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The choice put before Germans in the elections was characterised as between the radical change proposed by Angela Merkel and the continuity of chancellor Schröder. Bertrand Benoit, the FT’s Berlin bureau chief, answered questions on the elections and the implications for Germany and Europe.
Is there any good reason to vote for the SPD? Is there anything they can do better than the conservative or liberal parties?
Bertrand Benoit: One of the hallmarks of this election is that it has been very polarised and has not been influenced by external events, unlike the 2002 poll that was largely decided by the impending war in Iraq. This time, the debate has been very much about the economy, and voters have a choice of two very different economic programmes from the two largest parties (not to mention those of the smaller groupings).
The SPD’s argument, in essence, is that the need for labour market and social security reforms has, by and large, been met by Agenda 2010, Mr Schröder’s reforms of the past three years. Though it includes some mild structural measures, its programme focuses largely on demand-boosting measures – more infrastructure spending, the possibility to write off home repair costs from income tax, higher unemployment benefits for older jobseekers, a generous benefit for parents who take leave from work to look after their children.
If you think Germany has first and foremost a growth problem, that fiscal spending is needed to prime the pump, and that such growth is required for the structural reforms of the past to bear fruit, the SPD would be your political home.
The need for structural reform is apparent to many international commentators, why, therefore, is the FDP so unpopular in Germany?
BB: True, although Germany has done much more to restructure its economy and welfare state in the past three years than, say, France, many economists are clamouring for more: More labour market flexibility, more services and products markets flexibility, an overhaul of the tax system, etc. In many respects the FDP goes further than the CDU on these.
The main difference between the FDP and the so-called Volkspartei, the mass parties of CDU and SPD, is that the latter span a far greater range of political sensibilities. The CDU is less a party than a loose coalition of a number of political streams. Its spectrum goes from liberalism to conservatism and even mild nationalism.
The SPD’s parliamentary group is split in “clubs”, from the Seeheimer Circle and Netzwerk on the right to the Parlamentarische Linke on the left. This means these parties’ programme offerings are generally the result of compromises designed to appeal to all their supporters.
The FDP has never managed, or for that matter sought, to build itself such a wide audience, which would have forced it to dilute some of its positions. As a result it is often perceived in the population as a pro-business interest group rather than a genuine party.
The long-term trend, however, helped by the proportional electoral system, has been towards a fragmentation of the political landscape, with the two Volkspartei commanding an ever smaller share of the total vote.
Voters dissatisfied with Schroeder’s so far moderate reform program, might vote for Merkel with a much tougher one. Why is this?
Ulla Bejrum, Sweden
BB: A number of pollsters have been arguing over this. Tomes could be written about Germans’ appetite for reform, or lack thereof. One interesting theory comes from Manfred Güllner, the head of the Forsa polling group, who says voters are not afraid of reforms but do not trust an SPD-led government to implement them properly – the early days of its Hartz IV labour market law, for instance, were marred by a number of implementation blunders. This is supported by a Forsa poll from March, which showed a majority of respondents saying Agenda 2010 did not go far enough (73 per cent in the case of the very unpopular labour market reforms).
Another theory is classic ninmby-ism: People are ready to support very radical reforms as long as they do not affect them (the CDU has sought to solve this by pushing for reforms that would affect everybody). Finally, there is a lot of irrational behaviour around (pensioners’ lobby groups routinely complain about pension reform projects that would, by definition only affect those people who are still working). I’m inclined to think Germans have an appetite for reform, though not an unlimited one, as long as they can be confident 1) that they will be competently implemented and 2) that they will bring benefit in the short- to medium-term. The latter can be a problem since most of the CDU’s proposed reforms would take years to work.
Would you explain the aims of each of the four Hartz reforms and their significance for the upcoming election?
