Wednesday, 31 October 2007

Teutonic seismology

Germany's Social Democrats voted at their party congress last week to begin dismantling the Agenda 2010 structural reforms, pro-market measures which they themselves introduced under Chancellor Gerhard Schr√∂der back in 2003. With proposals to lengthen unemployment benefit for workers over 50; for a national minimum wage; and to halt the partial privatisation of Deutsche Bahn, the congress marked a victory for Party Chairman Kurt Beck over his more reform-minded predecessor-but-one Franz M√ľntefering, and a decisive leftward shift in the SPD's market orientation. Their partners in government, Chancellor Angela Merkel's Christian Democrats, seem unperturbed by this leftwards drift. The death of pro-market policy in Germany? Perhaps for the lifetime of the current government. But the medium term prospects for further reform have if anything received a fillip from the events of the past week.

The explanation for the SPD's about turn is the rise of the Left party, a motley assortment of former Communists and SPD dissidents which broke onto the national scene in 2005, taking 8.7% of the vote at the Federal elections. Faced with this potentially existential threat, the SPD had two choices: remain the reformist party with a social conscience, or retreat and attempt to fight the Left Party on what has come to be its own ground.

Continuing to back their own reforms, which despite creating an estimated 350000 jobs since 2003 remain highly unpopular for eroding a long cherished social safety-net, would risk further desertion from SPD ranks. Abandoning the centre ground to the conservatives, however, carries its own dangers. Angela Merkel is in no hurry to make the case for further reform. She can pick and choose what her party deems the least pernicious and most popular measures from the SPD programme, and define the Christian Democrats as the moderate centrist party of government, in contrast to the intensifying fraternal struggle to their left. This in turn, however, creates political space for the perennially pro-market Free Democrats, who will look to build on the 9.8% share they took in 2005 by picking up the support of former conservative and social democrat voters disillusioned by the backtracking on Agenda 2010. As the SPD scraps it out for the same left-of-centre vote as the Left Party and the Greens, the ever more likely outcome of the next federal election is a victory for the CDU-CSU with the FDP by their side. By shifting leftward, the SPD may well have strengthened the prospects for the furtherance of the reforms they are currently attempting to scale back.

The danger for reformers is that Angela Merkel will draw the wrong lesson from the 2005 elections, when a reformist programme failed to carry her party to outright victory, and thus follow the SPD in a populist leftward drift. The case for the success of Agenda 2010 in a booming economy can and should be successfully made; if not now, when bound by the constraints of a "grand coalition", then in the run up to the next election. SPD maneuverings leave the CDU-CSU easy favourites to secure victory whenever it comes. The onus will be on them, this time, to also secure a mandate for further reform.