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Germany’s Fiscal Reform: Big Boost for Business

© Peter Weber

During its last meeting on Friday 14th July the Bundesrat, the chamber of regions, has approved the biggest financial reform in German history. The reform bill was prepared by finance minister Hans Eichel (SPD), while chancellor Gerhard Schröder (SPD) did his best to guarantee its passage in parliament. Facing growing pressure from public opinion, the opposition Christian Democrats led by Edmund Stoiber (CSU) were not able to block the reform in the chamber of regions. Schröder's SPD-Greens coalition has lately realized a whole line of important political successes and is now expected to arrive in pole position at the next general elections in 2002. Their chances will even grow, if the fiscal reform works like expected and the economy takes advantage of the new favorable business conditions.

Bonn's farewell gift

It was the last assembly in the former capital, but surely not the least. For fifty years Bonn has served German democracy for its best, but after the summer pause even the Bundesrat, following most of the ministries, will move to the shiny new capital Berlin. But before returning definitely the tranquil university town almost forgotten by history (if it wasn't for being the birthplace of Ludwig van Beethoven), the modest but efficient administration center on the banks of the Rhine has now done a last important service to German politics: during its last meeting in Bonn the Bundesrat has approved finance minister Hans Eichel's reform bill which will lessen fiscal pressure by 60 billion DM a year.

The passage of the reform was a genuine triumph for Gerhard Schröder's SPD-Greens coalition as well as for German business and industry leaders. Even the labor unions and many other social groups and independent observers saluted the reform with relief or enthusiasm. The losing actors in Schröder's summer feat were instead the opposition Christian Democrats led by the new CDU chairwoman Angela Merkel and the Bavarian prime minister and CSU leader Edmund Stoiber.

The Social Democrats' metamorphosis

In 1996 the Christian Democrats led then by chancellor Helmut Kohl (CDU) and finance minister Theo Waigel (CSU) had put forward a less incisive reform bill, but in that case all plans had been blocked by the Social Democrat majority in the Bundesrat, where SPD leader Oskar Lafontaine opted for unyielding obstructionism in order to conserve welfare benefits for his clientele and let Kohl's coalition appear as completely unable to any kind of reform.

Since then much water has passed down the Rhine and the political constellation has been completely overthrown. In autumn 1998 Gerhard Schröder has won the elections and taken Kohl's place. And after of few months of hesitation his party, freed from Lafontaine's impending ideology, has finally learned something about the benefits of low tax policy and market liberalization. Pushed by their Green coalition partner and dragged by their new finance minister Hans Eichel, the Social Democrats have finally thrown overboard Lafontaine's certainties about the benefits of state intervention and social spending.