Rising Hatred of Outsiders Revives Menacing Images : Germany: Attacks on foreigners and neo-Nazi politics, while on the fringe, are no longer isolated occurrences in a souring economy.

Anti-foreigner riots are more than ugly public disturbances when they occur in Germany. When skinheads firebombed a refugee hostel in Rostock last week, images from Germany’s past rushed to mind, not least because a Holocaust monument outside Berlin was also attacked by extremists. If the incidents do not yet pose a threat to Germany’s democracy, they do bespeak a crisis of government.

Refugees continue to pour in, 250,000 last year, perhaps twice that amount this year. In addition, nearly 200,000 claiming German ties have resettled from the Soviet Union or Poland. Meanwhile, the government seems immobilized, unable to move forward with asylum laws to restrict immigration and detached from the economic stress and social dislocation provoked by unification.

In these circumstances, attacks on foreigners and neo-Nazi politics, while still on the fringe, are no longer isolated occurrences. The German Republicans, led by a former SS officer, were eclipsed in the euphoria of unification but returned to the political stage last April, taking 10% of the vote in Baden-Wurttemberg. The German Peoples Union, campaigning on the slogan “Germany for the Germans,” won 6% of the vote in Bremen and Schleswig-Holstein.

Political leaders condemn the attacks, and recent polls show large majorities in both East and West regard the extremists as a threat. At the same time, polls reflect no desire on the part of Germans to become a multicultural society even as their nation is becoming just that. The attacks on foreigners are, in the words of one German journalist, a grim form of “social deterrence.”

It is fairest to begin by assuming that the German skinheads are akin to other manifestations of protest on the far right--from Jean-Marie Le Pen’s supporters in France to David Duke’s in Louisiana. They tap into different cultural roots but are fed by the same frustrations and displaced anger.

The Eastern Germans, or Ossis , feel twice or thrice damned. They had the bad luck to live for 40 years under communist rule. Now, unification has swept away what economic activity there was. One-third of the work force is unemployed or underemployed. In Rostock, the rotting hulks of shipyards are testimony to that shock--ships are no longer built there.

The foreigners--both leftover recruits of the communist government and the newly arrived refugees--are less causes than scapegoats. German law lets in almost anyone who claims asylum but seldom grants it. Still, asylum-seekers are taken care of in ways that can seem luxurious to out-of-work Germans. When refugee hostels are cordoned off, both to protect the refugees and to keep them from slipping into German society while their claims are being processed, the world sees images that recall concentration camps. Sorting out the tangle of Germany’s asylum laws will mean tightening them, and the world will fear the skinheads have succeeded.

Optimistically, radical politics will fade if the economy improves. This occurred in the mid-1960s. In eastern Germany, success stories, if not just success, will appear more and more frequently, and East German growth rates will reach toward 10% this year, driven by spending on public works.

For their part, the Westerners, or Wessis , feel deceived by higher taxes--Kohl made his own version of “read my lips” in the 1990 elections. They complain about the $100 billion a year their government is spending on the East. That surely is a lot of money for an economy less than half the size of the United States, but still it is half what we’re spending to bail out our failed S&Ls.;

A pessimist would worry that the slump in the East could persist, along with recession in the West. Ossis could even price themselves into unemployment. Last year, average wage levels were already half the West’s--productivity levels are anybody’s guess, but most estimate the average is below half--and one-fifth of the work force has contracts that call for parity with Western wages by 1994.

With excess capacity in the West, why move good jobs eastward? Instead, guild East Germans could continue to move westward; they already are moving at close to the rates of the months just after the Berlin Wall fell. The German Bundesbank keeps raising interest rates to assure that the transfers pouring eastward do not set off inflation. But those high rates also prolong the recession and give German firms an incentive to jump less skilled jobs over Eastern Germany, to the lower-wage Czech land or Slovenia.

The rampaging skinheads only bring to a head the government’s predicament. Reforming asylum law and practices is only one among the hoary issues the government faces, but it is one that will require changing the constitution, hence a two-thirds vote of Parliament. Taxes and budgets top the list, but Germany also has to deal with abortion and with altering its constitutional interpretations to permit German soldiers to take part in peace-keeping operations outside the country. And in 1995, the country’s financial Ausgleich , which redistributes money from richer to poorer states, comes up for renewal; current arrangements would sharply increase the transfers from West to East.

Kohl’s government, due back from summer holidays this week, has one more chance. Look for it to fail, then be replaced, sooner rather than later, by a “grand coalition” of Christian Democrats and Social Democrats, probably with Folker Ruhe, the young defense minister, as chancellor.

No one much likes the idea. The country was driven to it once before, in 1966, in economic circumstances resembling today’s. It looks undemocratic, because it is; it turns domestic politics into bargaining behind closed doors. More ominously, real opposition is forced to the fringes--and to the streets. The asylum law will be revised, but, sadly, foreigners will not stop being scapegoats.