German jobless rate falls below 10% (FT)

A steep drop in unemployment last month brought Germany’s jobless rate below the psychologically significant 10 per cent mark for the first time in four years, drawing triumphant reactions from the otherwise conflict-ridden government of Angela Merkel, chancellor.
The surprisingly good figures released on Thursday by the Federal Labour Agency came as Ms Merkel was preparing to host a “public-finance summit” on Friday with leaders of her grand coalition to discuss how to allocate the tax windfall generated by the robust economic rebound.
The number of jobseekers stood at 4.09m last month, or 9.8 per cent, the lowest rate since November 2002, putting the monthly fall at a hefty 67,000 – three times higher than economists expected. “Not even chronic nitpickers and killjoys can ignore the facts now: the breakthrough on the job market is here. Let us rejoice,” said Franz Müntefering, labour minister.
The figures provided a positive backdrop to Friday’s meeting, at which Ms Merkel hopes to bring order to the cacophony of demands triggered by higher-than-expected tax revenues. A circle of economic forecasters that regularly reviews the public finances is on Friday expected to forecast this year’s revenues at about €485bn ($605bn, £327bn), €20bn above its May estimate.
But the positive data also highlighted the contrast between the robust health displayed by Germany’s economy and the image offered by its divided government, which has struggled to pursue reforms.
Ms Merkel has hinted she favours using the extra tax revenue to cut social security contributions, the payroll levies that make German workers among the most expensive in the world. But her Social Democrat coalition partners would rather cut the federal deficit.
In a surprising contribution to the debate, Ms Merkel’s Christian Democratic Union (CDU) has said it will adopt a motion at its congress this month calling for higher jobless benefits, turning the tables on the left-of-centre SPD, which has reacted with accusations of populism.
In addition to booming tax revenues, Germany is experiencing a robust inflow of money into its social security system. After Thursday’s good unemployment figures, the Labour Agency is on course to generate a €11bn profit this year.
Employment statistics, which lag one month behind the unemployment figures, showed a 24,000 increase in September, bringing the number of jobs created this year to 281,000.
Given the scale of the job recovery, economists are puzzling over why private consumption, for years a particularly weak spot of the German economy, is stubbornly refusing to rebound.
Deutsche Bank argued that the cause lay in tough anti-dismissal laws, which led to 70 per cent of all jobs created this year going to people hired through temporary work agencies who typically earn – and spend – less.
■ The rival parties in Germany’s coalition on Thursday said they had reached an agreement on a modified version of their draft corporate tax reform.
The deal provides for an average nominal tax rate of just under 30 per cent, against 38.6 per cent today, and includes a new, 25 per cent withholding tax on capital gains.
Although the reform would lift the tax burden on German companies by €5bn in the first year, Peer Steinbrück, finance minister, said the goal was to maximise tax revenue in the longer term by making Germany more attractive for investors and discouraging tax avoidance.
The most controversial part of the original plan – a tax on interest payments intended to extend the tax base by closing a loophole in the current legislation – was modified. Under the new model, the amount of interest payments that can be deducted from taxable profits will be determined by the size of these profits. There are still a number of hurdles to be passed before the reform comes into force in 2008.
Copyright The Financial Times Limited 2006

FT.com / Comment & analysis / Analysis - Germany’s labour market develops a second tier

FT.com / Comment & analysis / Analysis - Germany’s labour market develops a second tier

FT.com / World / Europe - Economists rap Merkel’s policies

FT.com / World / Europe - Economists rap Merkel’s policies

FT.com / Home UK / UK - Germany's recovery continues apace

FT.com / Home UK / UK - Germany's recovery continues apace

Axel Springer AG; grootste uitgever van Europa kiest voor Getronics PinkRoccade (Getronics)

Getronics PinkRoccade kondigt de ondertekening aan van een contract met de grootste uitgever in Europe, Axel Springer AG (Zeitungsgruppe Welt/Berliner Morgenpost). Dit betreft een overeenkomst voor de bouw van een nieuw Content Management Systeem (Escenic Media System) voor de websites van Die Welt en Die Welt am Sonntag.

Axel Springer AG is uitgever van titels als die Welt, Berliner Morgenpost, Bild en Autobild. De website van die Welt is een van de grootste nieuwssites van Duitsland. Axel Springer werkt op dit moment aan de implementatie van één geïntegreerde redactie voor verschillende print- en online publicaties, uitgegeven door de Zeitungsgruppe Welt/Berliner Morgenpost (die Welt, Welt am Sonntag, Welt Kompakt en Berliner Morgenpost), waarvan de “online first” strategie deel uitmaakt. Deze ontwikkeling, een veranderde behoefte van de bezoekers en de groei in mogelijkheden op Internet, heeft geleid tot het besluit een modern en state-of-the-art CMS-systeem te implementeren.

Na een zorgvuldig selectietraject zijn Getronics PinkRoccade en Escenic geselecteerd vanwege de diepgaande kennis van en ervaring met de uitgeverswereld. Tevens is er een volwassen en bewezen systeem aangeboden, ondersteund door de juiste referenties. Ook werd positief beoordeeld dat Getronics PinkRoccade in staat is om projecten in een korte periode internationaal vanuit Nederland uit te rollen en internationaal te beheren.

Het Escenic systeem is een bewezen oplossing voor mediabedrijven met diverse sites, hoge interactiviteit en de potentie om de wensen te vervullen van een veeleisende markt die sterk in beweging is.

Voor Getronics PinkRoccade betekent deze opdracht een versteviging van haar leidende positie in het mediasegment, vooral met betrekking tot de snel toenemende internationalisatie-strategie van mediabedrijven.

VW/MAN/Scania (FT)

General Motors has Kirk Kerkorian. The Swedish truckmaker Scania and its German rival MAN, on the other hand, have ... er, Bernd Pischetsrieder of Volkswagen. The chief executive of the German carmaker is not your typical activist investor but, having started out with a weakish hand, he has grabbed the controls in the MAN/Scania takeover saga.

For a while on Monday, it seemed Scania might see off MAN’s hostile bid but the devil is in the detail. In fact, MAN said it would consider withdrawing its bid only “under certain conditions” and those conditions remained unclear. Meanwhile, Volkswagen, which has 15 per cent of MAN’s stock as well as a 34 per cent voting stake in Scania (which Mr Pischetsrieder chairs), is turning the screws. VW says it wants the two to reach an agreement on a friendly basis in the next four weeks, but the language is tough: it now only “prefers” a deal that neither side perceives to be hostile and won’t accept one that sacrifices potential synergies. It stands to own at least 20 per cent in a merged MAN/Scania, into which it would then fold its own Brazilian truck business.

VW’s stated focus on industrial logic, rather than a few kronor here or there on the share price, may well give MAN scope to offer enough of a premium to satisfy Sweden’s Wallenberg family, who, through their vehicle Investor, control 30 per cent of Scania. Talk of a reverse takeover by Scania seems far-fetched – particularly given the drop in its share price on Monday and the presence of hedge funds hoping to be on the receiving end of a bid.

VW, with a foot in each camp, can afford to be relatively sanguine about the precise cost of the transaction. MAN shareholders without this hedge may have more to worry about.
Copyright The Financial Times Limited 2006

VW gives Scania/MAN deal deadline (FT)

Scania and MAN were given four weeks to come up with a friendly deal before Volkswagen, the largest shareholder in both truckmakers, would support a hostile takeover, the German carmaker said on Monday.

Bernd Pischetsrieder, VW chief executive, said a friendly deal made sense and executives at Sweden’s Scania and Germany’s MAN should discuss how best to realise the benefits. He left open whether the structure should be MAN buying Scania or the other way round.

But in a conference call with financial analysts he warned that four weeks was a maximum for them to come up with a friendly deal.

“If those discussion teams in four weeks don’t produce added value in terms of creating synergies in a business concept which we think is in line with the shareholders’ interest there is no other option left but to accept that the only way to proceed is hostile,” he said.

“We will then have to discuss with the two shareholder groups how this will then happen.”

Mr Pischetsrieder was speaking shortly after MAN said it could withdraw its hostile €9.6bn ($12.08bn) offer for Scania – already rejected by Scania and VW – and would seek friendly talks.

VW last week bought 15 per cent of MAN, adding to its 34 per cent voting stake in Scania.

Mr Pischetsrieder said he wanted to inject VW’s Brazilian heavy truck business into the new company, as well as co-operating in light trucks and offering VW financial services to Scania and Man customers.

Copyright The Financial Times Limited 2006

MAN offers friendly Scania bid (FT)

MAN, the German truckmaker, on Friday bowed to pressure from its new largest shareholder and offered friendly takeover talks from next week to Scania, its Swedish rival.

Union und SPD legen Gesundheitsstreit bei (FTD)

Die große Koalition hat sich nach zähem Ringen auf einen Kompromiss bei der Gesundheitsreform verständigt. CSU-Chef Edmund Stoiber stellte die Beschlüsse aber gleich unter den Vorbehalt einer Prüfung.

