German Business Looks to Life After Schröder

In a survey of 22,000 firms conducted by the German Board of Trade and Industry, 58 percent said they thought the overall business situation would improve after the poll, which is expected to be held in September and which the conservatives look set to win.

Germany's leading stock market index, the DAX, has soared too at the possibility of regime change in Berlin. The index, which comprises the 30 leading stocks listed on the Frankfurt Stock Exchange, has jumped five percent since Schröder, a Social Democrat, said last month he would seek early general elections.

Most of the big banks expect the trend to continue. The sunnier outlook is based "on the hope that a new government will chart a clear course for reform," Rolf Schneider, chief economist at the Dresdner Bank, said. With five million unemployed, tepid economic growth and sickly public finances, Germany's erstwhile reputation as Europe's economic powerhouse seems a distant dream.

Conservatives vacillate on toughness of reform

But, if business executives were hoping for strong words and a clearer sense of direction from the more business-friendly conservative opposition Christian Democrats (CDU) and the Christian Social Union (CSU) with tough-talking Angela Merkel, as their joint candidate for chancellor, they may have to wait a while.

"The CDU/CSU are just full of contradictions at the moment," said Rüdiger Pohl, an economist at Halle University.

Indeed, the CDU/CSU have made few concrete economic proposals for fear of alienating voters while they are riding high in the opinion polls. Merkel has even overtaken Chancellor Schröder in popularity ratings.

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The CDU looks set to pursue and probably even sharpen the unpopular reforms of the welfare state -- a legacy of postwar reconstruction and the economic miracle -- begun by the present government if it wins. It plans to unveil its election platform next month and many political observers expect it to remain vague as long as possible, although some initial proposals have surfaced.

These include making the labour market more "flexible" -- shorthand for loosening Germany's iron-clad protections for employees, lowering taxes, shoring up the health system to stabilise contributions, and driving down employers' costs.

To compensate and fill the tills, tough measures are envisaged with the plugging of tax loopholes and a rise in the basic rate of Value Added Tax from 16 to 18 per cent. This remains controversial given its feared impact on already anaemic domestic consumption but is widely backed by all the major parties.

The CDU/CSU bloc has been spurred on by the liberal Free Democrats, their probable coalition partners, who are demanding political reforms including lifting limits on corporate layoffs.

Merkel's party prefers to proceed more cautiously -- at least in its rhetoric -- to avoid scaring the electorate. She is of two minds about completely overhauling the system of co-determination, the process whereby decisions are made jointly by management and workers. It is a foundation stone of German-style capitalism but a number of employers say it acts as a brake on the creation of new jobs.

Merkel envisages a more flexible system where compromise still has an important role to play, but details remain sketchy.

As for the subject of lower taxes, the party is also keeping its lips sealed. "There will be room for manoeuvre only when the German economy grows more than it is doing at present," CDU premier of the western state of Hesse, Roland Koch, told business daily Handelsblatt this month.

Same strategy as always?

It was not so long ago that Schröder, nicknamed "the bosses' comrade" won applause from Germany's boardrooms.

But economic stagnation, dithering over the pursuit of reform and a flirt by leading Social Democrats with class-war rhetoric to re-galvanise its supporters have led the business community to start looking to an alternative.

For analysts, though, there is reason to fear more of the same. "A new government will carry out some reforms but they will only be small measures and, at the end of the day, it will be the same strategy as the past few years," Pohl said.