Reply #102: Germany: Where “Grand” is not Good

[54anickel]

http://www.forexnews.com/AI/default.asp

On May 22, 2005, Chancellor Schroeder’s SPD party suffered a crushing defeat in North Rhine-Westphalia at the hands of Angela Merkel’s opposition CDU party, ending the SPD’s 39-year reign in Germany’s most populous state and prompting Schroeder to call for early elections. After Schroeder intentionally lost a vote of confidence in the lower house of parliament on July 1, 2005, President Koehler dissolved the Bundestag and new elections were scheduled for September 18, 2005.

Given the fact that the CDU enjoyed more public support than the SPD, Schroeder’s decision to force early elections was seen as a bold political move, designed to catch his opponents off-guard. Until recently, however, this plan seemed to have backfired on the chancellor. Indeed, many small business owners, whose companies account for 50% of Germany’s GDP and 70% of its jobs, were elated at the prospect of a coalition between the CDU and the Free Democratic Party (FDP) as evidenced by the increased optimism found within the Ifo’s expectations index, which posted its third monthly increase to reach a 6-month high in August.

The Mittelstand, as these small enterprises are known, has been the hardest hit by the economic malaise that has gripped Germany (and much of Europe, for that matter) and has been clamoring for the government to implement much-needed economic reforms. However, these reforms have failed to materialize under the stewardship of Chancellor Schroeder and his Red-Green coalition (referring to the respective colors of the SPD and the Green party). With unemployment still near historically high levels at 11.6% and the country mired in economic stagnation, it is not only small business owners that are demanding change.

Apart from his Agenda 2010 – a package of labor reforms and social security changes – Chancellor Schroeder has been unable (or, perhaps, unwilling) to further reform the German social market economy. With its solid grip on the Bundesrat, Germany’s upper house of parliament, a CDU victory on Sunday in the lower house, it is widely believed, would place them in a better position to implement the many reforms they have discussed, which is seen as very positive, not only for Germany, but Europe and its common currency as well.

To reinstate or not to reinstate, that is the question

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