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  The Race to Do Good Deeds: Economic Crisis Defines German Election

The Race to Do Good Deeds Economic Crisis Defines German Election

By SPIEGEL Staff

Part 2: Third Economic Stimulus Package Expected

Social policy threatens to be another bone of contention. CDU politicians in the state of North Rhine-Westphalia, for example, want to improve benefits for welfare recipients under the Hartz IV program and raise pensions for low-income earners. "We will fight to make sure that these demands are included in the campaign platform," says North Rhine-Westphalia's Labor Minister Karl-Josef Laumann. The economic wing of the CDU/CSU, on the other hand, believes that the resolutions adopted at the 2003 party convention in Leipzig -- an event where the party reaffirmed its conservative roots and offered its support for a number of the Agenda 2010 social reforms Schröder was pushing through -- were not some neoliberal aberration.

Merkel sensed the magnitude of the challenges she will face in the campaign when she met with a handpicked group of CDU/CSU members of parliament for an evening strategy session at the Chancellery in mid-March. Party leader Pofalla proudly explained his concept of a high-speed campaign with little content. But the group didn't share the secretary general's euphoria. Michael Fuchs, a CDU economics expert, voiced his opinion on Pofalla's plan at the end of the meeting. "I will be hard-pressed to win over my voters with this sort of three-day program," Fuchs said heatedly.

This is the real risk for Merkel. The image of an independent chancellor begins to disintegrate the minute the infighting begins within the CDU/CSU. This is why Merkel tries to cover up the cracks running through her party behind hazy campaign rhetoric. She also wants to remain flexible. In times of crisis, spontaneous action becomes more important than ever, and the chancellor wants to be in a position to react to any SPD forays into populism.

The farce surrounding the so-called scrapping premium provided a foretaste last week of where a race to do good deeds can lead in an election campaign -- not into the realm of economic prudence, at any rate.

When the government introduced the program, which provides government subsidies to drivers willing to replace cars that are at least nine years old, in January, Finance Minister Peer Steinbrück wanted to impose strict limits on the plan. He announced that no more than 600,000 applications would be approved. Only last week, Chancellor Merkel and Vice Chancellor Steinmeier agreed to phase out the program in the coming months.

But then the tabloids reported on a wave of protests among car buyers and dealers, and the government gave in. Its decision to continue to pay the full scrapping premium is expected to add between €1.5 billion ($2 billion) and €5 billion ($6.6 billion) to the federal budget and cause substantial distortions in the economy.

In truth, both the CDU/CSU and the SPD desperately want to avoid such a scenario, but the logic of an election campaign waged during a crisis could prompt them to do the opposite of what they believe to be appropriate. In recent months, Merkel and Steinbrück have repeatedly had to defend decisions that they bitterly opposed only a short time earlier.

Thus, despite their energetic denials, there is no longer any question as to whether a third economic stimulus program will be launched during the course of this election year. The only question is when it will happen and how much it will cost.

Staff members at various federal ministries are already drafting new programs to inject additional billions into the economy. If unemployment figures continue to rise, as expected, Labor Minister Olaf Scholz plans to introduce improvements in pay for short-time workers.

Meanwhile, Economics Minister Karl-Theodor zu Guttenberg wants to see tax cuts for businesses approved in the next few months.

"If the forecasts worsen, there will be a third economic stimulus program," says a senior government official. "It's just that it can't be called a stimulus program."

Reported by KERSTIN KULLMANN, ROLAND NELLES, RENÉ PFISTER, CHRISTIAN REIERMANN and MICHAEL SAUGA

Translated from the German by Christopher Sultan.