THE RACE TO DO GOOD DEEDS

Economic Crisis Defines German Election

By SPIEGEL Staff

04/16/2009 05:21 PM

Germany's Social Democrats will launch their election campaign Sunday. By steering to the left and attacking Angela Merkel, the party wants to score big with voters. Its strategy will also force the conservatives to inch leftward. In the midst of a global downturn in which stimulus is the buzzword of the day, economic prudence could take a backseat.

DDP

A woman holds up playing cards with caricatures of German Chancellor Angela Merkel and her opponent in this year's election, Foreign Minister Frank-Walther Steinmeier.

On Sunday, Germany's center-left Social Democratic Party plans to announce its manifesto for its campaign in the run-up to the country's Sept. 27 national election. Aides of the party's chancellor candidate, Frank-Walter Steinmeier, expect the foreign minister and deputy chancellor to "give a major speech." Like a boxer in the ring, Steinmeier will be standing alone in the middle of a ballroom, surrounded by 2,000 cheering guests, in a scene reminiscent of American presidential campaigns. His campaign managers apparently hope that some of the energy surrounding the 2008 campaign of US President Barack Obama will rub off on Steinmeier.

For the SPD, the kick-off of the campaign is truly a reason to celebrate, notwithstanding its poor standing in the polls. Social Democrats love election campaigns, which they perceive as the highlight of party life. Infighting between the party's two wings has been temporarily laid to rest, as party members come together behind a common purpose.

The conservative Christian Democratic Party (CDU) and its sister party -- the Bavaria's Christian Social Union (CSU), which is also part of Merkel's power-sharing grand coalition government with the SPD -- take a more anxious approach to election campaigns, which they could just as well do without. The conservatives assume that they hold sway over a natural majority within the population, but they see campaigns as a threat rather than an opportunity to expand this perceived majority -- this year in particular.

The SPD's event at the Tempodrom will be the official prelude to a duel that strategists describe as the biggest adventure in German election history. A campaign held during a crisis is a novelty for Germans -- it's a situation they have not experienced yet. The two major parties are currently assembling their platforms for a race that will be fought against the background of a shrinking economy. Never before have two candidates for the chancellorship entered the campaign under such grim economic conditions. The German economy has been in free fall for months. Many jobs have not been cut yet because employers have been able to resort to short-time work as a temporary fix. Nevertheless, unemployment is expected to grow steadily, heading for a figure of 4 million, as each month leading up the parliamentary election passes.

The economic research institutes that met last Monday to begin preparing for their spring forecasts are not optimistic. It seems inevitable that they will predict a 5 percent contraction in the German economy for this year. Experts at the International Monetary Fund paint a similarly gloomy picture. In the draft version of their World Economic Outlook to be released at the end of April, they also predict that German economic outlook will decline by 5 percent in 2009. This, the report concludes, will lead to drastically higher unemployment and a bigger government deficit.

Under these conditions, the burning question in the upcoming campaign will be whether one of the two major parties can convince voters that it is the right choice to lead Germany out of its doldrums. Another important question is how a campaign waged in the midst of a crisis will change German politics.

Could an economic populism emerge that may even exacerbate the effects of the downturn in Germany? Will the opponents burn through billions, creating a financial burden for generations to come? Or will they pin their hopes on German citizens electing a restrained manager who will not promise them everything under the sun?

"Leadership strength will be the key variable in this election campaign," says Richard Hilmer of polling and market research institute Infratest dimap.

DER SPIEGEL

Graphic: Waning economic competence

On the issue of leadership, polls currently show Merkel edging out her opponent, Vice-Chancellor and Foreign Minister Steinmeier. This is one of the reasons strategists at CDU headquarters had decided to completely tailor the campaign to Merkel. Merkel's advisors are betting on the notion that sitting chancellors do well in times of crisis. They hope that the desire for change will not even be an issue for German voters in such ominous times.

To put a dent in Merkel's reputation, the chancellor candidate and the SPD chairman have agreed to a distribution of roles. While Steinmeier plays the statesman, Müntefering will take every opportunity to question his rival's leadership qualities. "Ms. Merkel doesn't lead," Müntefering likes to say. "She won't even commit herself."