Die Spitzenrunde habe sich auf eine weit reichende Reform verständigt, die das deutsche Gesundheitswesen umgestalten werde, sagte Bundeskanzlerin Angela Merkel am frühen Donnerstagmorgen nach einer mehr als siebenstündigen Verhandlungsrunde in Berlin. Die Koalitionsspitzen vereinbarten, den geplanten Gesundheitsfonds - das Kernstück der Reform - nicht wie geplant 2008 sondern erst zum 1. Januar 2009 einzuführen.

Zudem soll die von der Union heftig kritisierte Ein-Prozent-Grenze für die Zusatzprämie der Kassen beibehalten werden. SPD-Chef Kurt Beck sagte, es handele sich nicht nur um einen vertretbaren sondern um einen guten Kompromiss.

Um unverhältnismäßige regionale Belastungen durch den Gesundheitsfonds zu vermeiden, sollen die unterschiedlich verteilten Be- und Entlastungen zwischen den Ländern allmählich angeglichen werden. Vor allem Bayern und Baden-Württemberg hatten die Befürchtungen geäußert, dass von den eher reichen Kassen im Süden Milliardensummen an ärmere Kassen abfließen. Stoiber zeigte sich mit dieser und den anderen Regelungen zufrieden. Da jedoch nicht alle Details schon abschließend geprüft werden könnten, müssten die Beschlüsse unter einem grundsätzlichen Vorbehalt stehen und im Gesetzgebungsverfahren genau geprüft werden. Stoiber sprach von der größten Systemumstellung der vergangenen Jahre.

Private Kassen bleiben

Einen Kompromiss fanden Union und SPD auch bei der Umgestaltung der privaten Krankenversicherung. So sollen freiwillig gesetzlich Versicherte und ehemalige Privatversicherte in einen privaten Basistarif eintreten können. Darüber hinaus können Privatversicherte künftig leichter den Anbieter wechseln, indem angesparte Altersrückstellungen mitgenommen werden können. Ein Wechsel von der privaten zur gesetzlichen Krankenversicherung, wie ihn die SPD wollte, wird es laut Merkel nicht geben.

Die Überforderungsklausel, die die Patienten vor zu hohen Zuzahlungen schützen soll, bildete bis zuletzt den Hauptstreitpunkt zwischen Union und SPD. Die Prämie können Kassen erheben, die mit dem ihnen zugewiesenen Geld aus dem Fonds nicht auskommen. Die SPD konnte sich mit ihrer Forderung durchsetzen, dass die Obergrenze bei einem Prozent des Haushaltseinkommens liegen muss. Der Kompromiss sieht allerdings vor, dass zusätzliche Beiträge bis zu 8 Euro ohne Einkommensprüfung von einer Kasse erhoben werden dürfen.

Merkel hofft auf Überschuss

Merkel äußerte die Hoffnung, dass die meisten Kassen ganz ohne einen solchen Betrag auskommen werden oder ihren Versicherten gar Abschläge zurückerstatten können. Die Prämien gäben Auskunft darüber, ob eine Kasse wirtschaftlich arbeite, sagte die CDU-Chefin.

Umstritten war bis zuletzt auch die Gestaltung des Finanzausgleichs, durch den Kassen mit vielen kranken und alten Mitgliedern Geld von finanzstärkeren Konkurrenten erhalten sollen. Auf Druck der Union wurde dieser Risikostrukturausgleich abgeschwächt. Er soll sich nun an 50 bis 80 Krankheiten orientieren und zeitgleich mit dem Fonds starten.

Aus den Reihen der Regierungschefs war in den vergangenen Wochen scharfe Kritik an den von den Koalitionsspitzen vereinbarten Eckpunkten laut geworden. Durch den Streit war das schwarz-rote Regierungsbündnis erheblich belastet worden.

Observer: Money talks (FT)

A war has broken out in Chancellor Angela Merkel's left-right coalition.

With the Social Democrats and their Christian Democratic rivals at each other's throats over healthcare reform, some pundits are putting their money on an imminent collapse of the government. Not so fast, say cynical observers of the Bundestag, parliament's lower house, which has, if not the last, at least the weightiest word in matters pertaining to early elections and deposing chancellors.

One thing to bear in mind, these people argue, is that members of the house will not be entitled to their generous parliamentary pensions for the current legislature until the end of next year, when this entitlement kicks in. Doing anything that would lead to the dissolution of the Bundestag before this trigger date would make very little sense financially. If Merkel's legislators have not lost their business acumen, it looks as though the chancellor might have a bit more time to work out a peace deal between her alliance's warring factions.
Copyright The Financial Times Limited 2006

German retail sales stagnate (FT)

The German consumer showed no sign of springing into life last month, despite the strong growth in Europe’s largest economy, official figures showed on Friday.

Retail sales in German were unchanged in August after a revised 0.8 per cent fall in the previous month, according to the Federal Statistics Office.

Sluggish consumer spending has long been the Achilles’ heel of Germany’s economy, dragging down the eurozone’s overall performance. But the latest figures surprised analysts who had expected a rise on the back of one of the strongest German growth performances for years in the first six months of 2006, powered by the country’s industrial sector.

They contrasted sharply with the picture in France, where consumers’ spending on manufactured goods leapt 3.3 per cent in August, according to figures released last week.

The poor summer weather in August, after an exceptionally hot July, had been expected to encourage more people into the shops. Germans were also expected to step up purchases to beat a three percentage point rise in VAT next January.

But economists stuck to the view that this year would bring some overall improvement. With energy prices falling and the VAT hike looming, “strong retail sales can be expected over the final months of this year, before January brings a serious slump,” said Ralph Solveen, economist at Commerzbank.

The German retail sales figures were among a raft of eurozone data released on Friday.

Eurozone inflation dropped more-than-expected in September to 1.8 per cent, showing the headline rate falling back within the European Central Bank’s target of “below but close” to 2 per cent for the first time since January 2005.

Howard Archer, Global Insight economist, said: “The marked falling back in eurozone consumer price inflation in September will not deter the European Central Bank from raising its key interest rate further. Significantly the latest comments from ECB officials remain hawkish, as they continue to stress that medium-term inflation risks persist and that the strength of the eurozone economy warrants a withdrawal of monetary accommodation”.

Other data showed business and consumer sentiment rose to 109.3, a five year high. Holger Schmieding of Bank of America, said the data were surprisingly good, especially the rise in business climate and the industrial confidence was very encouraging: “It does suggest that the eurozone’s economy will continue to expand at an above-trend pace at least until the end of this year. At the same time we see there is no inflation outside energy”.

Separately, France reported an unexpected rise in unemployment in August. The jobless rate rose to 9.0 per cent in August from 8.9 per cent in July.
Copyright The Financial Times Limited 2006

Merkel verspricht Kassen mehr Steuergeld (FTD)

Bundeskanzlerin Angela Merkel hat den gesetzlichen Krankenkassen für 2007 einen höheren Steuerzuschuss versprochen als bisher geplant. Sie stellte außerdem die in der Koalition verabredete Erhöhung des Rentenbeitrags in Frage, falls die Einnahmen der Rentenversicherer weiter steigen.

„Zusatzprämie sozialisieren“ (Zeit online)

Die geplante Zusatzprämie in der Krankenversicherung muss aus Steuermitteln bezahlt werden, verlangt Ökonom Jürgen Wasem. Der derzeitige Streit über die Höhe sei sinnlos.

Von Cerstin Gammelin

Der Krach um die so genannte Überforderungsklausel blockiert gegenwärtig die Verhandlungen der Großen Koalition über die Gesundheitsreform. Konkret geht es dabei um die Höhe der Zusatzprämie, die die Versicherten künftig entrichten müssen, wenn ihre Kasse mit dem Geld, das sie aus dem neuen Gesundheitsfonds erhält, nicht auskommt. Die SPD will diesen Beitrag auf ein Prozent des Haushaltseinkommens begrenzen. Die Union lehnt das ab, da sie befürchtet, dass es auf diese Weise noch weniger Wettbewerb zwischen den Kassen geben könnte, als das schon heute der Fall ist.

Nun hat die SPD zwar die so genannten Eckpunkte auf ihrer Seite, denen die Union im Juli zugestimmt hat, und die eine entsprechende Begrenzung beinhalten. Doch das stört die Konservativen wenig. Sie wollen die Vereinbarung rückgängig machen. Mindestens zwei oder drei Prozent des Einkommens müssten die Kassen erheben dürfen, damit Wettbewerb entstehe, fordert zum Beispiel Thüringens Ministerpräsident Dieter Althaus.

Dem widerspricht der Essener Gesundheitsprofessor Jürgen Wasem, der Anfang des Jahres ein Fondsmodell mitentwickelt hat, jedoch in der Zwischenzeit skeptisch geworden ist. Entscheidend für den Erfolg der Zusatzprämie sei keinesfalls, auf welche Höhe man sich einigt, sagte Wasem ZEIT online. Entscheidend sei vielmehr, wer den Zusatzbeitrag bezahlen müsse.

