No Miracle Cure for German Economy

With nearly five million people without a job, the overriding theme of this general election is, of course, unemployment. But most of those people on the dole do not believe their plight will improve much if there is a change in government, as they fail to detect any major differences in the economic platforms of either Chancellor Gerhard Schröder's coalition of Social Democrats and Greens or their conservative challengers, the Christian Democrats (CDU).

Indeed, while the small-print may differ, the main thrust of the economic manifestos of both parties point very much in the same direction -- of additional social and labor market reforms, rather than a reversal of the reforms implemented so far.

Merkel has sought to capitalize on the government's poor economic track-record, with unemployment stuck at post-war highs and the economy consistently one of the lowest-performing in the euro zone.

Both sides to blame?

Germans are a lot worse off now than they were seven years ago when Schröder first stormed to power, Merkel argues, while Schröder retorts that the roots of many of the country's back-breaking economic problems can be traced back to the previous conservative administration under Merkel's mentor Helmut Kohl.

Nevertheless, while Merkel is widely tipped to win on the vote, economists believe that she too will shy away from the more radical changes needed to get the economy back on its feet.

"Even if there is a change in government, it is unlikely to result in a big reform push," said Morgan Stanley economist Elga Bartsch. Basically, the SPD "is sticking to the status quo" while the CDU was "essentially proposing a continuation of the gradual reform process started by Schröder," Bartsch said.

As a result, the economist saw "no compelling reason" to re-assess her growth forecast for Germany, even if Merkel were to win. The CDU's proposals "still don't fully address the challenges facing the German economy in an increasingly integrated global economy," Bartsch criticized.

CDU wants to raise taxes

One of the more controversial points in Merkel's manifesto is a proposal to raise value-added tax (VAT) by two points to 18 percent in order to help finance a reduction in the unemployment insurance employers are obliged to pay for their staff.

Such a move would help bring down Germany's notoriously high non-wage labor costs. But it could also backfire by choking off chronically weak consumer demand and, further down the line, trigger a similar sort of political backlash that looks likely to topple Schröder next weekend.

Another policy centerpiece of a Merkel government would be a revamp of the tax system. The man tipped to become her finance minister, ext week, there is no guarantee that Merkel and her CDU will be any more successful than Schröder was in persuading a reluctant population to swallow the bitter pill of painful but vital economic reforms.

A deep political cynicism has taken root in Germany, according to Ruediger Schmitt-Beck, a political science professor at the university of Duisburg-Essen."The belief that all politicians are equally bad is becoming increasingly widespread," he said.