Germany: Schroder's Woes Could Paralyze Policy

German Chancellor Gerhard Schröder might be able to ignore the new hit rap song ridiculing him and his tax policy. He might be able to defuse the parliamentary committee looking into whether he deliberately misled voters about the state of public finances in his latest campaign. He might even be able to pooh-pooh calls by conservative leader Edmund Stoiber for new elections. But the one thing a seasoned politician such as Schröder can't ignore is poll results, and they couldn't be much worse.

Two months after voters narrowly gave Schröder a second four-year term, only 28% say they would vote for him again, according to Emnid, a polling outfit in Bielefeld. Half now support the center-right Christian Democrats. In part, that reflects public anger at planned tax increases. But the underlying problem is credibility, pollsters say. Schröder's government didn't reveal the disastrous state of federal finances until after the election. To appease unions, he reneged on promised labor-market reforms. Now, centrist voters no longer trust Schröder to tell the truth. "I've never seen any election where all the promises were kept, but this time the discrepancy was too great," says Torsten Schneider-Haase, an Emnid analyst. "The loss of trust is extreme."

Even for a comeback artist like Schröder, restoring confidence will be extremely difficult. The result could be policymaking paralysis. Businesspeople and ordinary voters alike are dismayed at what they see as lack of direction by the governing coalition of Social Democrats and Greens. The government plans, in effect, to raise business taxes by cutting deductions, while working people will pay more into the pension system. Germans could forgive those stopgap measures if they saw a strategy for getting the no-growth economy back on track. But most forecasters are pessimistic. UBS Warburg, for example, expects growth of just 0.8% in 2003. "What is lacking is a vision," says Hubertus Erlen, CEO of Berlin drugmaker Schering.

Indeed, Schröder's standing has fallen so far that the weekly Die Zeit recently began an interview by asking him: "When are you going to resign?" Yet Schröder is unlikely to do so. And no one expects Schröder's left-leaning Green allies to desert the ruling coalition. Not since 1982 has a coalition fallen apart. "Schröder may be tarnished, but internally he can still say: `You don't have any alternative, so keep your mouths shut,"' notes Michael Greven, a University of Hamburg political science professor.

But that doesn't mean the Chancellor will recover the power he enjoyed in his first term. In fact, he seems to be handing the opposition Christian Democrats a golden opportunity to revive their strength. Polls show that Schröder's Social Democrats could lose control of Lower Saxony in February state elections. That would be a serious blow. Lower Saxony is Schröder's home state and has been under his party's control since 1990. A defeat there would solidify the conservatives' hold on the upper house of Parliament, which represents the states and can block major legislation.

Can Schröder fight back? He's trying once again to deploy his famed rhetorical skills, promising "comprehensive reform" of the social welfare system in a televised parliamentary debate on Dec. 4. But he offered few details, and that vagueness is likely to raise more questions among critics. "He has to give voters back some optimism in the future," says Stefan Bielmeier, a senior economist at Deutsche Bank (DB ). But it's hard to see how Germans can have faith in their country when they don't have faith in its leader.

By Jack Ewing in Frankfurt

Edited by Rose Brady

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