Wenn dies – wie bisher geplant – die Versicherten seien, werde die Zusatzprämie zum Bankrott zahlreicher Kassen führen, befürchtet Wasem. Der zusätzliche Betrag werde eine Massenflucht der Gesunden und Gutverdiener in Gesellschaften ohne Kopfprämie auslösen, argumentiert der Wissenschaftler. Zurück in der defizitären Kasse blieben nur Alte, chronisch Kranke oder Arbeitslose – die Härtefälle eben. Der finanzielle Ruin der betroffenen Kassen sei die logische Folge. Diesen Effekt, wundert sich Wasem, müssten die Gesundheitsexperten beider Parteien kennen.

Qualitätswettbewerb zwischen Kassen, Ärzten und Kliniken könne die Zusatzprämie dagegen bewirken, wenn das zusätzlich benötigte Geld entweder aus dem Fonds selbst oder aus Steuermitteln fließe. „Die Subvention der Geringverdiener muss sozialisiert werden“, fordert Wasem.

Doch von einer so einschneidenden Änderung ihres bisherigen Konzept sind die Experten beider Seiten weit entfernt. Denn auch die Reform des Risikostrukturausgleiches, der eine Voraussetzung für die Einführung des Fonds darstellt, ist ebenfalls noch lange nicht unter Dach und Fach.

TEIL 2
Die Schwierigkeit besteht dabei darin, dass die Bundesländer unterschiedlich stark von einem vollständigen Finanzausgleich betroffen sind. Die zusätzliche Einführung des Ausgleichs von Krankheitsrisiken hätte im Vergleich zum heutigen Risikostrukturausgleich „gravierende Umverteilungseffekte“ zur Folge, schreibt Uwe Repschläger in einem internen Gutachten. Beispielsweise hätte das Bundesland Baden-Württemberg – das Land mit den höchsten Einkommen in Deutschland – bei einem vollständigen Finanzausgleich zwei Prozent weniger Geld für Krankenhäuser übrig.

Das Land müsste das Budget für Ärzte um sechs Prozent kürzen, insgesamt 13 Prozent der Grundlohnsumme der Versicherten in den bundesweiten Finanzausgleich zahlen und hätte 301 Euro je Versichertem und Jahr weniger zur Verfügung. Gewinner der geplanten Umstellung und der sich daraus ergebenden Vergütungen für niedergelassene Ärzte, Zahnärzte, Krankenhäuser und andere Leistungserbringer wären die Regionen im Osten sowie Hamburg und das Saarland.

Viel Zeit bleibt der Großen Koalition nicht mehr, um derlei Interessengegensätze aufzulösen. Schon am vierten Oktober wollen sich die Spitzenvertreter im Kanzleramt treffen, um die Konflikte beizulegen. Auch am heutigen Donnerstag tagt erneut eine Expertenrunde. Ob diese über den mittlerweile vorliegenden dritten Entwurf des Gesetzes abschließend beraten kann, ist aber noch unklar. Die Unionsbundesländer wollten nämlich eigene Formulierungshilfen vorlegen. Diese waren allerdings bis Mittwochabend noch nicht fertig.

Wie aus einem neuen Gesetzentwurf hervorgeht, könnte sich zudem die Verschiebung des Gesetzes negativ auf die Reform auswirken. Da das Gesetz wegen der Streitigkeiten erst zum 1. April 2007 und nicht wie ursprünglich geplant zum 1. Januar in Kraft treten wird, würden die Einsparungen durch die Reform um Hunderte Millionen geringer ausfallen, berichteten mehrere Zeitungen.

Statt 1,9 Milliarden Euro würden nur noch 1,3 Milliarden eingespart. Der Sprecher des Gesundheitsministeriums Klaus Vater sagte allerdings: »Darauf würde ich nicht wetten.« Die zuletzt positive Lohnentwicklung sowie weitere Zuweisungen verbesserten die Einnahmen der gesetzlichen Krankenkassen.
Zudem wirke das Arzneimittel-Spargesetz vom Frühjahr besser als geplant. Die Arzneimittelausgaben waren von Januar bis Juni im Vergleich zum Vorjahreszeitraum nur rund halb so stark gestiegen wie im ersten Quartal. Durch die Reformverschiebung gewönnen die Kassen auch mehr Zeit, die Reform vorzubereiten und so »die im vorgesehenen Gesetz liegenden Möglichkeiten der effizienten Verwendung von Beitragsmitteln durch neue Verträge von vornherein besser zu nutzen«, sagte Vater. Die Gesamtausgaben der Kassen liegen bei rund 145 Milliarden Euro pro Jahr.


© ZEIT online

Merkel drückt sich um Machtwort (FTD)

Bundeskanzlerin Angela Merkel hat die Forderung des Koalitionspartners SPD zurückgewiesen, den Streit um die Gesundheitspolitik mit einem Machtwort zu beenden. Machtworte oder Vertrauensfrage hätten ihrem Vorgänger Gerhard Schröder auch nicht wirklich weitergeholfen. Sie rate allen Beteiligten zu mehr Gelassenheit.

Confidence in Germany's economy hits turning point (FT)

German business confidence in current economic conditions has soared to a 15-year high but gloom about the next six months is rising, according to a closely watched survey.

The Munich-based Ifo's business climate indicator, which edged down slightly from 105.0 in August to 104.9 this month, provided further evidence that Europe's largest economy is reaching a turning point.

German inflation falls as oil price tumbles (FT)

Tumbling oil prices on Monday led to a sharp drop in German inflation, boosting the chances of the eurozone rate falling later this week below the European Central Bank’s 2 per cent target for the first time in 20 months.

The steep fall in energy costs this month will cheer the ECB as it attempts to bring headline inflation back in line with its target of “below but close” to 2 per cent.

Poor but sexy (Economist.com)

Poor but sexy
Sep 21st 2006 BERLIN
From The Economist print edition

A fashionable Social Democratic fief needs a stronger economic revival

DOES politics matter in a city with unemployment of over 17% and a debt of €63 billion ($80 billion)? Klaus Wowereit, Berlin's Social Democratic mayor, jibs at the question. Naturally, he says, politics is not just about spending money—witness his pay cuts for civil servants. Now he has five more years in which to prove his point. In Germany's state elections on September 17th the Christian Democrats did badly, and the Social Democrats lost ground in Mecklenburg-West Pomerania (where the neo-Nazi National Democratic Party, or NPD, won a few seats in the state parliament). But Mr Wowereit did well in Berlin. He may now swap his coalition partner, the Left Party, for the Greens.

His big task is to help Berlin avoid the 1990s fate of Washington, DC: of being a bankrupt city with a rich political ghetto. After unification in 1990 Berliners hoped to regain their role of industrial hub and gateway to central Europe. Instead, the city lost two-thirds of its jobs in manufacturing, which now employs fewer than 100,000 in a population of 3.4m. Berlin resembles a glitzy shopping mall with lots of smart boutiques but no anchor tenant.

One reason is that “West Berlin was almost as socialist as East Berlin”, says Eric Schweitzer of the local chamber of commerce. During the cold war both halves of the city were heavily subsidised, but the money dried up after unification. The legacy was one of uncompetitive firms, a huge bureaucracy and an ingrained welfare mentality. Heavyweight firms that moved out after 1945, such as Siemens and Deutsche Bank, saw no reason to return. The results are visible as soon as one strays beyond the smart government district around the Brandenburg Gate or the posh neighbourhoods near Kurfürstendamm. Signs of poverty are everywhere. One-third of children in Berlin are poor.

Yet a new economy is gradually emerging. Hip Prenzlauer Berg is now home to a bevy of small fashion designers. The banks of the River Spree have become the base for Universal Music, MTV and other media firms. Farther south is Adlershof, a sprawling technology park. “Faster than any other large city in the world, Berlin needed to develop a new economic profile—and it is happening,” says Kurt Geppert of the German Institute for Economic Research, or DIW. Jobs in software, media and advertising are growing fast. Berlin now has a mix of technology, talent and tolerance that attracts skilled people and breeds growth. Spending on R&D is above average, thanks largely to the city's three universities, which also lure foreigners, artists, musicians and others.

Indeed, Berlin is now Europe's liveliest city after sunset. Since the glamour of the football World Cup final in July, barely a week has passed without a big event. Twenty-somethings jet in on low-cost airlines for the all-night club scene. There is a relaxed openness not found in straiter-laced European capitals. “It does not take much convincing to get good programmers to relocate here,” notes Ludwig von Reiche, a software manager who is chairman of the Berlin branch of the American Chamber of Commerce. Rents are cheap: a renovated four-bedroomed flat costs as much as a claustrophobic London studio.

All of which may make one wonder why Berlin is not booming already. One reason is a lack of entrepreneurial spirit, says Klaus Brake of the Berlin-based Centre for Metropolitan Studies. Almost half of Berliners live on benefits. Mechanisms for turning an idea into a product are underdeveloped; there is no private venture capital, and most firms are conservative. Despite Mr Wowereit's cuts, Berlin is still far from being an efficient state. The city has yet to sell its public-housing agencies. It boasts of offering a one-stop service for investors, but local municipalities have plenty of red tape of their own.