BB: The Hartz laws, named after Peter Hartz, former Volkswagen head of personnel and president of a commission appointed by Mr Schröder in 2002 to reform Germany’s labour market, came into force between January 2003 and January 2005. Hartz I and II (Jan. 2003) reformed some of the roles played by the Federal Labour Agency, the huge bureaucracy that administers benefits for the unemployment and runs training and placement centres - for instance creating new job centres based on the UK model; they created new forms of subsidised self-employment to put welfare recipients back into work; and intensified the fight against illegal, cash-in-hand, work.
Hartz III (January 2004), was a root-and-branch reform of the Labour Agency while Hartz IV merged an old form of benefit similar to the UK’s income support into the existing second-tier unemployment benefit. The latter was by far the most controversial as it meant 1) lower benefits for many longer jobseekers, 2) the introduction of means-testing for benefit recipients, 3) higher incentives for recipients to seek and accept low-paid jobs. Had the election happened last summer, at the height of the Hartz protests in eastern Germany, the SPD would have been wiped away. Today the discontent has largely died out, at least in the broader public.
If voters are unhappy about anything, it is more about the fact that the added flexibility and efficiency have so far failed to persuade employers to create new jobs in large numbers.
I’m wondering why the issue of Germany’s ageing population and its potential effect on the economy has not been a feature of the election campaigning. Do you think it’s too sensitive a question?
BB: That’s right. The campaign has focused a lot more on Germany’s immediate challenges than, say, on pensions. One reason is that the economic effects of the country’s ageing population are not being felt yet. This should begin towards the end of the decade, when the baby-boomers begin retiring in large numbers. This will relieve some of the current pressure on the job market - even to the point where Germany should experience a dearth of qualified workers by 2010 - and it will massively overtax the pay-as-you-go, transfer-based social security system, mainly the health and pension insurance schemes.
To some extent, the problem has played a limited role through the main parties’ proposals on health insurance reform. Yet never in the foreground, which is partly explained by the huge sensitivities surrounding any reform of the welfare state that could result in benefit cuts.
To be fair, however, it is true that Germany has formidable growth, domestic demand, and unemployment deficits that are not related to the demographic situation and must be solved as a priority.
What impact would Angela Merkel’s election have upon those issues which may come into conflict with the ‘Christian’ part of her party’s name, e.g gay rights and abortion? Or would Ms Merkel keep her religion and her politics separate?
BB: Abortion and gay rights are hardly controversial topics any more, even in the CDU. This is one legacy of seven years of rule by a government made up largely of the children of the 68 revolution. Laurenz Meier, a former CDU general secretary, told me last month that the deeply Catholic core of the party’s support base now represented no more than 15 per cent of its electorate.
That Ms Merkel, a female east-German protestant childless divorcee is heading the party and has called for a coalition with the liberal FDP, whose chairman, Guido Westerwelle, is openly gay, is a testament to this transformation.
As far as EU Negotiations with Turkey are concerned, can you explain what Dr. Merkel means by the ‘priviliged partnership’ between EU and Turkey? What is her motivation by offering this idea?
Ali Davut Kaymaker, London
BB: The privileged partnership would be a beefed-up version of the relationship Turkey already enjoys with the EU. It would mainly 1) extend existing trade agreements to all categories of goods now circulating freely in the EU, 2) boost cooperation in the fields of civil society, environment protection, the promotion of small businesses, healthcare, and education, 3) allow Turkey to participate in some aspects of the EU’s common defence and foreign policy, 4) and bind Turkey more closely to EU in its efforts to fight terrorism and organised crime.
What the partnership would not do, however, and this is crucial, is give Turkey any say in how these policies are formulated and adopted in Brussels, or anything close to the share of the EU’s regional budget it would be entitled to as a member.
Merkel’s main motivation is the fear that Turkey, with its 70m people, would tip the demographic balance of the EU, giving it a huge portion of voting rights, and that, with its deep development differentials, it would draw an unbearable share of the EU’s aid budget to itself.
