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Germany: Chancellor Schroeder's Economic Reforms Prompt Party Dissent

German Chancellor Gerhard Schroeder is pushing forward with plans to reform his country's social welfare system in an effort to bolster economic growth. But RFE/RL correspondent Roland Eggleston reports from Munich that Schroeder's efforts are meeting with opposition from within his own Social Democratic Party (SPD).

Munich, 9 August 1999 (RFE/RL) -- After nine months of hesitation, Chancellor Gerhard Schroeder and his closest aides have acted in the last few weeks to move the party away from traditional SPD policies and toward the political center. Schroeder calls the change in course a "modernization."

In practice, "modernization" implies an overhaul of Germany's complex and costly welfare state. It means discarding many traditional policies which labor unions and the left wing of the party want to retain.

Schroeder's team hopes the reforms will put new life into the economy and lead to more jobs. But they will also reduce the money available for health services, education policies, payments to the unemployed and social services such as home care for the aged. All are expected to suffer as Schroeder's finance minister, Hans Eichel, looks for savings of about $16 billion over the next three years.

Of course the social system will not carry the burden alone. The foreign service, the defense ministry and other departments are also slated for budget cuts. But it is the cutbacks in the welfare system that have split the party.

One of Schroeder's most public opponents within the SPD is the leader of the party's left wing, Reinhardt Klimmt, premier of the province of Saarland. He has several times accused the Chancellor of "betraying" the ideals of Social Democracy.

Another internal critic is Richard Hoppner, premier of the province of Saxony Anhalt, in what was formerly communist east Germany. Hoppner told journalists a few days ago that "an SPD government has an obligation to think in terms of social measures." He added that "no discussion of modernization should allow this fact to be forgotten."

A group of trade union leaders recently issued a statement acknowledging that Schroeder's goal is to make Germany more competitive and to bring unemployment below the current 10 percent. But they declared that his modernization policies cannot come at the cost of "social justice" -- by which they mean pensions, health care and other social benefits.

Public reaction is still unclear. One commentator said this weekend that the German public has cried out for years for a reform of the system but they don't want to bear the pain.

The test will come next month with elections in four provinces -- Brandenburg, Saarland, Thuringen and Saxony. Some commentators believe that the SPD will lose all four -- partly because of the internal feuding.

For Schroeder personally, the key date is the SPD party congress in December where representatives of all factions in the party will debate his program.

German commentators expect the congress to be a battle for the soul of the SPD. Some draw parallels with the historic congress in Bad Godesberg in 1959. That is when the SPD switched from the extreme left to a policy based on the market economy -- the so-called "social market" model which guided German internal politics for many years. Most German economic analysts agree that Germany's rigid system, including its labor market rules, must be overhauled if it is to remain competitive. This appears to be borne out by the latest rankings of global competitiveness by the World Economic Forum. They show that Germany has slipped to 25th place.

Some of Germany's labor practices appear very generous in comparison to those of its competitors. Germans are hard workers with a deserved reputation for the quality of their work. But high wages and long holidays coupled with other benefits have made most of its industrial goods expensive by world standards. Many of its leading industrial plants, such as Mercedes, Siemens and Hoechst have shifted a lot of production abroad because costs at home are too high. That has meant the loss of thousands of jobs in Germany.

Against this background, business circles have given Schroeders reform program. A spokeswoman for the Federation of German Industry tells RFE/RL that "Germany needs to get rid of outmoded practices holding it back. Otherwise it will lag behind in terms of competitiveness."

Many of Schroeder's views are similar to those of the British Labor Party, which also went through a long struggle between traditionalists and "modernizers" until the latter won.

A joint paper published recently by Schroeder and Britain's Labor Prime Minister Tony Blair argued that high spending by the state was a major cause of unemployment. It argued that social democratic parties once believed that more and more public money had to be spent on social policies and benefits, regardless of the cost to the nation. They said that in practice this led to high taxes and meant that less money was available for paying wages, therefore causing unemployment.

It is statements like these that have aroused the anger of Germany's labor unions and the SPD's left wing. They accuse Schroeder of preparing to throw overboard many of the social gains won in decades of struggle.

It is too early for anyone to predict whether Schroeder and his "modernizers" will succeed. The prospects will be clearer after next month's provincial elections. But it seems likely that Schroeder will have to fight many battles within his own party in the coming months.