At the top, too, there is room for improvement. Mr Wowereit, who is openly gay, is a good face for Berlin; he calls it “poor but sexy”. But “Wowi”, as he is known, is a political operator, not a visionary. Berlin does not always do its best to attract skilled staff. Many foreign teachers, for instance, are denied equal pay, since their credentials are not accepted as of equal worth; this makes it far harder for bilingual schools to retain staff.

The challenge for Mr Wowereit is to balance the interests of Berlin's new elite with those of ordinary folk. It will not get any easier, since even Berlin's creative industries are unlikely to create enough jobs for the out-of-work. Despite Mr Wowereit's win, the election in Berlin was also a warning. Turnout hit a low of 58%, and as many as 13.7% voted for splinter parties (including a chunk for the NPD). Even in the capital, it seems, politics still matters.

German ZEW index falls again (FT)

Clouds on the eurozone’s economic horizon darkened further on Tuesday with German investor sentiment tumbling to the lowest level since January 1999, but the European Central Bank’s plans for interest rate rises are unlikely to be blown off course.

Truck makers prepare for sharp turn (FT)

Truck manufacturing is a notoriously cyclical business but as the next downturn approaches, companies are going out of their way to protect themselves in the bad times.

With some kind of downturn forecast for most of the world next year, executives from all companies are implementing strategies such as increased internationalisation and greater labour flexibility in order to stabilise earnings.

Germany shifts from Europe’s engine to brake (FT)

Germany will on Thursday put a roadblock in front of moves to bolster cross-border crime fighting and control economic migration in Europe, in the latest sign of Berlin’s increasingly awkward stance on the European stage.

Enscenering van dampende weelderigheid

(18 september 2006) Een paar geniale vondsten ten spijt, berust Tom Tykwers en Bernd Eichingers groots opgezette verfilming van 'Das Parfum' op een misverstand: Patrick Süskinds bestseller uit 1985 gaat niet over geuren.

Ein blauer Brief für Angela Merkel (FAZ)

17. September 2006 Angela Merkel hat sich immunisiert. „Meine Gläubigkeit an Umfragen habe ich mir seit der letzten Bundestagswahl abgewöhnt“, sagt die Kanzlerin und ergänzt apodiktisch: „Zwischenbewertungen sind nicht entscheidend.“ Maßgebend ist für sie, „ob wir am Ende der Legislaturperiode eine überzeugende Bilanz vorlegen können“.17. September 2006 Angela Merkel hat sich immunisiert. „Meine Gläubigkeit an Umfragen habe ich mir seit der letzten Bundestagswahl abgewöhnt“, sagt die Kanzlerin und ergänzt apodiktisch: „Zwischenbewertungen sind nicht entscheidend.“ Maßgebend ist für sie, „ob wir am Ende der Legislaturperiode eine überzeugende Bilanz vorlegen können“.

Merkel ponders Atlantic free trade zone (FT)

Spurred by concern about China's growing economic might, Germany is considering a plan for a free-trade zone between Europe and the US.

A senior aide to Angela Merkel said the chancellor was "interested" in promoting the idea as long as such a zone did not create "a fortress" but rather "a tool" to encourage free trade globally, "which she is persuaded is a condition of Germany's future prosperity".

Separately yesterday, the US, Canada and the European Union complained to the World Trade Organisation about China's tariffs on car parts, raising the prospect of Beijing facing its first WTO dispute. The three said they had lost patience with Beijing's refusal to open the $19bn (€15bn, £10bn) a year market.

News that the free trade zone, last pursued by Sir Leon Brittan, when European trade commissioner in 1998, is being debated in the German chancellery testifies to the rapprochement between Washington and Berlin since Ms Merkel's election last November.

This convergence of views was underlined this week when Wen Jiabao, Chinese premier, was politely chided by Ms Merkel for China's poor human rights record and recent restrictions on foreign news agencies, during an official visit to Berlin.

As German perceptions of China have grown more American, Washington's approach has also shifted. Speaking before his first trip to Beijing, Hank Paulson, US Treasury secretary, this week outlined a more balanced policy mixing traditional US criticism with praise for China's reforms.

Ms Merkel's aide said it was "far too early" to tell whether the project of a transatlantic free-trade zone would be part of Germany's priorities when it assumes the six-month presidency of the European Union and chairs the G8 group of leading industrial nations from January.

"The west needs to pull together," Gabor Steingart said yesterday. His book, World-War for Prosperity, a warning about the dangers of globalisation published this week, is credited with influencing the debate in the German chancellery. "What Nato did for the west under the cold war, Tafta [Trans-atlantic free-trade area] can do in the current battle."

Additional reporting by Andrew Bounds in Brussels
Copyright The Financial Times Limited 2006

Germany eyes free-trade zone to rival China (FT)

Spurred by concern about China’s growing economic might, Germany is considering a plan for a free-trade zone between Europe and the US.

A senior aide to Angela Merkel said the chancellor was “interested” in promoting the idea as long as such a zone did not create “a fortress” but rather “a tool” to encourage free trade globally, “which she is persuaded is a condition of Germany’s future prosperity”.

Germany rejects Barroso energy call (FT)

Germany has rejected suggestions by José Manuel Barroso for a fresh liberalisation of Europe's energy markets, accusing the European Commission president of shooting from the hip.

A Berlin official said the view of Angela Merkel, chancellor, was Mr Barroso's proposals were both fundamentally misguided and premature.

Germany's view on the Commission's efforts to prise open Europe's energy markets is important. It is not only Europe's biggest energy market and one of the countries identified by the EU executive as having failed to open up sufficiently, but it will also hold the union's rotating six-month presidency from January. Berlin wants to make energy one of its main priorities, with goals ranging from improving security of supply to raising consumption efficiency.

The German government's clear rejection of Mr Barroso's suggestions, which he made in an interview with the FT on Monday, bodes ill for the future co-operation between the Commission and the presidency and suggests liberalisation will rank low on Berlin's agenda.

The Berlin official said the European Commission president's proposal for new legislation next year to create a pan-European energy regulator or an umbrella body for national regulators was "an old one, and onewe have always rejected".

A spokesman for Mr Barroso said on Wednesday he was confident a consensus would emerge for a further opening of European energy markets. "The status quo is not sustainable," he said.

The German government recognises energy prices remain too opaque and shielded from market forces by the oligopolistic positions of big operators. The economics ministry threatened the country's main players with a regulatory crackdown after excessive price increases.
Copyright The Financial Times Limited 2006

Günter Grass liest aus „Beim Häuten der Zwiebel“ (FAZ)

05. September 2006
Dem Literatur-nobelpreisträger schlug viel Sympathie entgegen im Frankfurter Opernhaus, dessen Parkett und Ränge vollbesetzt waren. Auch als er für sein langen Schweigen über seine Zeit bei der Waffen-SS die nicht eben leicht verdauliche Erklärung parat hatte, ein Schriftsteller habe das gute Recht, so lange zu warten, bis eine Sache ausgereift sei, und müsse erst einmal eine Form finden, um gewisse Vorgänge zu artikulieren. Ebenfalls Applaus erhielt Günter Grass für seine mit Bestimmtheit vorgetragene Bekundung: „Ich kann garantieren: Ich lasse mir den Mund nicht verbieten.“

Auch wenn alle mitmachen - ich nicht (FAZ)

Die vielleicht aussagekräftigste Episode dieses an vielsagenden, denkwürdigen Episoden, Unterhaltungen und Ereignissen so reichen Buches liegt siebzig Jahre zurück. Anfang 1936 - der Verfasser ist gerade neun Jahre alt - belauschen sein Bruder Wolfgang und er eine seltene Auseinandersetzung zwischen den Eltern. Der Vater war bereits vor einiger Zeit vom Schuldienst suspendiert worden, selbst das Erteilen von Nachhilfestunden hatte man ihm untersagt: Unliebsame Kritiker erkannte das Regime sofort. Die Familie war in dieser Notlage enger zusammengerückt in der Wohnung in Berlin-Karlshorst, es gab kein Kindermädchen mehr, und zum Zeitpunkt des abendlichen Gesprächs war die Mutter im Begriff, die bereits mehrfach geflickten Sachen der Kinder erneut in Ordnung zu bringen.

Berlin poised to fall into lineon stability pact (FT)

After four years of breaching the European budget rules it invented, Germany has returned to the path of fiscal parsimony.

Peer Steinbrück, the fin-ance minister, said yesterday that the German budget deficit would fall to 2.8 per cent of gross domestic product this year, below the 3 per cent limit allowed by the European Union's stability pact.

The minister told parliament he was ready to notify the European Commission that Germany was abiding by the stability pact again. "I see [a debt-to-GDP ratio of] 2.8 per cent as realistic and that is what I will tell Brussels," he said.

Although widely expected, the deficit's return to within the crucial threshold comes a year ahead of the government's original plan, underlining the strength of the recovery that began in Europe's largest economy at the end of last year. The robust rebound has boosted tax receipts and should leave Germany's federal, regional and social security budgets with €15bn ($18bn, £10bn) more in revenues this year than envisaged.

"What we are seeing is the steadily rising profits of companies over the past five years finally spilling over into tax revenues," a government economist told the FT.

