He probably glimpsed it coming. Twenty-two of Germany's leading corporate heads sent an open letter last week to German Chancellor Gerhard Schrder, accusing his government of worsening the economic climate so much that new investments were becoming increasingly unlikely. Indeed, some might begin looking for overseas possibilities.
Many of these executives had supported Mr. Schrder in his climb to leadership of Germany. So what soured so quickly? To free up the economy, Schrder must have sufficient center-left support to pass needed legislation. So far, he has not been able to assemble the necessary political matrix combining ideological, generational, and regional elements.
The ideological battle pits Schrder, who is friendly to free markets, against his finance minister, who pushes strong Keynesian policies. The chancellor's Social Democratic Party is split along these lines. This is a major reason why he can't get legislation passed to liberalize the economy.
Another factor hampering Schrder: To have a ruling party, he must have the Greens party on board. That's particularly difficult, because the leadership of the small Greens party wants to pursue its own objectives without having its interests trampled on by its larger ruling partner. So over the past few months, Social Democrats have had to spend time putting out political brush fires set by their Green colleagues, who have been pushing an aggressive energy tax, unilateral German withdrawal from NATO, and a rapid shutdown of atomic power plants.
Bonn's intragovernmental squabbling has irritated voters. In the state election last month in Hesse, the sitting Social Democratic government favored to win reelection was thrown out of office. Yet the economy in Hesse is humming, with unemployment some four percentage points lower than the national average.
So why the loss? Polls indicate voters used the occasion to express their disapproval of events in Bonn, particularly of the Greens. The Greens lost almost one out of five supporters in their core clientele - urban voters under 40 - in Hesse.
This exposes a major generational gap in German politics that Schrder must bridge if he is to rein in the state role in the economy. The young voters in Hesse left the statist Greens party run by senior leaders whose political ideals were formed in the late 1960s. Unlike their elders, young voters in Western Germany are not motivated by a political agenda of state control of the economy that condemns a neoliberal agenda.
This gap reaches all the way to the top in Bonn. Young members of parliament from the Greens and Social Democrats convene informally on Tuesdays over pizza to discuss their generational, common neoliberal ideas. Schrder has more in common with these young lawmakers than with his own peers. Yet these younger MPs, like younger leaders around the world, are relatively powerless to set party agendas.
Beyond ideology and generational conflicts, regional conflicts complicate Schrder's efforts. The Greens party is nonexistent in eastern Germany. Its message of dismantling the dirty industrial economy does not sit kindly with voters facing 20 percent unemployment rates.
The dominant political voice in the east is the Party of Democratic Socialism (PDS), the former Communist Party that once ruled East Germany. The PDS argues that the state should play a central role in the economy. Votes in the east were key to Schrder's rise to power. If he wants to win again in 2002, he must address the wishes of that region. That includes a clear state role in making sure unemployment does not continue to rise.
Without the willingness by German firms of various sizes to invest and create new jobs, Schrder cannot hold his central campaign promise to significantly reduce unemployment. To get the support of business leaders, he must show that he can do more than simply talk about reducing the state role in the economy.
Thus the key challenge for Schrder is to put together an ideological, generational, and regional political coalition. It will determine the success of his administration.
*Crister S. Garrett is a professor of international politics at the Monterey Institute of International Studies in California. He was a Fulbright scholar in Leipzig, Germany, last year.