Is Germany in a mess? Last Sunday, Gerhard Schröder's battered Social Democrats managed to pull a surprising tie with Angela Merkel's Christian Democrats, who bungled their campaign and blew a 15-point lead in six weeks. Both parties did badly enough that they need both of Germany's two smaller parties, the Greens and the libertarian Free Democrats, to secure an unwieldy majority in the parliament. And if all else fails, an equally awkward grand coalition between the big two might result, bringing with it the risk of politics by lowest common denominator.
“Both major candidates seem to have been punished by voters for advocating change,” warned The Washington Post's editorial board on September 21. “The two parties together might agree to force through the further reforms they know the country needs, but it is just as likely they will compromise by doing nothing.”
In fact, this pessimism is premature, and it misses the lesson of the election to boot. With the exception of a new left-wing party that absorbed the ex-communists in the east and disaffected Social Democrats in the west (and which would stand virtually no chance of joining any coalition), all parties will keep on the reform path that the Social Democrats and their coalition partners, the Greens, began a few years ago With the economy stalled and unemployment stuck at more than 11 percent, there are few defenders of the status quo anymore.
As Berlin Green Elfi Jantzen puts it, “There's widespread agreement that we have to go forward. There are ways to push reform that are more socially just than others, but we can't just ignore our problems.”
Jantzen is not alone. A recent poll by Der Spiegel magazine showed that three-quarters of Germans are ready to accept further reform measures if they will ultimately kick-start the economy and bring down the jobless numbers. In other words, you don't have to be a tax-cutting conservative anymore to love reform. Most lefties accept it as well. The protests that followed many of the controversial overhauls under Schröder have fizzled out. Most Germans now accept even the most contested measures -- such as a new requirement that requires the long-term unemployed to work at menial jobs for benefits -- however grudgingly. The new left-wing party, which has its base in the east, did draw away some of the Social Democrats' vote by tapping into that discontent, and it got almost 9 percent of the vote on Sunday. But that is several percentage points below what it was polling in the summer, which suggests that the party has already hit its high-water mark. And it remains the odd man out in the current coalition negotiations.
So why did the election result in a deadlock? The reason lies mostly in the fact that the center-right Christian Democrats, who should have easily coasted to victory, ran a terrible campaign. Merkel picked a professor and a free-market flat-tax advocate, Paul Kirchhof, to join her team even though his tax proposals ran counter to the Christian Democrats' more moderate platform. That bad call opened up the door to an aggressive but effective scare campaign by Schröder, whose instinct for exploiting his opponents' weaknesses is almost Rovian.
Using the tax issue to go on the offensive (American Democrats, take note), Schröder argued that Merkel would slash popular deductions for wages earned on weekend and night shifts by low-income workers to pay for huge tax cuts for the rich, all while driving up the deficit. That tactic was not quite enough to lift his party over Merkel's, but the prospect of tax cuts gone wild did prompt many center-right voters to ditch Merkel and back the Free Democrats, who never embraced Kirchhof despite their pro-business tilt.
At this point, there are at least three coalition possibilities, all complicated by the fact that Schröder has been playing high-stakes poker by insisting that he remain chancellor if his party joins whichever coalition comes out the talks. But whatever emerges, some constants can be expected. Most important is that Schröder's party broke the ice on the reform question, and whoever is in power will sustain that push.
Unemployment benefits will be more closely tied to mandatory work, while the high jobless numbers will make workers more willing to negotiate flexible contacts with their employers. Germany's deficit crisis will make generous tax cuts of any sort unlikely, but tweaks in the tax code might spell somewhat lower taxes for businesses, or perhaps small changes in the top marginal tax rates for individuals.
And regardless of the policy mix, most Germans are likely to eye not the United States but the more successful European models -- say, in left-leaning Scandinavia or right-leaning Austria -- that have combined social protection and progressive taxes with strong growth and low unemployment.
To that end, the country's new leaders will have to put more resources into education so that the economy can draw on a better-educated and more nimble workforce. (Germany actually has a smaller percentage of college graduates than the United States, and it does poorly in many international rankings on education spending and educational achievement.) That recognition is starting to emerge in public debates.
None of these changes will be easy. But Germany has already weathered the shocks of unification and the launch of the euro, not to mention globalization and the outflow of jobs to its eastern neighbors. Its export-oriented firms are now booming and its stock market is soaring. Even The Economist wrote recently that “Germany looks relatively healthy.”
If it can just survive this election and start getting people back to work, it may have the worst behind it -- no matter who's charge.
Helen Fessenden is an Arthur F. Burns Fellow at Der Tagesspiegel in Berlin.