He said the government would "definitely" raise its economic growth forecast for this year, currently at 1.6 per cent, above the 2 per cent mark when it upgraded its estimates at the end of next month.

Yet he said several factors would weigh on Germany's performance next year, including high oil and raw material prices, higher interest rates, a 3 percentage point value-added tax rise in January, and rocketing unemployment insurance costs. "We are already seeing signs of vulnerability."

In his speech Mr Steinbrück also warned against "euphoria, complacency and covetousness", adding that the government would stick to its planned VAT increase despite criticism that the measure was both fiscally unnecessary and economically risky.

While the minister has refused to budge on the VAT front, he appeared to have backtracked on his equally controversial plan to reform Germany's burdensome corporate tax system.

People close to Michael Glos, the economics minister and an opponent of Mr Steinbrück's tax blueprint, told the FT that the finance minister had withdrawn his proposal to bar companies from deducting interest payments from taxable profits.

The proposed ban was partly aimed at offsetting the effect of a planned cut in corporate tax rates on the public coffers. While Mr Steinbrück's blueprint envisages a fall in the average nominal tax rate from 39 to 30 per cent, the government wants to keep the ensuing tax relief capped at €5bn per year.

At the same time the ban would have ended a legal form of tax evasion whereby companies draw loans from subsidiaries in low-tax countries and subtract the interest payments from their taxable profits.

The proposal, however, was opposed by business, the economics ministry and Angela Merkel, the chancellor, as a "levy on substance" that could force loss-making companies to pay taxes.
While she denied that the concept was off the table, an official close to Mr Steinbrück said the minister had agreed with senior coalition politicians last week to -consider two alternative -proposals.

These models, developed by the state governments of Bavaria, Hesse and Rhineland-Palatinate, would limit the tax-deductibility of interest payments by stretching it over several years. The models would also apply only above a specific profit level, in effect exempting smaller companies.
Copyright The Financial Times Limited 2006

Managers will come to miss the voice of the proletariat (FT)

What about the workers? That is not a question you will see often in this or any other newspaper, nor hear in polite company. Perhaps today we can make an exception. Americans return to work this morning after Labor Day, while in the UK delegates are preparing to head to Brighton for next week's 138th Trades Union Congress.

German blue chips fear eastern rivals (FT)

Germany’s largest industrial companies are increasingly shaping their strategies based on the competitive threat from Chinese and Indian companies, which they fear could one day take them over, say top chief executives and bankers.

Groups such as Siemens, Volkswagen and BASF are investing billions in these countries and other key markets, such as Russia, to remain internationally competitive and to tap both their stronger growth and the larger number of engineers they produce each year.

But the blue-chips are also acting in the belief that companies from fast-growing countries could soon follow the example of steelmaker Mittal and buy some of Europe’s industrial giants.

“The dominant theme in German boardrooms at the moment is whether a company from one of these countries will one day – say in five or 10 years – be able to take over a big company,” said the head of an investment bank in Frankfurt. “Nobody feels safe – from Eon and Siemens [the two largest companies by market capitalisation] downwards.”

The catalyst for such discussion is the takeover of European steelmaker Arcelor by Mittal, a group largely unknown five years ago whose assets are predominantly in developing countries such as Kazakhstan and Ukraine. “That is the problem,” said another senior German banker. “Nobody is quite sure yet what the name of the aggressor could be but they can see it coming and are trying to do all they can to head it off.”

Eon, the utility, has the largest market capitalisation in Germany with €69bn ($88bn) and is trying to take over Spanish rival Endesa for €55bn including debt, but the German group is dwarfed by Gazprom, the Russian energy group worth more than $200bn. Other groups such as Siemens, MAN and Linde are shedding unprofitable or non-core businesses and buying in areas with better growth.

The head of a large listed German industrial group admitted: “It is definitely possible that a competitor from a developing country could buy us in the future. The most important topic for management right now is to deal with this threat. And the best way to do that is to push the share price as high as possible.”

Franz Fehrenbach, chief executive of Bosch, the privately owned engineering giant, which cannot be taken over owing to its ownership structure, said industrial companies from India and China were becoming more competitive at a daunting pace.

But executives still believe Germany remains attractive and can stay competitive. Mr Fehrenbach said: “We will have to use our strengths to an optimal level but I am still very optimistic.”
Copyright The Financial Times Limited 2006

German business confidence remains robust (FT)

German business confidence has slipped this month, pointing to an economic slowdown in the months ahead – but no dramatic deceleration after recent robust growth.

The Munich-based Ifo institute’s business climate indicator fell from 105.6 in July to 105.0 this month. That was stronger than expected and German business remained as upbeat as last month about the current business situation. “The German economy is still in a good condition,” said Gebhard Flaig, an Ifo director.

The surprisingly robust Ifo figures came as separate data pointed to a broadening of the country’s economic recovery this year. Details of second-quarter gross domestic product figures showed a 0.9 per cent growth rate – the fastest quarterly rate for five years – was driven by domestic demand. Investment in construction leapt 4.6 per cent and in machinery and equipment by 2.5 per cent.

In contrast, exports – which had originally powered the upswing in Europe’s largest economy – made only a small contribution to growth.

However, private consumption – long the Achilles’ heel of the German economy – fell unexpectedly by 0.4 per cent in the second quarter. That highlighted the continuing nervousness of German consumers, who continue to save heavily. Robert Barrie, economist at Credit Suisse, said private consumption was “the third stage of the rocket” and that the second stage – investment – “is growing very strongly”.

The closely-watched Ifo is regarded as a good indicator of likely future trends in the German economy. Earlier this year, it reached the highest levels for 15 years – foreshadowing the strong second quarter GDP figures. The revival in eurozone growth is expected to result in further interest rate rises by the European Central Bank, with the next increase expected by economists in October.

Thursday’s only modest Ifo index fall followed the plunge in the economic sentiment index published by the Mannheim-based ZEW institute to the lowest level in five year, which had pointed to a marked slowdown. Analysts had been sceptical about the ZEW result, however, which they said largely reflected economists’ fears about the impact of higher VAT rates next year.

Nevertheless, German economic growth is still expected to cool after the surprising robust second quarter. The three percentage point rise in VAT planned by Berlin for the start of 2007 could persuade consumers to bring forward spending into this but result in gross domestic product contracting in the first months of next year, economists believe.

Details of the August Ifo survey showed that expectations about the six months’ ahead deteriorated further, falling to the lowest level since last December.

However the component of the index covering the assessment of current conditions was unchanged at 108.6 – down slightly from June’s figure but otherwise the highest figure since 1991.

Dirk Schumacher, economist at Goldman Sachs, said: “The second quarter probably was the peak in terms of the growth momentum. However, with the labour market looking better each month and the investment boom to continue we should see solid growth in the rest of this year.
Copyright The Financial Times Limited 2006

Merkel tries to calm party spat (FT)

For insights into the formidable challenge facing Angela Merkel as German chancellor and leader of the Christian Democratic Union, one had only to visit the lobby of Berlin’s Congress Centre on Tuesday.

There, the delegates – employees, entrepreneurs, trade unionists – gathered for the CDU’s programme convention were re-enacting a month-old debate that is threatening her authority within her own party.

At issue is the liberal revolution Ms Merkel, chairman since 2000, triggered three years ago when she weaned her party away from its social brand of conservatism and steered it down a pro-market path.

Given the chancellor’s disappointing election result last year – the vote was a draw and she had to form a “grand coalition” with her rival Social Democrats – and the party’s recent fall in opinion polls, many are asking whether the revolution went too far.

After the Leipzig congress of 2003 that endorsed Ms Merkel’s reformist turn with audacious tax and healthcare reform proposals, “we saw a technocratic drift,” says Ingo Gondro, a delegate from eastern Germany. “We are facing a dispute about our principles and our identity.”
Since Ms Merkel entered the chancellery last November, her most vocal in-house critics have been in the CDU’s pro-business camp, where many think she is not living up to the spirit of Leipzig.

Three weeks ago, however, Jürgen Rüttgers, state premier of North Rhine-Westphalia and deputy CDU leader, opened a second front when he urged his party to shed its “capitalist” image if it was to avoid another debacle at the 2009 election. His supporters want a revision of the Leipzig resolutions.

Since then, both sides have swapped heavy fire, dragging Ms Merkel out of her reserve on Monday, when she rebuffed the leftwingers, painting them as defenders of the status quo in the face of unavoidable change.

Her keynote speech on Tuesday struck a more holistic note. But she made clear conservatism, defined as the preservation of special interests and the refusal to alter the dense network of rules that organises but also cripples the German economy, was a dead-end.

“Justice and solidarity” in the era of cut-throat global competition, she said, could only be achieved through “more freedom and individual responsibilities.”

As the lively discussions at the convention showed, tempers are running high. A panel on economic policy descended into chaos when the audience realised no questions would be allowed. “Leipzig is valid, period,” fumes Günter Schork, a former banker and member of the Hessian parliament.

The CDU platform was last revised in 1994 and the current discussion will stretch over a year. But the dispute is not academic, for the new programme will feed into the next electoral platform and decide which line – pro-business or social – the CDU adopts ahead of the ballot in three years’ time.

