Down to The Wire

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Gerhard Schroder is a survivor. Three years ago, when his Social Democratic Party (SPD) lost six straight local elections because of his government's tight-fisted budget policy, Schröder's future appeared bleak. But along came a slush-fund scandal to tarnish the leadership of the opposition Christian Democratic Union (CDU), giving Schröder an unexpected boost. Only a month ago, the outcome of Germany's Sept. 22 parliamentary elections seemed boringly easy to predict: unemployment had hit 9.6%, and most polls suggested Schröder would lose by a wide margin to his conservative challenger, Edmund Stoiber. But thanks to two sudden crises — a flood disaster and the fear of war against Iraq — Schröder has pulled even with Stoiber. Says Hajo Funke, a political scientist at the Free University of Berlin: "There's a chance now Schröder will make it."

It's still only a chance.Stoiber, premier of Bavaria and candidate of a revitalized CDU and its sister party, the Christian Social Union (CSU), continued to hit the unemployment issue hard as campaigning entered the final stretch last week. But polls showed a real horse race. The Forsa polling institute gave Schröder's SPD 40% of the vote to 38% for Stoiber's CSU/CDU — the first time in this campaign that Schröder has taken the lead, however narrowly. That could mean the outcome of the election might be left to coalition partners such as the Green Party, which now rules with Schröder's government, or the Free Democrats (FDP), who traditionally share power with the conservatives. In the Forsa poll, the Greens had 7%, the FDP 8%.

What seems clear is that the economy, the most important issue until now, will no longer decide the election, which is more good news for Schröder. Luck again presented the beleaguered Chancellor with new issues to turn to his advantage when the two candidates clashed last week in their second televised debate. Schröder, 58, played the cool, articulate crisis manager while Stoiber, 60, slammed the unemployment problem but seemed the less charismatic man. A snap poll conducted right after the debate for ARD television found 61% supporting Schröder, 19% for Stoiber.

Schröder's comeback began in mid-August, when the River Elbe burst its banks, causing the worst central European floods in over a century. Schröder jumped on the crisis early, touring the stricken region by helicopter. His government helped organize work brigades to build sandbag walls in threatened areas. But his savviest political move was to swiftly come up with a reconstruction plan for the region, where damage was estimated at ?15 billion. Schröder offered ?7.1 billion to rebuild devastated parts of Bavaria, Saxony and Saxony Anhalt, then announced that a tax cut set for next year would be delayed for 12 months in order to foot the bill.

To postpone a tax cut in the middle of an election is to break the most basic rule of politics, but it worked — many consensus-driven Germans admired the way Schröder's plan would make the entire country share the cost of repairing the damage. Opinion polls showed his popularity climbing, especially in eastern Germany, where the floods did the most damage. Caught off guard, Stoiber denounced the manipulation of a tax cut to fund reconstruction, but his own suggestion — using profits from the country's central bank, requiring an increase in public debt — seemed to many a weaker alternative.

The Chancellor's second big boost came from the possibility of a war in Iraq. Paradoxically, it was Schröder — and his Foreign Minister Joschka Fischer, a Green — who sent troops to Kosovo in 1999 and Afghanistan last year despite the qualms many Germans had about ordering soldiers abroad for the first time since World War II. Still, Schröder broke not only with the U.S. but also with his partners in the E.U. by ruling out any German involvement in an attack on Iraq, whether or not the action was approved by the U.N. "Under my leadership there will be no German participation in military interventions," he said during the debate. "The decisive question in war and peace is: Will German soldiers take part under your leadership, yes or no?"


Schröder's strong statement appeared to fluster Stoiber. The challenger replied that while he too wanted to avoid war in Iraq, it was wrong of Schröder to damage relations with the U.S. The threat of action, he said, was necessary to force Iraq to readmit weapons inspectors. Schröder's position "is very important because 80% of the German people are against war in Iraq," says pollster Manfred Güllner of Forsa. Quips the Free University's Funke: "Schröder is getting a lot of help from Rumsfeld and Cheney," the U.S. Secretary of Defense and Vice President, who have both called for a pre-emptive strike against Iraq.

Stoiber's strength in the campaign has been the perception that he is a better economic manager than Schröder. In Stoiber's Bavaria, unemployment is an enviable 5.9%, less than two-thirds the national rate. Stoiber has also helped turn the state into a center of high-tech research. And the economy is still a hot issue: the polling firm Electoral Research Group found 76% of Germans to be worried about unemployment.

Stoiber rarely misses a chance to remind voters of Schröder's 1998 pledge to cut the jobless ranks to under 3.5 million. "If we don't manage to reduce the unemployment rate significantly, then we neither deserve to be re-elected nor would we be re-elected," Schröder promised. But joblessness is currently over 4 million, almost as high as when Schröder defeated Helmut Kohl in 1998, largely on the jobless issue. "The Schröder government has failed in the most important task," Stoiber said.

