Germany Backs Toward the Future

Following years of economic stagnation and chronically high unemployment, reports of Germany's woes saturate the country's media. The latest bit of bad news to make the rounds was a report earlier this month forecasting Germany's economy -- Europe's largest -- was likely to have the slowest growth rate of all 25 European Union nations this year.

But after a few years of wrestling with painful and unpopular welfare cuts and labor market reforms, both the country's political elite and its average citizens now appear more interested with placing blame instead of looking for a way out of the crisis.

First, the new low-wage and low-cost members of the EU were threatening Germany's generous -- and considered by many to be untenable -- welfare state. The solution? Politicians said Germany needs a minimum wage to keep foreign firms and workers from undercutting local ones.

Whether that would truly make Germany more competitive in a time of increasing globalization is open to debate, but Franz Müntefering, the head of Chancellor Gerhard Schröder's Social Democratic Party (SPD), has since found a new target for the country's problems: capitalists.

Capitalist danger?

Last week he railed against the "growing power of capital" and the total "commoditization" of society focused on short-term profit and gain. "Internationally forced profit-maximization strategies will eventually threaten our democracy," he thundered in a speech to other SPD members.

That classic class-warfare rhetoric was then followed up this weekend with further comments comparing some financial investors to "swarms of locust" that descend upon and destroy everything they touch before moving on to their next victim.

Müntefering has been eagerly backed by numerous leading SPD members, including even Schröder, who has often styled himself as a business-friendly chancellor. In the past, both men were unpopular with a large swath of the party for foisting a reform course upon it that called for sacrifices from average Germans. So the populist, trade union-like language has come as a surprise to many political observers.

Therefore, some are chalking up the Social Democrats' new rhetorical lurch to the left as pure electioneering. Next month, a key state election in the SPD stronghold North Rhine-Westphalia (NRW) could determine the political future of the party in next year's general election as well. If the chancellor's party loses power in NRW, as is currently projected, Schröder could well face a challenge to his leadership from within the ranks of the SPD long before he would face the conservative opponent for his job in Berlin.

Changing course

But others contend the SPD would face just a bigger crisis if it now backed away from a decidedly leftwing course after the vote.

"The Social Democrats would have a truly massive credibility problem if they stopped this kind of rhetoric just after the NRW election and bring it back just ahead of the federal election in 2006 again," Franz Walter, a political scientist at the University of Göttingen, told Germany's ARD broadcaster.

Without question, plenty of Germans would be willing to back policies that championed the defense of its creaky welfare state and attempted to shield the country from greater competition from abroad. However, there would be huge risks for following an anti-business and anti-globalization line.

As some economists have been at pains to point out in recent days, Germany's export-led economy thrives on globalization.

"We have seen up to now that globalization is a success. We have to accept that it will require greater individual responsibility and productivity," Michael Hüther, director of the German Economics Institute in Cologne, said. "We have to push for greater dynamism."

Weak domestic economy

Domestically, Germany's economy has been moribund for years as record unemployment helped the country develop an (economically) unhealthy penny-pinching ethos. Trade unions have called for wage increases to give people more cash to spend, thereby helping spark consumption and growth.

But Thorsten Polleit, the chief economist for Barclays Capital in Frankfurt said raising salaries or the now popular plan to give Germany a minimum wage would be counterproductive.

"We have to realize in Europe, not just in Germany, that we are competing against other nations such as India, China and other Asian countries," he said. "We won't solve the problem of how to compete successfully by digging up old socialist ways of doing things."