success since then accounts for much of Stoiber's reputation as an economic manager. He certainly deserves some credit for Bavaria's superior performance. He took money raised from privatizing state-owned utilities and used it to finance tax breaks and low-cost loans for software and biotech companies. Stoiber eased permit approvals and installed ombudsmen in local city halls to help businesses cope with red tape. The program "works very well," says Jochen Frings, director of the regional office of the Federal Association of Midsize Companies, an industry group.

Still, Bavaria is a tiger only by German standards. For six years out of Stoiber's nine in office, growth has been 2% or less. And Bavaria is still home to pockets of high unemployment, particularly in industrial cities such as Hof, near the Czech border. Hof's jobless rate is 13.5%, no better than the old steel towns in northern Germany. "It's not as golden in Bavaria as people think," says Renate Schmidt, a Social Democratic leader who twice challenged Stoiber as Bavarian prime minister. Schröder's SDP has gleefully pointed out that Bavaria now has the fastest-growing jobless rate and is among the nation's leaders in insolvencies. Stoiber aides point out that Bavarian joblessness still is lower than the national average and that Hof suffers from low-wage competition from the Czechs.

Moreover, Stoiber has often betrayed a weakness for intervention that would make even a dirigiste Frenchman blush. Grundig, which has been struggling for at least a decade, is one example. Bayerische Landesbank, a quasi-public institution controlled by Stoiber aides, lent $1.9 billion to media mogul Leo Kirch, whose empire is now largely bankrupt. Stoiber also tried to save steelmaker Maxhütte, which finally closed down after decades of losses.

Why is Stoiber so popular with business? The answer probably has more to do with attitude than accomplishment. In his campaign appearances, Stoiber promises to slash unemployment and end Germany's status as Europe's economic caboose. "I trust Stoiber to do what he says he'll do," says Dieter Frank, CEO of Frank Textile Refining, in Geretsried, a community in Stoiber's district.

Frank's company belongs to the famous Mittelstand, the midsize companies that provide 70% of Germany's jobs. Stoiber vows to roll back cuts in capital-gains taxes that primarily benefit big corporations, and instead give the productive Mittelstand new tax breaks. Frank is firmly convinced that Stoiber would be better than Schröder, who delayed planned tax cuts to pay for flood relief. "Stoiber would treat us better," says Frank. Unfortunately, in Germany that's not saying much.

By Jack Ewing in Oberaudorf with Andrea Zammert in Frankfurt

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