Black Week For German Chancellor

Gerhard Schröder and his cabinet will breathe a sigh of relief that this week is over. And the German chancellor and his government coalition of Social Democrats and Greens will hope that the weekend offers a little respite.

On Friday at least there was a slight sense of achievement, after the government's first major reform package targeting the labor market was passed in parliament. The reform, based on recommendations by a commission headed by Peter Hartz, a leading Volkswagen manager, aims to streamline employment placement programs in order to offer Germany's 4 million unemployed a job. Other measures are aimed at relaxing rules on temporary work arrangements. The government managed to push the package through the Bundestag by 305 votes to 280.

It has been a turbulent week for the government with revelation upon revelation of bad economic news that has shaken the very foundations of the country. And the government seems to have morphed into a state of paralysis, unable to react to the never-ending saga of Germany's economic woes.

Revenue shortfall

Schröder must have had an inkling of what to expect on Monday, when rumors abounded that the government was facing a massive shortfall in tax revenues for 2002. This would not only affect the federal government, but also the states many of whom are facing severe financial difficulties.

There was little or no sleep for Schröder and his Finance Minister Hans Eichel on Tuesday with the ominous cloud of further bad news hanging over them. In what is now known as Black Wednesday, the floodgates opened and unleashed a torrent of bleak economic data, even worse than anyone had predicted.

The government's independent council of economic advisers, the so-called five wise men, informed Schröder that Germany would register little or no growth for this year and predicted an almost negligible increase for 2003. Germany, they said, was heading for recession in the first half of next year. Their remedy: a fundamental overhaul of the rigid labor market and painful reforms to the expensive social security system.

Snub from Brussels

Schröder and his cabinet were still reeling from the impact, when the EU Commission piled on even more agony. Brussels announced that it was initiating its so-called excessive deficit procedure against Germany, a formal warning over its budget deficit.

Ironically, it was Germany, along with France, that had vehemently advocated strict adherence to the rules laid out by the Stability and Growth Pact, which sets a deficit limit of 3 percent of gross domestic product. Conservative estimates put Germany's figure at 3.7 percent for 2002, with little improvement expected next year.

Schröder and Eichel put on brave faces, saying they had no qualms with the Commission's decision, yet inwardly they must have been seething at the snub from Brussels.

Reactions poured in fast and furious. The opposition center-right parties called for Eichel's resignation and declared the government to be economically incompetent. The country's business elite declared that over the next 12 months Germany would become ever more unattractive to investors. The government's policies, they said uniformly, were ruinous.

Popularity at record low

If Schröder was expecting some sort of respite on Friday, he was wrong. The monthly Politbarometer opinion poll found that the chancellor's popularity in the eight weeks since re-election had plummeted to a record post-war low.

Support for his Social Democratic Party (SPD) dropped to 34 percent from the 38.5 percent it won in September. The opposition, meanwhile, has jumped from 38.5 percent to 44 percent. In another survey on the political mood in the country, the SPD dropped to 26 percent, down 10 points from October and 20 from September.

Asked why support for the government had fallen more dramatically than at any other time since World War II, the SPD' s general secretary Olaf Scholz said: "No one can expect applause to break out when a government has to make difficult decisions like this that cause pain."

And it looks like the painful times for Schröder have only just begun.