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Date: Mon, 9 Jun 97 14:24:08 CDT
From: MichaelP <>
Subject: Neoliberal Monetarist Economic Model Wanes in Europe

Strong man of Germany sinks after a bruising week

Kohl and Chirac bow to new socialist order across Europe

By Peter Conradi, London Sunday Times, 8 June 1997


FOR more than a decade he steamed across the European stage, his impressive bulk befitting the colossal influence he enjoyed of an uncrowned emperor without whose assent nothing was possible. After one of the most bruising weeks in his political career, however, Helmut Kohl is beginning to evoke comparisons with the Titanic.

Forced into a humiliating climb-down over his ill-conceived plans to revalue the country's gold reserves, the right-of-centre German leader sees little hope of rescue. Unemployment, which at 4.4m has become the chief of Kohl's woes, soared by another 56,000 to a new record last week, defying all Micawber-like predictions that an economic upturn was around the corner.

With monetary union, if it goes ahead at all, now almost certain to be "fudged," and the new "Maastricht 2" treaty, due to be hammered out in Amsterdam next week, bringing only small steps rather than the large bounds towards a federal European Union which Kohl once dreamed of, his hopes of going down in history as the man who unified not only Germany but also Europe are fading.

The crunch could come this evening at a European finance ministers meeting in Luxembourg at which the expansionist policies of France's new Socialist government will come crashing into the now somewhat hollow-sounding calls by Theo Waigel, Kohl's finance minister, to impose budgetary discipline on his partners.

Kohl is beginning to look like a relic from an earlier age in a Europe whose political map has been dramatically reshaped by the Socialists' victory in France and new Labour's in Britain. The new balance of power was made clear last week as delegates gathered in triumphant mood for the Congress of the Party of European Socialists in a former Saab car factory on the edge of the Swedish port city of Malmo. With centre-left and left-wing parties now in government in the EU everywhere but in Germany and Spain, they have the wind in their sails.

"We should not isolate Kohl, because he is such a great European and the only man capable of persuading the Germans to give up their deutschmark for the euro," said Elio di Rupo, Belgium's socialist deputy prime minister. "But he and Waigel, in particular, must be more modest in the way they treat the rest of us."

Kohl looked tired and drawn on Friday when he welcomed Tony Blair in Bonn after squeezing a long-arranged trip to Washington to meet Bill Clinton into a bruising week which saw his 15-year-old coalition come close to collapse.

It was bound to be an uncomfortable few days for the German leader, desperate to extricate himself from the hole into which Waigel had dug him over his attempt to help Germany meet the conditions to qualify for monetary union. Denounced by the mighty Bundesbank for "creative accounting" and facing a backbench rebellion Kohl, normally head and shoulders above his rivals, knew that for once he had badly judged the popular mood.

Little matter, as one newspaper revealed with glee last week, that the much-vaunted "Rhinegold" at the centre of the dispute has long since left Germany for a vault deep beneath the Federal Reserve bank in New York. Gold is gold and everyone from top economic commentators to Germans in the street were insistent that Kohl and Waigel should not get their hands on it.

The way out, when it came on Tuesday, was described tactfully as a compromise by Hans Tietmeyer, the Bundesbank president, who triggered the gold crisis by coming out openly against the government's plan six days earlier. Waigel was allowed to survive a vote of confidence after a heated debate in which the government was compared to a "herd of dancing elephants in a porcelain shop".

However, by refusing point-blank to allow the government to use billions of pounds from the revaluation of its gold to reduce its deficit from a predicted 3.3% or 3.4% of GDP this year to the 3% required to qualify for monetary union, the central bank has sent Waigel scrambling for his calculator.

Faced with a new threat by his coalition partners to bring down the government if it puts up taxes, Kohl will this week announce cuts in Christmas bonuses for Germany's civil servants as part of an attempt to slice more than 2 billion off the deficit. But it may not be enough.

"There is no light at the end of the tunnel," said Eckhard Shulte, an economist at IBJ, the Frankfurt-based bank. "Spring 1998 is when we will see the first signs of a pick-up."

