Germany's Gerhard Schroeder is in a tough situation. He's trying to push through a package of benefit and welfare reductions that would make his country more competitive. Yet, the cuts are coming at a time of high unemployment and economic stagnation. Yesterday, Schroeder won re-election as Social Democratic Party leader -- but he still must convince many in his party that he's not lost his commitment to the welfare state. To make matters worse, the European Union is ratcheting up pressure on Germany to reduce its budget deficit or face massive fines.
Prague, 18 November 2003 (RFE/RL) -- German Chancellor Gerhard Schroeder has been re-elected to lead his Social Democratic Party (SPD), but his real problems may just be starting.
Schroeder, under fire within the party for his proposals to cut Germany's generous social benefits, won the support of about 80 percent of SPD members at a party congress this week in the industrial city of Bochum. But the margin of victory was 8 percentage points less than he received in a vote three years ago.
Schroeder defended the result, which was widely seen as a rebuke by the party. "I accept the results very gladly. And I find the results -- given the [difficult] circumstances behind the scenes and of the intensive debate -- to be justified and honest," he said. "They reflect the values of our party. I am thankful to you...."
Addressing the congress, Schroeder defended his proposals to reduce social benefits, part of a plan he calls "Agenda 2010." He emphasized how the cuts will help revive the economy and, by extension, create a stronger Germany. "Let me tell you in a few sentences what kind of future I see for Germany. Germany [in the year] 2010 is a country whose economy is No. 1 -- because the country is No. 1 in education and research," he said. "Germany 2010 must be a country for families, a country where young and old people are there [to help] each other, a country where women can have both a family and an occupation. And here, [let me emphasize,] Germany is a country in which everyone has a job -- where work is challenging and well-paid and socially insured -- [about that there is] no question."
Schroeder's reforms include reductions in health and unemployment benefits, as well as a freeze in pension benefits. The proposals are seen as necessary to revive Germany's stagnant economy, but have led many to question the chancellor's commitment to the SPD's century-long support for the working class and the welfare state.
SPD party members appeared divided by Schroeder's speech and the party's direction. Delegate Margit Conrad said she was impressed. "First of all, it was a very strong speech for Gerhard Schroeder. It was very authentic," she said. "He did not avoid [the themes] that really concern the party. He clearly put three messages in the forefront -- [these are] jobs, family, and education."
But SPD member Andrea Nahles was less enthusiastic. "The party members were able to see that the party chairman was able to speak to them [emotionally]," she said. "But about the concrete political situation in the coming weeks and months, there were far fewer clear statements."
She was referring to the SPD's falling popularity and recent string of defeats in state elections to the rival Christian Democrats. Even in blue-collar Bochum -- ordinarily an SPD stronghold -- the congress yesterday was ringed by thousands of striking policemen, angry about the cuts in benefits.
Experts say there is little Germany can do except reduce its social benefits and thereby lower the costs for companies operating there. The global economic slowdown has led to a drop in inward investment, and the relatively high value of the euro has lowered demand for the country's exports by making them relatively more expensive.
Euro interest rates are already very low and cannot be cut much to stimulate the economy. The government, moreover, cannot spend its way out of recession, since the budget deficit is already over the eurozone's target limit of 3 percent of the size of the economy, as measured by gross domestic product.
To make matters worse, the European Commission is preparing to scold Germany formally for again violating the 3 percent budget-deficit limit -- as spelled out in the EU's Stability and Growth Pact. Germany could incur major fines from the commission.
News agencies report that European Commissioner for Economic Affairs Pedro Solbes will propose what are being called "new" recommendations later today in Strasbourg. It isn't clear what Solbes will recommend, but the commission is thought to be leaning toward giving Germany a reprieve in exchange for a promise of further cost-cutting measures. The recommendations would then be considered by EU finance ministers later this month.
Violating the Stability and Growth Pact is a major embarrassment for Germany, the EU's biggest national economy and for years its standard bearer for tight fiscal management and sound economic policies.
It's now become a major headache for Schroeder. Not only must he cut state spending very quickly, he must convince members of his own party that he is still one of them while he does it.