The Globe and Mail Tuesday, June 10, 1997
Budget crisis grips German government
Kohl urged to step down as coalition
backing his government near collapse
By Alan Freeman
European Bureau
The three-party coalition supporting the government of German Chancellor
Helmut Kohl appears close to collapse over its inability to agree on how to fill
a hole of 20 billion marks in this year's budget.
A split would prompt an early election. Germans are not scheduled to go to the
polls until the fall of 1998.
"I think the situation has never been as serious as it is right now," said Jens van
Scherpenberg, senior research fellow at the Stiftung Wissenschaft und Politik,
a leading German think tank.
Escalating the growing malaise in the centre-right government that has ruled
Germany for 14 years, Helmut Schmidt, Mr. Kohl's influential predecessor as
chancellor, yesterday called on Mr. Kohl and his finance minister, Theo
Waigel, to resign because of fiscal mismanagement.
"The only thing left to do is to make room for people with new ideas," Mr.
Schmidt, a Social Democrat, told German television.
Mr. Kohl threatened to quit several times in the past week over the budget
crisis, newspapers here reported.
Mr. Kohl's credibility has been severely bruised after an awkward effort last
week by his finance minister to use a revaluation of the country's gold reserves
to fill the budget gap.
The government was forced to retreat from the effort after the Bundesbank,
Germany's central bank, and several of the government's critics attacked the
measure as an accounting trick.
Mr. van Scherpenberg noted that although Mr. Kohl has been under fire in the
past, this time the problems are more profound.
In previous crises, Mr. Kohl was frequently criticized by the news media and
the intelligentsia, but he found backing with the public, a situation that has
changed.
"I think he's out of tune with the man in the street, and that is different from
earlier times," said Mr. van Scherpenberg, who thinks that many Christian
Democrats now believe Mr. Kohl will be a liability in next year's election, when
he will try for a fifth term as chancellor.
Germany's weak economy doesn't help matters. The latest jobless statistics
show that the seasonally adjusted unemployment rate jumped to 11.4 per cent
in May from 11.2 per cent in April. More than 4.3 million Germans are out of
work.
The increase in unemployment not only hurts Mr. Kohl politically, it deepens
his government's fiscal problems by forcing a rise in spending on jobless
benefits.
All of this makes it even more difficult for Germany to meet the Maastricht
Treaty rules required for membership in the proposed European single
currency, known as the euro. The rules stipulate that nations wishing to join
may have deficits of no more than 3 per cent of gross domestic product.
The Free Democrats, the smallest of the coalition parties with 6.9 per cent of
the popular vote in the 1994 election, oppose making up the budget shortfall
through any tax increases, including a proposed hike in gasoline taxes.
"Opposition is dangerous, but raising taxes is fatal," said Otto Graf
Lambsdorff, honorary chairman of the Free Democrats. The party's deputy
chairman was quoted as saying that if the government insists on raising any
taxes, "then we'll have to leave."
"It's a real deadlock and a real mess," Mr. van Scherpenberg said. "I can't see
any face-saving way out for anybody unless somebody loses badly, and it will
be the FDP if taxes are raised."
The Free Democrats obviously think the public is on their side. Focus, a
German news magazine, carried an opinion survey on the weekend showing
that 81 per cent of Germans oppose higher taxes as a way of bridging the
budget gap.
On the other side of the coalition spectrum is the Christian Social Union, the
Christian Democrats' sister party in Bavaria. This party remains the most
outspoken supporter of the need to maintain the strict requirements of
Maastricht.
The Christian Socialist Premier of Bavaria, Edmund Stoibler, has suggested
that it would preferable to delay the launch of the currency rather than accept a
watering down of the criteria, even though Mr. Kohl has repeatedly refused to
even broach the idea of a delay.
The European Monetary Union is on shaky ground elsewhere, too, as the new
French Socialist government has called for a "period of reflection" on an
agreement designed to punish member countries that exceed budget-deficit
limits.
The demand was seen as weakening prospects for the euro and was blamed for
a decline in prices on European stock exchanges yesterday and for a slide in
the value of the French franc.
Mr. Kohl meets new French Prime Minister Lionel Jospin at one of the
periodic Franco-German summits, scheduled to take place in Poitiers, France,
on Friday.