Stoiber wants to revamp the economy by chopping taxes. He proposes to cut the top rate to 40% (from the current 48.5%), reduce the government share of GDP to 40% (from 50%) and hold social contributions to below 40% of wages (from 41%). Stoiber made that "40 times three" proposal early in the campaign but has rarely mentioned it recently because, his election team says, the candidate feels the proposal is too complicated to discuss at campaign rallies.

Stoiber has also assembled what he calls a "competency team" of experts who are like a shadow cabinet that will take office if he wins. Stoiber's choice as his economic guru is Lothar Späth, a former premier of Baden-Württemberg who has spent the last few years as chief executive of Jenoptik, a greatly admired producer of lasers and chip-making technology that is one of eastern Germany's few success stories. Stoiber says he would place Späth at the head of a new "super" ministry that combines economics, labor and aid for eastern Germany.

Schröder is obviously on the defensive concerning economic matters. "That we did not succeed as we had wished had clearly to do with a warped world economy," he claimed, with some justification. He noted that in Stoiber's Bavaria, which is doing well compared to the rest of the nation, unemployment has climbed by 19% in the past year.

Schröder has put a lot of faith into a commission he appointed to find ways of dealing with unemployment. Headed by Volkswagen personnel chief Peter Hartz, the commission suggested turning the country's 181 unemployment offices into one-stop job centers that can place workers in temporary jobs while companies get compensation for creating new ones. "According to employers' organizations, there are 1 to 1.5 million jobs vacant," Schröder said. "We have to retrain the unemployed so they can take up those jobs."

Neither candidate is offering any pioneering solutions for the struggling economy. Schröder has tried government intervention in the market to save jobs, almost always unsuccessfully. Stoiber has said he opposes American-style "hire and fire laws" for Germany, though most economists believe rigidity of the labor market is the country's greatest weakness. Karl-Heinz Nassmacher, a political scientist at the University of Oldenburg, says neither party is talking about the tough steps needed to reform the economy. "First we have no money," Nassmacher said. "Second, if either of them dared to touch the industrial laws, they would face massive protests from the unions. This is true of issues like wage agreements, protection against wrongful dismissal and the difference between wages and unemployment benefits." Wage agreements in Germany are negotiated nationally by industry, instead of being decided at the company level; that latter method could make firms in less developed regions more competitive.

Pollsters argue that the Sept. 22 election may be more of a beauty contest between the candidates than at any time in the past. Even though Schröder's party has trailed the CDU/CSU since the beginning of the year, Schröder has been the more popular politician. In a zdf television poll last week, 59% said they were happy with Schröder while only 34% felt the same way about Stoiber. "It's the first time there has been such a big difference between the Chancellor candidates and the parties," says Forsa's Gullner. Alas for Schröder, the Chancellor is not elected directly but is head of the party that wins the most seats in the 598-member Bundestag.

The two candidates appeal to vastly different constituencies. Schröder, who once served as premier of Lower Saxony, is popular with the largely Protestant industrial workers of northern Germany, while Stoiber appeals to southern voters who tend to be, like him, Roman Catholic. Gullner says people in eastern Germany and women don't much like Stoiber either. A month ago 32% of the electorate was undecided. That's now down to 21%, says Gullner, and the majority of those making up their minds have decided in favor of Schröder.

As a result of the close race between the SPD and the CDU/CSU, the outcome of the election may be decided by how well the smaller parties perform. Though Fischer is the most popular politician in Germany (81% approval), his Green Party has been steadily losing support, in part because it helped impose a hefty gasoline tax in a nation of car lovers. That could hand the role of kingmaker to the Free Democrats, the liberal party whose platform includes labor-market reform and deep tax cuts. The FDP traditionally shares power with the CDU, but FDP leader Guido Westerwelle vows, "We will not give a blank check to any party before the election, including the CDU." In 1980 another Bavarian candidate, Franz-Josef Strauss, won the most votes in the election but failed to get an absolute majority. The liberals then decided to form a coalition with the SPD. Even so, it's hard to imagine the free market FDP teaming up with the avowedly socialist SPD.

Another wild card is the Party of Democratic Socialism (PDS ), the successor to the East German Communist Party. In part because of Schröder's good showing in eastern states, the PDS may well miss the 5% tally it needs to stay in parliament. "The SPD is taking away the peace issue from us," says PDS parliamentarian Christine Ostrowski. If the PDS doesn't make it, it will be easier for a coalition of parties to win an absolute majority.

Will the economy outweigh such thorny issues as war and floods? It can be dangerous for politicians to underestimate the power of pocketbook, and that may give an edge to Stoiber. But it can be equally wrong to underestimate the ability of Gerhard Schröder, that wily survivor, to ride whatever rising waters he can find.