03/07/2003 14:27
When the Social Democratic Party narrowly won Germany's recent general election, all the attention focused on Chancellor Gerhard Schroder's opposition to a war in Iraq. But the debate about Germany's position on the war quickly faded as the government was forced to come to grips with a deeper problem: how to liberate the economy from its regulatory straitjacket to restore growth.
Persistent weak growth in the world's third-largest economy will always be a problem for Europe, but at a time when the US is struggling to revive its economy, Germany's performance is also critical to the world.
Last weekend's decision by Mr Schroder to bring forward tax cuts capped a week of action in Germany that raised hopes that one of the world's richest and most comfortable societies is prepared to endure short-term pain to regain its economic powerhouse status.
The government has fiercely resisted unreasonable pay claims by car workers and European Union pressure for a tighter budget. It has won opposition support for a shake-up in the world's third most expensive health-care system, and surprisingly strong public support for widespread change in areas such as shop trading hours, the pension system and labour regulation.
Mr Schroder's tax cuts are a two-edged sword. The world should benefit from a more expansionist stance expected to be unveiled in this week's 2004 budget. But tax cuts funded by a larger budget deficit shouldn't be allowed to divert the government from grasping the chance to implement less-palatable long-term reforms that have been on hold since the fall of the Berlin Wall.
The EU's pressure on Germany to keep its budget deficit within the 3 per cent of gross domestic product allowed under euro zone fiscal stability rules is counterproductive when the world needs growth leadership from Germany.
But the EU's argument that Germany needs to do more to lift investor and consumer confidence is valid.
Tax cuts should work in the short term, but Germany will be letting down its citizens and those of the wider world if it does not capitalise on the public mood to entrench long-term structural changes.
Persistent weak growth in the world's third-largest economy will always be a problem for Europe, but at a time when the US is struggling to revive its economy, Germany's performance is also critical to the world.
Last weekend's decision by Mr Schroder to bring forward tax cuts capped a week of action in Germany that raised hopes that one of the world's richest and most comfortable societies is prepared to endure short-term pain to regain its economic powerhouse status.
The government has fiercely resisted unreasonable pay claims by car workers and European Union pressure for a tighter budget. It has won opposition support for a shake-up in the world's third most expensive health-care system, and surprisingly strong public support for widespread change in areas such as shop trading hours, the pension system and labour regulation.
Mr Schroder's tax cuts are a two-edged sword. The world should benefit from a more expansionist stance expected to be unveiled in this week's 2004 budget. But tax cuts funded by a larger budget deficit shouldn't be allowed to divert the government from grasping the chance to implement less-palatable long-term reforms that have been on hold since the fall of the Berlin Wall.
The EU's pressure on Germany to keep its budget deficit within the 3 per cent of gross domestic product allowed under euro zone fiscal stability rules is counterproductive when the world needs growth leadership from Germany.
But the EU's argument that Germany needs to do more to lift investor and consumer confidence is valid.
Tax cuts should work in the short term, but Germany will be letting down its citizens and those of the wider world if it does not capitalise on the public mood to entrench long-term structural changes.
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