More than a year after taking office, Schroder is all over the political map–left, right and center. He’s everywhere. Which also means he’s nowhere. “This is a problem,” concedes one aide, with a resigned shrug. “He’s opportunistic and he has no firm convictions.” What Schroder does have is remarkable skills as a short-term tactician. And, often, incredible luck. Until recently, it looked like he would face hostile, resentful delegates at this week’s convention of his Social Democratic Party in Berlin. A devastating string of recent SPD losses in state and local elections and the government’s cutbacks in pensions and unemployment benefits were triggering growing disaffection among the party faithful. But Schroder’s dramatic rescue of Holzmann will allow the jeered “comrade of the bosses” to return as the cheered “chancellor of the workers,” who fights to save jobs as much as he does to impose fiscal discipline. And the mushrooming campaign-financing scandal in the Christian Democratic Union, with former chancellor Helmut Kohl at its center (following story), is likely to halt or at least slow the opposition’s impressive rise in recent national polls. But even if he now sails through his party convention, the German chancellor will not have answered the fundamental question: who is Gerhard Schroder and where does he want to steer his country?
More than Schroder’s political future rides on the answers to those questions. The impact of a weak, erratic chancellor is already evident–not just in local election results, but across Euroland. The euro has been losing value; last week, for the first time, it briefly dipped below parity with the dollar. The slide is due in large part to fears that a confused, meddling government in Berlin will erode outside confidence in the whole Euroland project. The Holzmann intervention, European Central Bank president Wim Duisenberg testily pointed out, “does not enhance the image that we have of being an increasingly market-driven economy across the Euro area.” EU Competition Commissioner Mario Monti, who will be investigating the Holzmann package to make sure it doesn’t violate Brussels’s rules, linked the shakiness of the euro to Schroder’s pronouncements about the need to fight hostile takeovers.
The chancellor’s advisers argue that Schroder’s zigging and zagging doesn’t mean the government is rudderless. They point to their success in pushing through more than $13 billion in budget cuts last month as evidence that their boss is, on balance, a new kind of leader intent on reining in government spending and stimulating growth. On that view, the chancellor is very much a New Middle man whose heart remains committed to social justice but whose head tells him that Germany needs to make major new adjustments to globalization. That requires a radical rethink of old dogmas. “The welfare state designed by social democrats is incompatible with an integrated European market,” Wolfgang Nowak, a top chancellory aide who works on Third Way issues, told an audience of Austrian businessmen two weeks ago.
That’s not the message Schroder has been delivering at home. There, he’s faced with a party that, until March of this year, was led by old-school leftist Finance minister Oskar Lafontaine. Many SPD members are still allergic to any talk of business-friendly policies and refuse to consider scaling back the welfare state. At the recent Third Way conference in Florence, Schroder explained to members of the British team: “We have a much stronger opposition than you do. And your party is better than mine is.” In other words, Schroder, unlike Blair, has to mollify a distrustful rank and file. So, he’s stopped smoking Cuban cigars in public, a practice that made him look more at ease with businessmen than union activists. He’s virtually stopped talking about the paper he and Blair issued in June that dismissed “tax-and-spend” orthodoxies and endorsed more flexible labor policies. And he asked France’s Prime Minister Lionel Jospin, who still favors old-line leftist rhetoric, to address the SPD convention this week, but he didn’t ask Blair. This is all a matter of smart tactics, Schroder’s aides insist, aimed at winning back SPD voters who defected or stayed home during the recent string of election defeats. “If there’s one thing I’ve learned in politics, it’s that you can’t just proceed directly to your goal,” says one senior official. “You always have to zig zag.”
German businessmen are skeptical that the tactics can be so easily separated from the results. They generally applaud the budget cuts but, as for the rest of Schroder’s policies, they aren’t buying. According to one recent poll, 68 percent of the business community rates the government’s performance as “poor” or “very poor.” One reason was the government’s early moves to tighten rather than loosen the rules in the labor market. It became even harder to fire workers, and new requirements that low-paid, part-time workers be covered by social benefits led to the elimination of an estimated 600,000 such jobs. Another complaint is Schroder’s willingness to entertain union proposals to drop the retirement age to 60, which a chorus of economists dismiss as an unrealistic, populist ploy.