“This is hugely important,” says Peter Heesen, chairman of the DBB civil service trade union and long-time CDU member. “This is about the balance between the interests of business and those of the workers (…) We should not forget who gives us our majorities.”

While Mr Rüttgers now leads the leftwing rebellion, such influential figures as Roland Koch, premier of Hesse, stand behind the supply-side reforms. Both camps have large grassroots organisations.

The problem for Ms Merkel lies in her role as head of the grand coalition. Unable to translate her radical reform ideas into policies palatable to her coalition partner, she has acted more as a moderator than a leader, thus testing the patience of the pro-business camp that had backed her before.

Gerhard Schröder, Ms Merkel’s predecessor, angered his own grassroots with tough economic reforms and had to relinquish the SPD’s chairmanship while in the chancellery. Should Ms Merkel fail to complete her revolution, she could find the conflicting demands of her two jobs cannot be reconciled.
Copyright The Financial Times Limited 2006

German confidence plunges to 5-year low (FT)

German investor confidence has plunged this month to its lowest level for five years, suggesting that the recent strength of Europe’s largest economy might soon wane.

The Mannheim-based ZEW economic institute said that the unexpectedly steep decline in its economic sentiment index, by 20.7 points to minus 5.6 points in August, signalled “a considerable economic downturn within the next six months”.

The index has now fallen for seven consecutive months and was last lower in June 2001.

Although the ZEW index is regarded as volatile, its sharp drop removed the euphoria after last week’s gross domestic product figures. They showed the German economy grew faster than the US in the second quarter – and at the highest rate for five years.

The ZEW figures added to fears that Germany will see a significant economic slowdown next year. “Dark clouds will appear on the horizon,” said Wolfgang Franz, the institute’s president.
If confirmed by other data, such as the Munich-based Ifo business climate index released on Thursday, the latest fall may call into question further interest rate increases planned by the European Central Bank.

Prior to the August ZEW data, economists had expected the ECB’s main rate to rise by a further quarter percentage point to 3.25 per cent in October.

Forecasts that German economic fortunes are turning appeared to be supported by details of the survey. While gloom about the outlook in coming months intensified, investors’ assessment of the current economic situation improved this month to the highest level since November 2000. That concern about the future could also be reflected in a further fall in the Ifo index, economists said, extending July’s modest decline.

German investor sentiment in the past few weeks had been hit by fears that a slowing US economy a stronger euro will dampen German exports, ZEW said. There was also concern about corporate tax changes planned by Berlin and the impact on private consumption of high oil prices, and a three percentage point hike in VAT from next year.

Andreas Rees, economist at HVB bank in Munich, said the ZEW was a gauge of likely business conditions six months ahead. “Inevitably the outcome is bleak right now as a double whammy is waiting for Germany at the beginning of next year. Besides the VAT hike, which will dent consumers’ purchasing power, the US slowdown will weight on companies’ export performance.” However, he thought a recession was unlikely.

Julian Callow, economist at Barclays Capital, added: “It will be hard for the ECB to be raising rates on October 5 if the next two monthly rounds of business confidence data have shown some significant deterioration – the ECB’s tendency, when confronted with such developments, has tended to be to pause and await further news.”
Copyright The Financial Times Limited 2006

Merkel rules out shift to the left (FT)

Merkel rules out shift to the left


Angela Merkel, the German chancellor, crushed calls on Monday from her Christian Democratic Union for a leftward turn in the party’s economic policies as it seeks to counter its flagging popularity.
The comments broke three weeks’ silence by the chancellor after an acrimonious debate between partisans and opponents of pro-market reforms and liberalisation in the party she chairs.
“The biggest lie of all would be to say that (Germany) needs no – or only very limited – changes,” she told her first press conference since returning from holiday last week. “Change is necessary because the world is changing...And my feeling is that we need more rather than less freedom.”
Nine months after her election as head of a “grand coalition” of Christian and Social Democrats, the debate has revived a painful dispute within the CDU about the chancellor’s poor electoral showing last year and her policy decisions since.
CDU traditionalists, who blamed Ms Merkel’s election result on her reform-oriented campaign, now want the party to return to its social roots. The pro-market camp sees the chancellor’s failure to implement her economic ideas as the main factor behind the party’s plunging ratings.
A poll published last week by the Forsa research group showed 31 per cent approval for the CDU; a 14-point fall since the beginning of the year. With favourable opinions of only 37 per cent, Ms Merkel is now as unpopular as US president George W Bush at home.
The chancellor’s comment on Monday alluded to a recent interview by Jürgen Rüttgers in which the state premier of North Rhine-Westphalia and one of the CDU’s four deputy chairmen called on the party to shed its “capitalist” image. He said the belief that “tax cuts led to more investment and jobs” was a “lie”.
Since then, several senior CDU politicians have urged the party to revisit the resolutions reached at its 2003 congress in Leipzig.
With its innovative tax and healthcare proposals, the congress led by Ms Merkel marked a cultural turning point from socially conscious conservatism towards economic liberalism.
Karl-Josef Laumann, a prominent CDU traditionalist, called for a “general revision of the Leipzig conclusions” this week, saying: “I believe we would not reach the same resolutions again today because the framework has changed.”
Ms Merkel, however, made clear the CDU’s pro-market turn was irreversible. “Leipzig was a decisive milestone for the CDU,” she said.
The debate will reach its climax on Tuesday , as the party meets in Berlin to discuss a revision of its political platform, the first such revision since 1994.
Among other topics, the three-day congress will tackle that of the economy today.
She suggested a relaxation of job protection laws clinched with the SPD last year – the extension from six to 24 months of the trial period during which employees can be dismissed without compensation – may not happen. “The question there is whether it brings us any further or not. If not, it may be that sticking with the status quo is the best option.”
Copyright The Financial Times Limited 2006

German building sector pulls out of recession (FT)

Germany’s construction sector has emerged from a decade-long slump and no longer acts as a brake on economic growth in Europe’s largest economy, according to economists and companies in the sector.

Although hardly a boom, the bottom of the market has been reached, says Hans-Peter Keitel, chief executive of Hochtief, the country’s largest builder. “After almost 10 years of continual recession in the construction sector it is a highly important development: the market is moving upwards, even if it is in small steps . . .  If this development can continue, then construction can resume its traditional role as the motor of the German economy.”

The upturn in construction investment this year was cited by the federal statistics office earlier this week as a main reason behind a 0.9 per cent jump in German gross domestic product in the second quarter – the country’s fastest quarterly growth rate for five years. Domestic construction has been in the doldrums since the mid-1990s after a post-reunification boom that significantly overestimated demand for buildings.

Since then, the sector has lost 40 per cent of its revenues and half of its workforce but there are still broadly the same number of construction companies – 75,000 with only 6,000 employing more than 20 workers – meaning profitability is often elusive.

The biggest and most successful builders such as Hochtief and Bilfinger Berger generate most of their growth abroad.

“There is a huge atomisation in the sector and this leads to ruinous competition,” says Heiko Stiepelmann, deputy director of the HDB construction industry association. “But we are very positive because finally revenues have stabilised and we are thinking of lifting our forecast of 1 per cent growth this year.”

Construction order figures for June out later this month are expected to confirm a turnround since the middle of last year; May’s showed a jump of almost 12 per cent compared with the same month a year before.

Even if construction activity remained at the current level, that would be “good news” for Germany, says Dirk Schumacher, economist at Goldman Sachs in Frankfurt. “It would no longer be acting as a drag on growth.” The recession in German construction slashed GDP by more than 1 per cent in the five years to 2005, he calculates. In contrast, Spain’s booming construction sector increased GDP by 5.4 per cent over the same period.

The recent strength partly reflects a rebound after a bitter winter, which halted building work. Other exceptional factors may have been at work.

In stark contrast with the rest of the world, German house prices have hardly moved for a decade, though large-scale investments by private equity firms in housing have boosted hopes of a revival. Instead, the imminent abolition of private housebuilding subsidies for construction could have boosted orders last year; a planned three-percentage point rise in value added tax next year might have brought forward construction activity into 2006.

Public sector spending on construction appears to have recovered – but perhaps only because the pressures on finances are not as severe as in recent years. Infrastructure projects will remain vulnerable to the fiscal squeeze. However, the pick-up in business spending on construction almost certainly reflects the revived underlying strength of the German economy.
“The pick-up in housing and to a certain extent in public sector construction may reflect special, one-off factors. But businesses have invested in new premises to house the machinery they need for additional production – and that is a real sign of an economic upturn,” says Jörg Krämer, economist at Commerzbank.

“Construction will be one of the main drivers of Germany for the next few quarters,” says Mr Schumacher at Goldman Sachs. “But how sustainable is it? There are quite a lot of questions about 2007 and 2008.”