There are no doubt misgivings among CDU (and not a few SPD) voters about embracing such a large Muslim country and about a potential rise in competition from cheap Turkish labour. But there is a genuine concern, too, that Turkey might in fact never enter the EU – if only because its accession will be conditional on ratification through a referendum in France, whose voters massively reject the idea – and would be left out if the privileged partnership were not included as an alternative to full membership in the accession negotiations.
After the fall of the Wall, eastern Germans were roundly patronised by the west as their economy “took the medecine”. In the shape of Mrs Merkel, is there any sense that the east is now about to take its revenge?
M Loughlin, London
BB: Most definitely not. Ms Merkel has painted herself very clearly as an all-German politician and she is no longer being seen as an easterner in the east. This was a necessary transformation, if only because eastern Germany weighs relatively little in electoral terms – its population is smaller than that of the state of North Rhine-Westphalia. Though it is true that east Germans can make you lose an election, they cannot make you win one.
Having said that, Ms Merkel has often pointed to the flexibility and efficiency of the east-German economy – lower wages, lower union membership, lower participation of companies in sector-wide wage agreements, longer working time, higher mobility of workers – as an example for the west.
But as long as it struggles with unemployment rates twice as high as in the west, and which can reach 30 per cent in some regions, the east will not be in a position to “take its revenge” on anyone. If anything, easterners could make life more difficult for Ms Merkel by voting massively for the neo-Communist Left Party, which opinion polls suggest they will do.
The fear abroad after German unification was that Germany would become too powerful. From your travels, and your time in Germany especially during the election campaign, would you say such thoughts are all a thing of the past?
Jose Balderrama, New York
BB: It certainly seems to me, not only from my travels through Germany but also from my conversations with the sceptics of yesterday (i.e. mainly French and British politicians) that such fears are now pointing in the opposite direction.
The dominant concern is that Germany has become too weak, economically, and that this is not only affecting its traditional role as the EU’s economic engine, but also becoming visible in its foreign policy - see its refusal to increase payments into the EU budget, its enthusiastic embrace of Russia and China as promising markets, and its brinksmanship on the stability pact.
Some economists, such as Joachim Fels at Morgan Stanley, fear Germany’s fiscal indiscipline could even undermine the euro. The fear of an overly powerful Germany has given way to the fear of an economically depressed and politically unstable Germany.
According to the Leipziger Volkszeitung, Ms Merkel wants to do everything she can to prevent a grand coalition. Does she have the right to do this if this is what the voters want? What outcome would be best for the reform process in Germany?
Katie Reid, London
BB: Three weeks ago, one of Merkel’s closest aides told me the grand coalition would be the last thing the party would go for in the event of a hung parliament. It would first attempt to form a three-way cabinet with the liberals and the Greens, and if that failed, it would seek a rerun of the election.
The latter would work as follows: Assuming the CDU did end as the largest party in the house but without enough seats to govern with the liberals, Merkel would be elected chancellor after three rounds of votes in parliament with just a relative (as opposed to an absolute) majority. She would then form a minority government and ask the question of confidence, which she would fail to secure as it would require an absolute majority. The president, whom we should remember is a CDU member, would then dissolve parliament a second time.
To me, this is just hot air. A new vote would stretch the patience of the voters so far that any party openly supporting it would be sorely punished. A three-way coalition of CDU, FDP and Greens would seem more plausible, and I would not be surprised if the CDU explored it before it talked to the SPD. But I doubt the Greens would agree to play ball with the FDP (which makes a “traffic-light” coalition of SPD, FDP and Greens equally unlikely).
In the end, a hung parliament would almost certainly mean a grand coalition. And there is no doubt that it would yield a compromise of economic reforms, albeit one that would be far less ambitious than the CDU’s manifesto.
How can we anticipate the impact of reforms in Germany, in the event of: 1. Grand coalition; 2. CDU/CSU/FDP; 3. (and then with and without Merz influence on Kirchhof); 4. Continuity
Iain Osborne, Amsterdam
BB: The grand coalition would deliver a compromise on reforms. For instance, CDU and SPD should be able to agree on a relatively far-reaching reform of the tax system. They might agree to liberalise some parts of the economy (the infamous shopping-hours restrictions might finally be lifted). They should also be able to agree on boosting investments in research and development, though perhaps not on how to finance them.