Schroder says his program works. He points to widespread predictions that the sluggish German economy will pick up speed next year, with growth forecast at between 2.5 and 3 percent. Unemployment, still high at 10.1 percent, has been edging downward. But critics charge that he’s claiming credit for a revival in exports that his government had nothing to do with. And that he’s only fooling himself if he believes he can make good on his campaign promise to cut the jobless rate in a big way. The current dip is primarily a result of Germany’s demographic trend: fewer young people entering the work force. Herbert Hax, the chairman of a panel of five leading economists, warned: “You can’t expect unemployment to fall without making the necessary structural reforms.”
That would mean less government meddling, not more. So what did Schroder do when Holzmann edged dangerously close to bankruptcy? He declared: “I am just not ready to accept that a company… go bust because of a mistake of management. It is the government’s role to ensure that does not happen.” Then he pressured the company’s creditors to come up with a $2.2 billion bailout package by offering $129 million in state aid. Hans-Olaf Henkel, chairman of the Federation of German Industry, was unhappy. “I consider this a dangerous development when politicians virtually force banks to give loans,” he said. And there’s no guarantee that the plan will succeed. “This will be a mess, but only after the Party Congress,” concedes a Schroder aide, who says the chancellor was desperately looking for a symbolic gesture that could cast him as a friend of the workers.
That’s becoming a habit. When Britain’s telecommunications company Vodafone AirTouch launched a hostile takeover bid against Germany’s Mannesmann last month, Schroder berated the move as an assault on Germany’s “corporate culture.” Even Mannesmann chairman Klaus Esser took exception to this ostensible defense of his company, arguing that “political stuff” is the wrong approach. “This is an economic decision,” he said. Schroder, it seems, had forgotten that German corporations have gobbled up all sorts of companies in both Britain and the United States. “We live in a European market today where European companies are taking over other European companies, are taking over British companies, and vice versa,” Blair noted in Florence, taking a rare public swipe at his friend Gerhard. “That’s the European market.”
Blair’s entourage tries to sound upbeat about a fellow centrist–but not always with success." In a way, Schroder got in a few years too early," says Mark Leonard, the director of the Foreign Policy Center, a New Labour-affiliated London think tank. “It would have been good for him to be made party leader first and for the party to think through their ideas before he was elected chancellor.” Not surprisingly, the French are blunter. “Jospin is more of a modernizer than Schroder is,” says French political scientist Anne-Marie Le Glossanec, arguing that the French leader often talks a more leftist game than he practices.
Patience, patience, the Schroder team counsels. It faces obstacles on all fronts, including from a CDU that defended and expanded the welfare state during the 16 years of the Kohl era. Now the opposition attacks the government for moving slowly on reforms and for painful budget cuts, seemingly oblivious to the contradictory messages. Then, too, senior officials are quick to blame the Greens, their junior coalition partners, for the government’s inability to send a single, consistent message. “That’s all rubbish,” responds Klaus Muller, the representative of a young breed of Green parliamentarians who reject traditional leftist economic solutions.
More specifically, many of Schroder’s problems are of his own making. He needs to have the courage of his convictions but, first of all, he needs to demonstrate that he has convictions. His short-term tactical gains, won by lurching back and forth from left to right and from right to left, are ultimately only that: short-term. The downside is a steady erosion of credibility, and an unwillingness to disabuse voters of their illusions that the old German welfare state can survive with only minor modifications. That makes the shock even greater when changes become unavoidable. And it translates into more voter disenchantment.
Will Schroder rise to the challenge and chart a steadier course? He may have only until May to try. That’s when the large industrial state of North Rhine-Westphalia holds its elections. If the SPD loses this traditional stronghold, the party could look for a new leader. Schroder understands how much is at stake. “He obviously grows under pressure,” says Culture Minister Michael Naumann. “He gets focused.” As a loyal member of the team, Naumann is convinced this is already happening. But Schroder’s critics see the evidence pointing in the other direction. Or, to be more precise, it still seems to be pointing in every possible direction.