Mr Stiepelmann says a previous upturn in 2000 burned out almost as soon as it was noticed: “It was like a straw fire.” He is more optimistic this time but adds: “When you have lived through 10 years of ever- decreasing numbers, you are just thankful when the trend ends.”
Copyright The Financial Times Limited 2006

Peeling away Grass's morality (FT)

Peeling away Grass’s morality
By Christopher Caldwell
Published: August 18 2006 19:26 Last updated: August 18 2006 19:26

The new autobiography by the novelist Günter Grass, Peeling Onions*, has subjected Germans to a week of media uproar. On the eve of publication, Mr Grass revealed to the Frankfurter Allgemeine Zeitung that he served, in the last months of the second world war, in the Waffen-SS. The black-uniformed SS started as Adolf Hitler’s personal bodyguard. As it grew, it was given responsibility for running the Nazi death camps. It also spawned an elite combat unit, into which Mr Grass was drafted. The Waffen-SS was not the part of the SS most implicated in crimes against humanity and Mr Grass says he never fired a shot while he served.

But Mr Grass is often seen, at home and abroad, as the “conscience” of his nation. His revelation – and the realisation that, for six decades, he gave a false account of his role under the Nazis – has thrown Germans into moral disarray. Some applaud his courage, while others suggest he should give back the Nobel Prize he won in 1999. The novelist Martin Walser has leapt to Mr Grass’s defence, while the historian Joachim Fest assails him for hypocrisy. Charlotte Knoblauch, president of the Central Council of Jews in Berlin, suspects a publicity stunt. Mr Grass is laying into his critics, accusing them of trying to make him into a “non-person”.

Why this upsets people so much has to do with the way Mr Grass played his role as official conscience. First, he was pitiless. It is true that, until last week, Mr Grass had seemed not to spare himself. He has always admitted that he was enchanted by Nazism as a teenager, joined the Hitler Youth and was a true believer until the war’s end. “As a child, I witnessed how all this happened in broad daylight,” he said in the FAZ interview. “And, in fact, with enthusiasm and encouragement.” But minimising things by putting them into context was not always Grass’s signature approach. He specialised, rather, in moral keelhauling, dragging Germans over the sharpest barnacles of their past.

Second, he was a political partisan. He campaigned for the centre-left Social Democrats and opposed German reunification. Even in his FAZ interview, he attacked the Christian Democrats who built up the post-war German constitutional order. (“We had [the chancellor Konrad] Adenauer – horrible! – with all the lies, all that Catholic stuffiness.”) Never was his engagement more pointed than in 1985, when he assailed Helmut Kohl, then chancellor, for meeting Ronald Reagan, then US president, in Bitburg, at the grave site of soldiers who had – like Mr Grass himself, it turns out – fought with the Waffen-SS.

For decades, those born in the late 1920s – Mr Grass, Mr Walser, Mr Fest, the poet Hans-Magnus Enzensberger, the philosopher Jürgen Habermas and others – have set the moral tone in Germany. Only recently have younger Germans begun to ask when they will get a say. Two novelists, Eva Menasse and Michael Kumpfmüller, complained in the Süddeutsche Zeitung this week that the Grass affair resembled a “class reunion of old German intellectuals” and that more ink had been spilt on it in three days than over Israel’s month-long struggle against Hizbollah. “No more confessions, please,” they wrote. “Is there nothing else to talk about? Where are the voices on current questions of politics and morals? It is high time for this country to free itself from the self-absorption of its onion-peeling Nazi discourse, and for turning our gaze away from our own navels and towards the world.”

Certainly, this is a different debate from the one that would have taken place 10 years ago. Mr Grass has outlived the era in which his country’s misdeeds were the primary focus of western public morality. But since these crimes have been addressed on terms partly set by Mr Grass, the question of where his moral authority came from is important. Why, among ex-Nazis, was he considered reliable, while others lived under a permanent cloud? Did he understand the war better? Had he performed a particularly thorough penance? (“Certainly, I believed that I had done enough with the writing I had done,” he said last week.) Or was he merely a member of an “in” crowd that had monopolised Germany’s self-understanding?

Siegen macht dumm Mr Grass has often said – winning makes you stupid. Military defeat, he thinks, has allowed Germans to face up to more of their past sins than the English, the French, the Dutch or the Belgians did after colonialism. But might not the same formula be applied to the intellectual left in post-war Europe? There has never been a battlefield rout more complete, nor a peace more Carthaginian, than that of “progressive” intellectuals over “conservative” ones in the past half century.

Mr Grass’s occasionally ferocious anti-Americanism, for instance, may stem from some post-war discovery, like his exposure to segregation in Bad Aibling in 1945. Last week, he recalled how in American camps the whites called the blacks “nigger” and kept them in segregated barracks. But it is not impossible that intellectual victory has led Mr Grass to miss something and that his anti-Americanism draws its inspiration from older sources.

The political scientist Claus Leggewie has observed that the builders of post-war German democracy were often “not shining heroes with spotless careers but people with dubious biographies”. They had something to prove. In Die Tageszeitung last week, Mr Leggewie described Mr Grass’s decades of judgmentalism as “a form of overcompensation”. If Mr Leggewie is right, then Germany is now debating a basic and troubling question about what political opinions are in the first place – whether they arise from looking at the world and reasoning about what is right, or from looking into one’s heart and taking a stand against what is most dangerously wrong.

*Beim Häuten der Zwiebel, Göttingen (Steidl Verlag)
The writer is a senior editor at The Weekly Standard
Copyright The Financial Times Limited 2006

Köhler urges Merkel to take more action on reforms (FT)

Angela Merkel, German chancellor, returned from holiday on Thursday to face renewed pressure not to waiver from economic reforms, as federal president Horst Köhler added his voice to business leaders and economists calling for more determined action.

President Köhler told foreign correspondents in Berlin that the German chancellor should not become complacent simply because of recent positive economic data. German economic growth in the second quarter, at 0.9 per cent, was the highest in five years, and adjusted unemployment, which fell to 4.4m in July, was the lowest since 2004.

Government leaders have been quick to welcome the improvements but Mr Köhler said: “What’s important is that we not only celebrate the good economic news but work to ensure growth becomes lasting and more dynamic. We know that one swallow does not make a summer.”

Although the president – a former head of the International Monetary Fund – has a largely ceremonial job, he comments more regularly than his predecessors on economic issues and in his remarks to the foreign press stressed an especially sensitive point for the chancellor.

He said that while he agreed with the government’s broad reform agenda – focused on budget consolidation plus health and corporate tax reforms – the way the chancellor’s left-right coalition explains its actions to the public was below par.

“One could improve the [coalition’s] communications”, he said, adding that the coalition should “use more examples to make clear how the reforms are paying off”. The comments by the president – a Christian Democrat ally of the chancellor – are awkward for Ms Merkel as they reflect public disquiet with her recent performance.

In an opinion poll this week her ratings among voters as their preferred chancellor fell below the 40 per cent mark for the first time since she took office last November. Her 37 per cent score compared with 55 per cent six months ago.

A complicated package of health sector finance reforms put forward in July was savaged by business and health experts, with complaints from her own supporters that the measures had been poorly presented.

The economic upturn has also pushed the government on to the defensive over its planned 3 percentage point hike in value-added tax next January, with CDU politicians and business executives arguing that the move is no longer necessary. Peer Steinbrück, finance minister, this week ruled out withdrawing the tax increase.

Mr Köhler warned the finance minister that the extra tax revenues from the VAT increase should not mean less enthusiasm for budget savings.

On her part, Ms Merkel sought to play down the negative political mood, arguing that her priorities this autumn were the health and corporate tax reforms, as well as further labour market changes.

Her most immediate challenge is to identify how Germany will contribute to the United Nations peacekeeping force in Lebanon while avoiding scenarios where German troops could be expected to shoot at Israeli soldiers or civilians.
Copyright The Financial Times Limited 2006

Population decline worries Germany (FT)

German statisticians rang the population alarm bells again yesterday, announcing that the country had 65,000 fewer people last December 31 than a year earlier - a statement likely to quicken steps to open the country's doors a little more widely to immigrants.

Germany's population declined to about 82.4mlast year, as deaths (830,000 in 2005) exceeded live births (686,000) by 144,000, oneof the biggest gaps since 1990.

The positive number of new immigrants - 79,000 more people moved to Germany than moved away - was not enough to compensate for the lack of babies.

The new figures coincide with an upsurge in activity in Chancellor Angela Merkel's left-right coalition on the population issue. Hugh Williamson, Berlin

Günter Grass im Interview: „Warum ich nach sechzig Jahren mein Schweigen breche“ (FAZ)

11. August 2006
Zum ersten Mal nach mehr als sechzig Jahren spricht Günter Grass über seine Mitgliedschaft in der Waffen-SS. Als Fünfzehnjähriger hatte er sich noch als Hitlerjunge freiwillig zu den U-Booten gemeldet, mit siebzehn wurde Grass einberufen und kam vom Arbeitsdienst zur Division „Frundsberg“, die zur Waffen-SS gehörte. In seinem Erinnerungsbuch „Beim Häuten der Zwiebel“, das im September erscheinen wird, beschreibt Grass seine Kindheit in Danzig, die letzten Kriegswochen als Soldat, in denen er nur mit knapper Not dem Tod entkam, die Kriegsgefangenschaft und die Wirren der ersten Nachkriegszeit.

