The World from Berlin

It'll Be the Economy, Stupid

The shrinking German economy will pose a new challenge for Germany's grand coalition, which so far has governed in relatively flush times. German commentators generally believe their politicians will fail to meet the challenge -- but will they let down working stiffs, or all of Germany's taxpayers?

The latest lackluster figures on the German economy -- showing a 0.5 percent contraction in the second quarter of 2008 -- have economists furrowing their brows about a recession in Europe by the end of the year. The main dilemma seems to be a sharp rise in energy and food prices, leading to general inflation, which the European Central Bank (ECB) finds itself powerless to fight as long as overall growth is stagnant.

Commentators in German papers on Friday see another problem. It's the first economic shrinkage since 2004, which means the first downturn since Angela Merkel became chancellor in 2005. She leads a so-called grand coalition between left and right -- the center-left Social Democrats (SPD) and conservative Christian Democrats (CDU/CSU), have been ruling together for three years. Commentators agree an economic crisis will hurt the grand coalition -- but the exact nature of the challenge changes with each paper's politics, like patterns in a kaleidoscope.

The stolid, center-right Frankfurter Allgemeine Zeitung writes:

"During the last economic expansion there was too much talk about wealth redistribution and not enough about wealth creation. Large profits were taken for granted, and the criticism of well-earning corporations was trite. In the wake of a strong economy, the Left Party was born and flourished. Now it may even find itself in power with the Social Democrats in Hesse. We can hope that a weaker economy will now sharpen general recognition of (the left's) anti-growth policies, and hinder this (power-sharing) experiment."

The left-wing daily Die Tageszeitung writes:

"The coming economic bust will hit a government in Berlin which may prove incompetent in dealing with economic crises. Even during the boom, when governing was comparatively easy, the grand coalition was a failure. There were no meaningful reforms; the Social Democrats and their conservative partners exhausted themselves in symbolic controversies about, for example, a minimum wage."

"There's now a big danger that ill-considered ideas for reform will be picked up afresh by capital holders. At least it's easy to see that corporations are now positioning themselves to profit as best they can from the coming economic crisis. Employees, on the other hand, are being told that the time has come -- again -- to tighten their belts."

The conservative Die Welt argues:

"The real danger of the current weak phase is that the government may lose its way entirely and lose sight of the ultimate goal -- a balanced budget by 2011. It's worth remembering that the foundation of our exorbitant national deficit (in Germany) rests, among other things, on expensive boom-time programs that have come to nothing."

"If this government wants to help the economy, it must focus on income. Although pay raises will be gobbled up by inflation, the state will nevertheless benefit from the number of people sliding into higher income brackets. This is known as 'cold progression.' Lowering tax rates is therefore long overdue. Lower taxes would then leave citizens with more money -- which in turn would boost the economy."

-- Michael Scott Moore, 3:00 p.m. CET