Batuk Gathani

Brussels, Sept. 19

THE general election result culminating into a "hung parliament" has triggered deep economic uncertainty in Germany. It is obvious that the new German coalition administration whatever shape and form it takes will be "seriously handicapped" to initiate much needed key economic reforms.

Germany is still the world's third largest global economy and by 2007, it will be overtaken by China. Today, after the US and Japan, Germany is Europe's largest "locomotive" economy. The more pessimistic perception is that it is also a sick economy, which is desperately crying out for major economic and fiscal reforms. The Schroeder administration's "lacklustre" performance for the last two terms has further compounded the current certainty highlighted by high reemployment "nearing five million" and poor economic growth prospects (less than 1.4 per cent by the year-end.) The International Monetary Fund only expects 0.8 per cent growth this year and does see not the dark cloud lifting next year. It submitted that whoever wins the election, economic growth in Germany may not exceed 1.2 per cent.

Hence, the unsavoury prospects of a hung parliament further complicate the German economic issue, as Berlin has become a scene of intense inter-party lobbying. It is even tempting to suggest that after a period of "deep political infighting" and economic uncertainty, Germany could be heading for another general election. German observers have also concluded that whoever inches ahead The Chancellor, Mr Gerhard Schroeder, or the Opposition leader, Ms Angela Merkel Germany is a loser. The ensuing economic and political inertia in Germany could have wider implication for pan-European economies and even the global economic environment may deteriorate.

The German business is today seriously worried about global competition from the emerging Asian economic giants. Although Germany has so far maintained its traditional high export profile, many Germans also feel that the country needs to cut it production and wage costs. In the auto manufacturing sector, a skilled German worker is today costing 33 euros per hour compared to 28 euros in the US and Japan and 23 euros in the UK and France. With its technology and the production skills of workers, Germany still manages to manufacture highly competitive products. However, the German cost structure is handicapped by a high level of welfare contributions and Germany currently ranks as Europe's leading social and economic welfare state. Even if a `grand' coalition emerges from Monday's hung parliament, it would not be `grand' in any other respect because the political parties disagree on almost everything. But a great deal in tomorrow's Germany will depend on who leads the Government in Berlin. The Angela Merkel administration will be more pro-west and pro-US, while the Schroeder administration, if it manages to form the government, will be more pan-European and reform-oriented.

(This article was published in the Business Line print edition dated September 20, 2005)
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