They would, however, fight tooth-and-nail on labour market reform. Furthermore, a grand coalition would have a lot more trouble pushing its bills through the Bundesrat, parliament’s upper house, than a conservative-liberal government.
CDU/CSU-FDP would be the most reformist constellation, as it would be able to implement Ms Merkel ’s manifesto, possibly even going beyond it in some areas under the influence of the FDP. It would also enjoy an overwhelming majority in the Bundesrat.
The question of Merz versus Kirchhof is less material. Merz would enjoy stronger support than Kirchhof in the CDU parliamentary group and more respect among his cabinet colleagues, which might allow him to go further in cleaning up the budget. But he would not enjoy as much support from the chancellor, which any finance minister needs if he is to succeed in his budget battles with cabinet colleagues. Many CDU officials, however, believe Kirchhof, by running a lone-wolf campaign, has already forfeited his chance to become finance minister.
It seems to me that almost anything could happen on Sunday. Could you foresee a coalition between the liberals (FDP), the Green party and this new left party?
BB: The combination of yellow (FDP), Green and deep red (Left Party) is as likely to happen as it is appealing to the eye, aesthetically. In other words, not very. There is no doubt, though, that a cabinet that would include Oskar Lafontaine, the left-party’s champagne-socialist co-leader, Gregor Gysi, his east-German neo-Communist alter ego, Joschka Fischer, the reconstructed street-fighting taxi driver, and Guido Westerwelle, the clean-cut pro-business liberal, would be highly explosive, colourful, and therefore appealing from a journalistic point of view.
Do you think the euro’s recent weakening against the dollar could be associated with the risk (perceived by the market) that the German elections will not deliver the CDU-led coalition a sufficient majority?
Luca Battaglini, Rome
BB: I do not think so. To me, the German stock market is a more credible proxy for the attitude of investors towards the election than the currency market. And German stocks have been performing remarkably well lately, even if the DAX index has struggled to stay above the 5,000 mark.
Frankfurt bankers tell me investors are holding their breaths at present, but they think a lot of money - and not just via the stock market but also through direct investment, mainly by private equity investors - has gone into Germany in the past half year in the expectation of a change of government. If this is the case, a hung parliament would risk triggering an outflow. Which is why the largest proportion of very nervous people in Germany can now be found in Frankfurt.
This week’s Spiegel reported that Paul Kirchhof does not want a pure flat tax. Has the media oversimplified Mr Kirchhof’s tax ideas?
Christian Spielmann, Birkbeck College, London
BB: There has been a degree of simplification in the way Mr Kirchhof’s model has been presented, but much of it seems legitimate to me. I would call his blueprint a flat-tax model with a progressive social safety net. In essence, anyone earning more than €20,000 a year – the overwhelming share of those who hold a steady full-time job – would be subject to a single 25 per cent rate of tax, to be levied on all income above that level. In that sense, the model really is a flat-tax one.
Below that, it gets more complicated: Any income under €8,000 would be tax-free, and earnings between €8,000 and €20,000 would be taxed in two steps of 15 and 20 per cent. Families with children would be less heavily burdened than under the current system, and the federal corporate tax would be integrated into the system. Mr Kirchhof, a former constitutional judge and a lecturer at Heidelberg University, is an academic and he has come up with a very clean, harmonious and symmetrical model, which would also do away with the myriad exemptions and loopholes that now clutter Germany’s Byzantine tax system.
Whether it is realistic is another question, whose answers lies mainly in how much it would cost the public coffers to implement. Estimates on this vary wildly and Mr Kirchhof himself has not been able to come up with a clear answer.
As you have said, this election has been more focused on domestic policy, as opposed to the previously centre-stage external issues, e.g. Iraq. But will the result of this election have a noticeable impact on Germany’s foreign policy and its role within the international community?