Meanwhile, calls within Waigel's conservative Bavarian wing of the ruling coalition to get out of the problem simply by putting off the single currency are getting louder. Edmund Stoiber, its leader, last week turned on its head Kohl's oft-repeated characterisation of closer European union as a matter of war and peace, saying: "If people notice in 2005 that they gave up their currencies too quickly, then we will really be able to speak of an explosion in Europe."

Even Kohl's "special relationship" with Clinton, built up over huge shared dinners on both sides of the Atlantic, is not looking quite so special.

"Kohl is no longer Clinton's favourite child", read one headline over the German leader's trip to Washington. "During his visit to America, the chancellor fell under the long shadow of Tony Blair."

While Kohl squirmed, his old rival Oskar Lafontaine, head of the opposition Social Democrats, looked as though he was in heaven several hundreds of miles to the north at the Malmo congress.

Against the backdrop of Sweden's own brand of no-nonsense, modernising "Ikea-socialism", Blair and Lionel Jospin on his first outing abroad since winning last Sunday's elections were treated as heroes.

"We socialists are responsible for what happens in Europe now," declared Jospin, who won a standing ovation. "The conservative tide is on the wane. We must not let Europe be bogged down in an excessive neo-liberal, monetarist model."

For the socialists that means a new focus on fighting unemployment, now running at more than 18m across Europe. Despite the long-running opposition of Kohl, inclusion of a so-called employment chapter in the new Amsterdam treaty looks certain.

Predicting quite what effects such a clause would have in cutting dole queues is more difficult. In speeches at Malmo, leaders such as Jospin and Jacques Delors, the former European commission president, though nodding to the new realities of globalisation, showed the French left has not lost its deep-rooted suspicion of what is seen as the "Anglo-Saxon" obsession with market forces.

Although Jospin's government has yet to spell out its policies in detail, it looks set to serve notice at today's meeting in Luxembourg of its plans to unpick the Stability Pact, a German-inspired economic straitjacket which will bind those countries who sign up for monetary union to tough limits on government borrowing.

Delors who was apparently offered but turned down a key job in the new French government has also urged his colleagues to breathe life into moribund clauses in the Maastricht treaty calling for the creation of what would effectively be a European "economic government" as a political counterweight to the planned new European Central Bank.

Such ideas are anathema to Kohl and Waigel, who were suspicious that even the previous right-wing French government was trying to lure Germany into monetary union and then ambush it by reflating the economy.

Crucially, too, many of Jospin's supposed left-of-centre allies also have their doubts. Chief among them is Blair, who regards "flexible" labour markets seen by critics as little more than a euphemism for ease of sacking rather than more government spending as the key to future growth.

Yet all is not lost for Kohl, not least because of divisions in the opposition between Lafontaine, the old-style Social Democrat leader, and Gerhard Schr der, the ambitious state prime minister of Lower Saxony, who is trying to secure the party's backing to be its candidate in next year's election for chancellor.

While Lafontaine is a traditionalist, Schr der has won the reputation as a Blair-like moderniser.

Crucially, both men have a different view of the single currency: while Lafontaine is in favour of a less dogmatic, more reflationary monetary union, Schr der caused a stir last week by lining up with Stoiber who should be an ideological foe for a "controlled" postponement of European monetary union. "Trying to push monetary union through now whatever the cost would do more harm than good," he said.

Provided he keeps the liberals on board in his coalition, Kohl could cling on until the end of his term in the autumn of 1998 some six months after the final decisions about monetary union are due to have been sewn up. Yet there is no doubt that the man who likes to see himself as the reunification chancellor, has been badly wounded.

Just as John Major was haunted to the end by Britain's forced ejection from the exchange-rate mechanism, so Kohl is stuck with the label of the man who tried to dip into the gold reserves.

"This episode is going to be with us all the way until the elections," one of the German leader's aides said. King Kohl may still be on the throne, but his days are numbered.