The Hindu : 'Schroeder Govt. incompetent'

Online edition of India's National Newspaper
Friday, Nov 15, 2002

International

International

'Schroeder Govt. incompetent'

By Batuk Gathani

Brussels Nov. 14 . There is growing unease in Europe over the health of the German economy, which last night appeared to be on the brink of a second recession within less than a year.

The Chancellor, Gerhard Schroeder's regime is looking fragile just two months after its paper-thin electoral victory.

The narrowly beaten Opposition Christian Democrats on Tuesday called Mr. Schroeder `incompetent'.

With rising unemployment, poor corporate profits and in many cases embarrassing trading losses, coupled with stagnant investments, the European continent's economic powerhouse is today mired in a worsening economic crises.

All this threatens to stymie economic growth throughout the Euro zone region.

A European central bank official today complained that the economic growth in the `Euro zone' region was `unsatisfactory'.

The German unemployment rate surged by 22,000 in October taking the German jobless rate to 9.9 per cent mark — which is rated as a record post-war high.

The German banks are seen making provisions for huge losses and their asset and share values have fallen at a record low level.

Such grim assessments could signal a cut in interest rate by the European Central Bank this week. Similar sentiments may be reflected in autumn economic forecasts by the European Commission to be published tomorrow.

The grim conclusion reached on both sides of the Atlantic is that the economic recovery in the U.S. and the E.U. is still desperately struggling to gain momentum.

According to Wolfgang Franz, president of Germany's most prominent think tank The ZEW Institute — current figures indicated that the economy would "nosedive in the first half of 2003''.

The common European perception indicates that the big drop in business confidence and sentiment was driven by global political uncertainty.

The German government's current economic strategy has not inspired much confidence and the ECB has declined to drop interest rate to match the Federal Reserve's record low interest rates across the Atlantic.

It is argued that very low level of economic growth — less than a quarter per cent — in the Euro Zone region is `unsatisfactory'.

The Schroeder Government has announced big tax increases and spending cuts in a bid to narrow budget deficit and last night said it would also reform the welfare system.

Germans are currently paying more than 20 per cent of their wages for social security and German labour costs rank among the highest in the world.

This week Germany's squabbling Social Democrats and Greens tried to patch up differences on controversial increases in state pension contributions and the strategy is to reduce non-wage labour costs.

This year Germany has indulged in a bout of extra borrowing to plug Germany's budget deficit gap, which is well above three per cent of gross domestic ceiling, set out under the rules of Europe's common currency.

The widening deficit will lead to a reprimand from the European Commission later this week.

Speaking at the Opposition Christian Democrats first post-election rally in Hanover, Angela Merkel, CDU Chairperson said the Chancellor's strategy consisted of resolving only "short-term crises management'' and that he lacked both "direction and competence'' in tackling the grim problems.

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