BB: Yes, to an extent, but the fundamentals will remain stable. Ms Merkel will certainly try to engineer a rapprochement with the US, but she will not be able to commit troops for Iraq.
Her views on other US-German bones of contention - climate change, the war on terror, the UN - are not expected to diverge too radically from those of Schröder’s. If anything, her categorical ”no” to Turkey entering the EU could cause tension with Washington.
Germany’s relationship to Russia will not be as warm as it had become under Mr Schröder. But with Germany relying on Russia for 35 per cent of its oil and 40 per cent of its gas, she cannot afford to close the door either. It’s the same thing regarding the EU. Ms Merkel will be more respectful of smaller member states than her predecessor and less exclusive in her relationship with France, but Germany’s depleted state coffers mean a return to the profligate EU policy of Helmut Kohl, when the country could generally be relied on to act as the last-resort financier of European integration, is inconceivable.
And while Ms Merkel will not pursue a permanent seat on the UN Security Council with the same aggressiveness as Mr Schröder, she will continue to commit considerable amounts of troops to peace-keeping missions abroad.
Every year, international ship owners and marine container owners buy several billion dollars worth of ships/containers using German based KG companies. The ships/containers are largely built in China, Korea and Japan. German private individuals provide the capital to buy these ships/containers by investing in a share of the assets so that they can claim back income tax against the depreciation of the assets. Containers for example are depreciated over six years. There is no apparent benefit to Germany at all - the manufacturing takes place overseas, the assets are used in international trade, management companies are small and not very profitable. The German government appears to be giving away vastly more in tax rebates to the investors with little benefit to the German economy. What is the likelihood of the next government changing the tax laws to stop this practice?
What is the likelihood of the next government changing the tax laws to stop this practice?
Mark Bennett, senior vice president, Triton Container International
BB: The likelihood is very high, not least because this is one of very few topics where SPD and CDU agree. As you say, such funds have essentially been used by high-earners to legally evade income tax. And this is not limited to shipbuilding but extends to film production, wind parks, and aircraft manufacturing. Under a CDU-FDP, the possibility to claim back income tax from the depreciation of assets held in such funds will disappear on January 1st, 2006. Altogether, the CDU estimates it will raise an additional 3bn euro in tax revenue out of the abolition. The SPD has been less precise but is also believed to be considering scrapping such schemes.
I understand that the vote in Dresden has been delayed until Oct 2. Is this true and what impact will this have on the election for chancellor? I am wondering if Dresden is considered to be strongly towards either party. Also, I believe the polls close at 6pm Berlin time. How soon after the polls close are results expected? Are there armies of reporters collecting exit poll data that will be released immediately? And what time are the “official” preliminary results due out.
Also, with regards to the voting process, is the election an electronic vote so that the official results are known much sooner than some of our US elections?
BB: Dresden’s constituency number 1, which represents roughly 200,000 voters, will indeed vote on October 2. The reason lies in the death of Kerstin Lorenz, the candidate for the neo-Nazi NPD, last week. Whereas, for instance, Bavarian electoral law would in such a case still hold the vote on September 18, retaining the name of the deceased candidate on the voting bulletins, the state of Saxony requires that a new candidate be nominated and new bulletins printed. This delay will only affect the outcome of the election if the result from the other constituencies is tight enough for Dresden 1 to play a decisive role. It is not inconceivable.
Remember that Mr Schröder’s red-green coalition was re-elected on 2002 with a majority of votes that was far smaller than 200,000. This time, however, it would probably play in favour of the CDU, which currently leads in Dresden 1, followed by the Left Party’s candidate. Luckily, the constitutional court ruled this week that the Dresden problem should not be allowed to delay the publication of an official result from the remaining constituencies in the night to September 19.
As for your other questions, yes, exit polls will be available on television from 6pm, to be followed by partial vote counts throughout the evening. But no electronic vote yet in the land of lederhosen, I’m afraid.