Officials at SPD headquarters are convinced that constant repetition of this characterization of Merkel as a weak chancellor -- like a slow-acting poison -- will in fact force her to take clearer positions early on in the campaign. But this is a dangerous strategy. The notion that "he who denigrates his opponent damages himself" has been a guiding principle in past campaigns, says Michael Spreng, who managed conservative former Bavarian Governor Edmund Stoiber's campaign for the chancellorship in 2002. But in times of crisis, says Spreng, voters do not reward mudslingers. "The negative campaigning of recent years is worthless," he says.

It is already apparent that the election campaign in a time of crisis will shift German politics to the left. When bankers and family-owned companies are receiving billions in taxpayer money to protect them from bankruptcy, it is hard to explain to voters why skilled laborers who have lost their jobs should have to make do with the Hartz IV program, which dramatically reduces jobless benefits for the long-term unemployed. This sense of dissatisfaction already emerged during the Grand Coalition government's previous attempts to handle the crisis with economic stimulus programs, and the trend will only become stronger during the campaign.

The SPD, in particular, is marching steadfastly toward the left. The campaign it will unveil at Berlin's Tempodrom Arena on April 19 is intended to not only reflect the tastes of its own base, but also to capture the zeitgeist.

DDP

Volkswagon employees, like those at most other German carmakers, are worried about losing their jobs. And in an election year, German politicians are spending billions of taxpayer money in stimulus to ensure that they don't.

The cornerstones of the platform are already defined, and they are clearly tailored to the crisis. Party leaders agreed on these basic elements at a strategy meeting in Berlin last week. They want to make it clear to citizens that their votes could mark a "sea change," and that when they go to the polls on Sept. 27, they will be asked to decide on Germany's future direction. According to the SPD's message, if Merkel is elected, it will be business as usual in the market economy. The SPD hopes to characterize her policies as what it calls "attentism," or taking a wait-and-see approach, and "an absence of doctrine."

With the SPD, on the other hand, turbo-capitalism based on the Anglo-Saxon model could be fettered by a "state capable of taking action." Deputy Party Chairwoman Andrea Nahles of the SPD's leftist base sets the tone for the campaign when she says: "The present economic model carries the seed of failure. It isn't enough for Ms. Merkel to engage in a little bit of crisis management. We must make fundamental changes."

The Social Democrats hope that the crisis will act as a contrast agent, clearly highlighting the differences between the CDU/CSU and the SPD. In this vein, they are promising voters that they will eliminate tax havens and impose sharper regulations on the financial markets and tighter controls on executive compensation. They also promise to secure existing jobs and create new ones. This includes advocating for minimum wages, strengthening protections against wrongful dismissal, defending free collective bargaining and, if necessary, supporting government bailouts for ailing companies, like automaker Opel.

The SPD also advocates a top-down redistribution of wealth, including plans to increase taxes for higher income brackets. Another possibility is the introduction of a "millionaire tax" to replace the former wealth tax. In return, classic SPD voters in middle and lower income groups could expect to see their taxes lowered. Other expected campaign issues are equal pay for men and women, as well as education and environmental policy.

The Social Democrats are not losing any sleep over the notion that the government's role must be strengthened, at least temporarily, to combat the recession and the banking crisis. Many in the CDU/CSU, on the other hand, are convinced that laws nationalizing banks or capping executive pay are the precursors to socialism. This is another reason why Merkel and her party are doing their best to avoid laying out their agenda.

CDU party boss Ronald Pofalla is refining a document that will be most strongly characterized by its absence of commitment. It would be best for the CDU/CSU to dispense with a campaign platform this time around, says one of Merkel's advisors. "But we have to be able to hand people some sort of literature at our campaign booths."

The chancellor believes that any clear statements of position would lead to discord, which explains why she has decided to delay unveiling her campaign platform for as long as possible. "Let's hope we get it done by election day," says one CDU/CSU politician facetiously. According to the current plan, the leaders of the CDU and CSU will approve the platform on June 29.

The conservatives are betting that by showing their cards late in the game, they will narrow the window of opportunity for attacks. Besides, within the Union, opinions diverge widely between the CDU and CSU on almost all key issues. If Merkel opposes tax cuts, the CSU will cry foul. And if she advocates cuts, she will face criticism from CDU/CSU state governors, who wield tremendous power within the political bloc.

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.

DPA

Is Germany's internationally touted scrapping premium an expensive farce that is unnecessarily distorting markets?

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.