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Germany

Schröder Pushes Opposition onto Defensive over Reforms

With the differences narrowing between the German government's reform plans and those of the opposition, Chancellor Schröder’s speech before parliament Thursday has left the Christian Democrats with a difficult choice.

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Gerhard Schröder: Co-opting a few ideas from the opposition.

In a move taken straight out of the political cookbook of Bill Clinton or Tony Blair, German Chancellor Gerhard Schröder in recent weeks has been swiftly appropriating the policies of the conservative opposition, leaving them increasingly on the defensive. The scope of the similarities between those reform proposals crystalized during a speech given by Schröder before parliament on Thursday.

With three straight years of meagre economic growth, record unemployment and rising bankruptcies, Schröder’s center-left coalition of Social Democrats and Greens wants to push through a broad structural and economic reform package aimed at restoring Germany as the European Union's economic powerhouse and moving a step closer towards balancing the federal budget.

The economic overhaul includes a 10 percent reduction in income taxes starting next year, financed by cuts in major government subsidies and sales of state-owned enterprises. Among the subsidies under the knife are benefits for first-time home buyers, tax breaks for commuters, coal industry support and other programs. Additionally, Schröder's Agenda 2010 plan would place caps on unemployment benefits and change labor laws to make it easier for companies to hire and fire. Agenda 2010 alone, he said, would save the government €45 billion ($52 billion) by 2010.

Taken together, the government believes the changes will stimulate economic growth and help bring down the country’s chronically high unemployment, which currently hovers over 10 percent.

Breaks for small businesses

Schröder said the tax cuts are aimed not only at individuals, but also at small- to medium-sized businesses, which make up half of Germany's economic output and employ close to 70 percent of its workers. In addition to the tax cuts, the government will loosening its regulation for skilled handworkers and reduce expensive bureaucracy. Schröder said small- to medium-sized businesses could expect to pay €10 billion fewer taxes in 2004. (The tax cuts had originally been planned for 2005, but with shrinking economic growth, Schröder's cabinet wants to pull them forward a year.)

In his speech, Schröder expressed optimism that consumers would spend their tax savings to give the economy the desired boost. "Ten percent fewer taxes – that's ten percent more that people will have available to fulfil their life's desires," he said.

Germany, Schröder noted, represents 30 percent of the entire European economy – a status that bestows it with a "special responsibility," because "without a strong Germany, there can be no strong Europe." For that reason, it is dire that Germany undertake both structural and economic measures in order to promote stability and economic growth, he said.

Though conceding the myriad reforms would be painful, Schröder said Germany needed to adopt a "new thinking," requiring a change in the mentality that puts an emphasis on quality of life. He said there were signs that during the three months since he first laid out Agenda 2010 that the transformation was beginning. "Germany is ready to change," he said, before adding, "Germany is on the move."

A plea to the other side

Much of his speech seemed directed at the opposition Christian Democrats, and Schröder called on the conservatives to fully cooperate with his reform plans.

Schröder said the country's political parties must work together to bring Germany "back into step." Without the support of the opposition Christian Democratic Union and its Bavarian sister party, the Christian Social Union, Schröder's reform plans will stall in the Bundesrat, the upper legislative chamber controlled by the opposition.

"We are seeking to constructively work together with the majority in the Bundesrat," Schröder assured his audience of parliamentarians. He thanked the parties for working on planned reforms to the public health care system while admonishing them not to reject the current reforms and tax cuts, saying such a move "would not pay off."

Trouble for the opposition

Edmund Stoiber und Angela Merkel

Edmund Stoiber and Angela Merkel

Schröder's policies are extremely similar to those being proposed by the conservative Union bloc, which has put politicians like the CDU's Angela Merkel (photo right) and the CSU's Edmund Stoiber (photo left) on the defensive in recent weeks.

Schröder has effectively taken the wind out of their sails by adopting the Union's earlier calls for the tax cut to be pushed ahead. In recent days, there has been considerable fighting between the CDU and CSU over whether to support Schröder's tax reform plan or to block it – an embarrassing spat for the opposition, which has long championed exactly the kinds of cuts the government is seeking to push through.

The conservatives are now faced with a difficult decision: Block Schröder's reforms and hope he his blamed for the failure, or support the reforms and allow the chancellor to take credit for ideas they long ago pitched on their own.

The depth of this crisis was apparent in the rebuttal given by CDU chairwoman Angela Merkel, who attacked Schröder for changing the tack of government: "What is the direction of your policies?" she asked. "You have to at least know on a quarterly basis."

But, in the end, she essentially supported Schröder's calls for tax cuts and structural reforms and was only able to complain that the government had failed to deliver a convincing plan for how to finance the cuts.

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