Germany Likely to Swing Left With Coalition

Germany’s new direction after 16 years in the conservative hands of Helmut Kohl became glaringly apparent Monday when Chancellor-elect Gerhard Schroeder invited the environmentalist Greens to begin negotiations on a coalition government.

Change is what Germans voted for when they ousted Kohl in a federal election Sunday, and winners and losers both made clear the day after that the shifts may be more seismic than many voters intended.

The cliffhanger race between Kohl’s Christian Democratic Union and Schroeder’s Social Democratic Party had been expected to leave neither of Germany’s leading parties with an outright majority, even with the help of respective allies from smaller parties. A “grand coalition” of the two main forces was considered the most likely outcome, and one that most Germans said they would prefer to a government dominated by the right or the left.

But the left-of-center Social Democrats and the unabashedly leftist Greens together amassed a 21-seat advantage in what will be a 669-member lower house of parliament, which leaves them little alternative but to join forces and execute the most radical change in leadership in Germany’s post-World War II history.

Soon after announcing that his party and the Greens had a “workable majority,” Schroeder sought to allay fears that his incoming government will upset economic stability or foreign policy.

“Germany knows that it needs partners and has partners in Europe and especially in the United States,” Schroeder told a news conference in Bonn, the capital he will abandon next year when the government moves to Berlin. “They do not need to worry about our foreign policy continuity.”

Similarly, he tried to assure doubters that the economy will only benefit from his plans to sharply cut unemployment, currently at 10.6%, and he warned the often-unrealistic Greens against making “exaggerated demands” in exchange for their support in a coalition.

German markets reacted calmly to the looming leadership change, with the DAX stock index rising 2% in value in day-after-elections trading, although analysts attributed the boost to a banking reform plan announced in Japan more than to domestic political expectations. The dollar gained almost 2 pfennigs against the mark to close at 1.68, but wilder fluctuations have been brought on in recent weeks by interest-rate rumors and President Clinton’s political woes.

But as the pending partnership of Social Democrats and Greens became apparent, industry leaders expressed worries about the new government’s commitment to welfare and tax reforms.

Kohl Fails to Win Own District

Some of the most powerful chieftains of the German economy, Europe’s largest and No. 3 worldwide, called on the Social Democrats to consider talks with Kohl’s CDU as well as the Greens.

The Christian Democrats were collectively licking their wounds Monday after their worst election result since the Federal Republic of Germany was founded amid the postwar rubble of 1949. Kohl failed even to win his own constituency, in the Rhine River port of Ludwigshafen, although he will still serve in the Federal Assembly in one of the 328 seats that are proportionally distributed.

Kohl announced his retirement from the CDU leadership as soon as the Social Democrats’ victory was clear, and his Bavarian sister party leader, lame-duck Finance Minister Theo Waigel, announced that he will step down from the Christian Social Union leadership.

CDU parliamentary leader Wolfgang Schaeuble and outgoing Defense Minister Volker Ruehe are considered the front-runners to succeed Kohl and try to revitalize the party.

Both Schaeuble and Ruehe have rejected a grand coalition, noting that the voters have spoken for cardinal change.

Schroeder campaigned on a promise to work with German unions and employers to create jobs and lower taxes, but he also vowed to repeal the few small employment policy reforms that Kohl’s government was able to push through: a small reduction in pension contributions, a cut in sick pay to 80% of normal wages and an easing of the jobs-for-life guarantees demanded of all but the smallest employers.

“I will use all of my influence to try to prevent the repeal of these reforms,” German Employers Federation President Dieter Hundt told a Berlin radio station, making clear that his cooperation with the new government in job creation will be contingent on the retention of those reforms and the passage of even more sweeping changes.

Assn. for German Industry chief Hans-Olaf Henkel repeated his election-night warning about the dangers of including the free-spending Greens in the next government, and German Industry and Trade Council head Hans Peter Stihl said his organization will cease cooperation with Schroeder if it sees any backtracking from his campaign promises to ease the plight of Germany’s shackled employers.

Greens Look for Significant Role

In the first hours after his victory, Schroeder left open the possibility of negotiating with the Christian Democrats. But Kohl and other party leaders have washed their hands of the idea, making clear they want no part of a government they expect to be ineffective.

The Greens want to create more jobs and to boost social welfare spending by introducing an ecology tax on industries, by tripling gas prices to about $11 a gallon during the next decade and by temporarily levying an assets tax on the wealthy.

Schroeder offered few specifics about his taxing and spending plans during the campaign, but his announced choice of Jost Stollmann, a free-market advocate and self-made millionaire, for economics minister suggested that he may hold a tougher line on economic policy with the Greens than he indicated before the voting. In addition, Germany’s membership in the European Monetary Union will force the new government to live within the common currency’s budget deficit limits.

On the other hand, Social Democratic Party leader Oskar Lafontaine has been tapped as Schroeder’s likely choice for finance minister, and he is far more beholden to labor and the bloated welfare state than is Schroeder.

For Western allies, the most unsettling of the expected appointments in the emerging coalition would probably be that of Greens parliamentary chief Joschka Fischer as foreign minister and vice chancellor. The No. 2 post in the German leadership has traditionally been filled by a member of the junior coalition party, and Fischer has left no doubts about his desire to succeed the current chief diplomat and Kohl deputy, Klaus Kinkel.

At a Bonn news conference, Fischer sought to answer a British journalist’s question in English and did so fluently except for one stumble. “You can see I need to get used to this,” he joked, alluding to his expected appearances on the international stage.

Once a fire-breathing radical of the 1960s European student protest movement, the 50-year-old Fischer now represents the more moderate faction of the splintered Greens. But the party that took shape amid the 1970s antinuclear movement remains skeptical of monetary union demands and committed to demilitarizing the North Atlantic Treaty Organization.