Will Schroeder Cure Germany's Economic Ailments?

Although Gerhard Schroeder's election as Germany's Chancellor won't be official until Oct. 14, there's no doubt that the Social Democrat will replace Helmut Kohl, a Christian Democrat who presided over the reunification of Germany during his 16 years in office. Germany's economic future is a question mark, however. The world's third richest industrial economy, after the U.S. and Japan, Germany is saddled with unemployment close to 11% (17% in eastern Germany), a government-run pension system that consumes nearly 11% of gross domestic product, the world's highest corporate taxes, and labor rates running $32 an hour. Schroeder, who as a local politician sat on the board of Volkswagen AG, is well aware of German industry's competitiveness issues. Indeed, he's regarded as somewhat pro-business. But, Germany's Greens Party, which Schroeder wants to bring into his government to strengthen his political base, is not likely to accept sweeping tax and labor-law reforms. And without reforms, Germany's competitiveness (rated No. 24 among countries in a 1998 World Economic Forum survey) could fall further. Under Germany's constitution, negotiations with the Greens could go on for most of the next month.

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