A lot of hopes rested on Angela Merkel the Christian Democrat candidate for Chancellor in the German elections. Earlier in the summer, her party was far ahead of Gerhard Schröder’s Social Democrats in the polls. It seemed likely that the CDU-CSU would gain an overall majority with the support of the German liberals, the FDP, who, unlike the Liberal Democrats in Britain, are a business-related party of the centre right.
The margins were not very wide, but the polls gave a CDU-FDP coalition over 50% in August. In the event, their combined vote came to 45%, and the CDU only beat the SDP by 35% to 34%.
School mistress Merkel frightened German voters with tax threats
Angela Merkel herself was never a charismatic candidate. I have heard her speak to a lunchtime meeting in London. I was not impressed by her grasp of economic policy. Her delivery can best be described as that of a capable school mistress. She did not greatly excite her London audience, and it seems that she also failed to excite the German voters.
Now, we do not know what the outcome will be. German commentators describe an alphabet soup of possible coalitions, ranging from the most likely, which is a grand coalition of the CDU and the SDP, for which there was a precedent under Chancellor Kiesinger 30 years ago, to a leftwing coalition of the SPD, the Greens and the Left Party.
That, fortunately, is thought to be unlikely, and has been ruled out by all three of the parties which would have to be involved. Because her party received the largest number of votes, Angela Merkel will have the first opportunity to form an administration. If she fails, Gerhard Schröder will have his chance. It is possible that both will fail, in which case there will have to be another election.
It is not certain that Angela Merkel will remain the candidate of her party. She has enemies inside her own party, as party leaders usually do, and the failure has been blamed on her, for a lacklustre campaign and bad judgement of policy. She frightened the electorate both by the threat to introduce a ‘flat tax’ and by her commitment to an increase in VAT.
Merkel has set the flat tax agenda back – and that’s a shame
Indeed, she has done a good deal of damage to the cause of the flat tax. The Conservative Shadow Chancellor, George Osborne, has set up a committee to study the flat tax, but other Conservative figures have been quietly abandoning the flat tax project, since they saw how it damaged Angela Merkel in the election. The idea of a flat tax is not in itself unreasonable or unfair. It takes huge numbers of low income people out of tax altogether and eliminates the loopholes which allow higher income people to lower their tax rates. The danger is that it can be misrepresented as a single tax for everybody, as though it was a poll tax.
Gerhard Schröder is a brilliant electioneer, though he has not proved to be a particularly effective Chancellor. He went after these proposed tax changes like a terrier after a rat. At the last German election he came from behind, using the unpopularity of the American ‘invasion’ of Iraq to win an unexpected victory. This time he used the tax changes and the proposed economic reforms to win votes back. The Germans voted against the economic reforms which were proposed by the CDU.
Can the euro survive?
This is bad news for Germany, since it has unemployment at above 10% and German economic growth is stuttering along at about 1%. It is bad news for Europe. Tony Blair had hoped to form an alliance with Frau Merkel to reform the European economy and to build an Anglo-German economic policy, strong enough to pressure France to accept reform of the Common Agricultural Policy. The German voters have destroyed that policy, just as clearly as the French and Dutch voters destroyed the European Constitution. There is not going to be a major economic reform of Germany and, therefore, there is not going to be a major economic reform of Europe. Europe is left wallowing in the water. Not surprisingly, the euro itself has fallen back against the dollar. It is doubtful whether the euro can survive, if the European economies continue to diverge. Italy is particularly weak. Certainly, Europe is failing to meet the competitive challenge of Asia.
The European idea remains attractive to German and French voters, but simply as an idea, as a vague abstraction. The test has to be its economic reality. So long as the two major continental countries, Germany and France, have industrial growth and high unemployment, the European economy will not be competitive with America or China, or with the rest of Asia. The German electorate voted against facing reality. It is a tragedy. Do not blame Angela Merkel; blame the voters.
Lord Rees-Mogg is Editor-in-chief of The Fleet Street-Letter. He is the former Editor of The Times
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