Germany searches for more investors (FT)

The faltering relationship between German private investors and equities has suffered a further setback with the recent turmoil in global financial markets.

German industrial data point to growth slowdown (FT)

German companies made fewer goods in June than in the month before and ex-ports rose less quickly than imports, indicating that growth in Europe's largest economy may have peaked in the second quarter of the year and could be slowing.

Merkel ally says capitalist image must go

A senior member of chancellor Angela Merkel's Christian Democratic Union urged the party to shed its "capitalist" image yesterday, underscoring the deteriorating relationship between the German government and business.

"The CDU is not a capitalist party," Jürgen Rüttgers, state premier of North Rhine-Westphalia and one of the party's four deputy chairmen, told Stern weekly: "It is a community of values that is not just rooted in materialism."

Sharp drop in German unemployment (FT)

Unemployment in Europe’s largest economy registered its third-sharpest fall since the early 1990s in July, taking economists by surprise as Germany’s economic recovery was finally shaking up its long-depressed labour market.

“The figures are considerably better than expected, and that’s across the board,” said Elga Bartsch, economist at Morgan Stanley, after the Federal Labour Office said on Tuesday seasonally adjusted unemployment had dropped by 84,000 since June to 10.6 per cent of the active population.

The release is the latest in a sustained raft of positive economic news out of Germany, including a 0.8 per cent quarter-on-quarter rise in retail sales for the three months to July, the biggest in two years, as reported by the Federal Statistical Office this week.

While most economists now bank on growth of around 2 per cent this year, Germany will face formidable challenges in 2007, they warn, as reflected in weakening forward-looking confidence surveys.

Topping the list is the threat of a slow-down in the world economy and particularly the US, which would be a major setback for Germany’s export oriented industry.

Other adverse factors include political instability in the Middle-East, rising eurozone interest rates and a massive three-point rise in German value-added tax next January.

“I am bullish for this year. But the big question is about next year,” said Ms Bartsch. “The VAT rise will drag down growth next year, but on its own it will not derail the recovery. The biggest risk of all is the fate of the US economy.”

Concerns about the sustainability of the recovery could account for the remarkable rise in demand for temporary workers, as reported by temping agencies, although companies typically resort to temporary workers in the early phase of a recovery.

The heavy reliance on temporary staff is the most plausible explanation for a discrepancy between the improving job market statistics and corporate restructuring indicators, which show the number of lay-offs announced so far this year exceeding the 2005 figures.

Internationally comparable labour market figures released on Tuesday by the statistical office, which lag behind the Labour Office’s statistics by one month, showed a seasonally adjusted fall month-on-month fall in jobseekers of 60,000 in June and a 7.8 unemployment per cent rate.

The statistical agency also reported robust rises in both employment and vacancy figures in June and a marked improvement in the number of un-subsidised jobs, adding to the positive picture.
However, labour market data have been notoriously difficult to interpret lately because of numerous distortions. An unadjusted 12,000 fall in unemployment for July, the first since the 1970s, suggest the figures may have been boosted by the one-off effect of the football World Cup.

The later start to the German summer holiday season this year could also have affected the figures on the positive side, suggesting a possible correction in August.

■ Separately, Tuesday’s survey of European Purchasing Managers’ Index showed prices manufacturers in the Eurozone pay for raw materials and charge for their products grew fast in July than a month before, suggesting that the European Central Bank will raise rates on Thursday to stem inflation.

The data again highlights mounting price pressure despite the fact that orders booked by the 3,000 companies surveyed grew less strongly last month than the month before that.

The overall PMI slipped to 57.4 points in July from 57.7 in June, though the index remained well above the 50-point-marker to signal continued growth. The input price index rose to 73.5 from 71.5 points and the output price index to 57.3 from 56 points.

This suggests raw-material price rises are driving up manufacturing costs, which businesses are passing to consumers. The ECB is observing “strong vigilance” and economists expect it to raise rates by a quarter-point to 3 percent on Thursday.

Additional reporting by Gerrit Wiesmann in Frankfurt
Copyright The Financial Times Limited 2006

German families reducing their ownership roles (FT)

Germany's economically important family companies face a sweeping transformation, with only about a third of those changing ownership expected to stay in family hands, according to a survey.

Germany 'will make budget cuts priority for 30 years' (FT)

Germany's era of fiscal profligacy has come to an end and budget cuts will remain a priority for at least three decades, the most senior aide to Chancellor Angela Merkel has warned.

Thomas de Maizière, head of the chancellery and a close Merkel confidant, told the FT the government's efforts to bring the budget deficit back within the margins allowed by the constitution and the European Union's fiscal rules were "not the end of the road by a long stretch". "No matter how the economy turns out, my prediction is that fiscal consolidation will remain a priority of all governments for the next 30 years," he said. "For decades we have lived beyond our means and we will have to pay the price over decades."

After breaching the EU stability pact every year since 2002, Germany's public-sector deficit is set to fall back below 3 per cent of gross domestic product this year or next. The 2007 budget will also keep net borrowings under public investments, as mandated by the constitution, for the first time since 2002.

Mr de Maizière's comments should squelch any hopes within the business community that the government might reconsider its three-point rise in value-added tax next year given persistently feeble consumer spending and uncertainties regarding the solidity of the economic recovery.

Some economists also fear Ms Merkel's crackdown on deficits, could prove short-lived, as the government has favoured the immediate relief of tax rises over structural reforms that would bring longer-term savings.

They are concerned, too, about the government's ability to reverse spiralling spending on unemployment benefits after the failure of Hartz IV, for the long-term unemployed, caused a 71 per cent overrun last year.

Mr de Maizière rejected the suggestion that the government's consolidation drive would peter out in 2008 as it failed to address the structural deficit.

"We must keep reducing our net borrowing and our structural deficit, especially since we have now practically exhausted one-off revenues," he said. "Continuity and the long-term view are crucial. We cannot rule at the expense of future governments."

The comment was a thinly disguised swipe at Gerhard Schröder, Ms Merkel's predecessor, under whose second term the budget deficit ballooned, marking the first sustained break with the postwar German tradition of budgetary rectitude.

Mr de Maizière also defended the government's confrontational attitude towards the country's main lobbies, from business federations to trade unions and the myriad organisations that owe their existence to Germany's lavish social security system. "The lobbies have a legitimate right to represent their interests. They have a right to partisanship and one-sidedness," he said. "But we must treat them as such, which means we must always balance their interests against the common interest."

Draft reform of the statutory health insurance system has sparked an uproar among public-sector health insurers, prompting their seven representative bodies to announce an all-out public relations campaign against the project.

The federations are un-happy both about the draft, which they claim will send administrative cost in the statutory health insurance scheme rocketing, and about the government's failure to consult them.

"For a lobby group to conduct itself as though it were the parliamentary opposition reflects a fatal misunderstanding of the role of the lobbies," Mr de Maizière said.

Copyright The Financial Times Limited 2006

Merkel aide sees 30 years of budget cuts (FT)

Germany’s era of fiscal profligacy has come to an end and budget cuts will remain a priority for at least another three decades, the most senior aide to chancellor Angela Merkel has said.

Germany wants G8 focus to return to economy (FT)

Germany is to lead the Group of Eight leading industrialised nations away from its focus on development issues when it takes over the rotating presidency next year.

Instead, Angela Merkel, chancellor, wants next year's summit to focus on economic issues - not least the issue of global imbalances. She believes the G8's agenda has become too broad. In recent years it has focused on poverty in the developing world, climate change and pandemics.

German consumer confidence rising (FT)

German consumer confidence will hit a five-year high next month, a survey predicted yesterday, as shoppers see the advantage of making big purchases ahead of January's planned three percentage points rise in VAT rates.

Germany's top CEOs are united on the touchline (FT)

Forget Davos or any industry meetings - if you wanted to find the biggest possible gathering of German, and global, chief executives this year look no further than last night's World Cup final between Italy and France.

The heads of groups from Adidas and Deutsche Bank to Bayer and Deutsche Telekom were in Berlin's Olympic Stadium, perhaps as much to see each other as the Azzurri take on Les Bleus. Even Carlos Ghosn, Renault and Nissan's boss, was there, taking a break from trying to form an alliance with General Motors.

Hubertus von Grünberg, chairman of Continental, a German car-part supplier and World Cup sponsor, said: "I'm not particularly interested in football but I like going to games like this because you meet such interesting people."

The relaxed atmosphere is one advantage and, unlike other events where they might bump into each other, the focus here is football - not business.

"It is a networking event outside the normal meeting places we have in a very special atmosphere," said Hakan Samuelsson, chief executive of MAN, a German truck maker, who also admitted to not being a "big football fan".

The Swede even supported Germany when his home country met them in the competition, joking that as business and consumer confidence improved in the host country with each win. "I was thinking about thesales of trucks," he said.

Rainer Schmückle, chief operating officer at Mercedes, a division of car-maker DaimlerChrysler, said: "Watching football is much more personable than Davos."

Wulf von Schimmelmann, head of Postbank, Germany's largest retail bank, said: "In the middle is the game and all the emotions that go with it and that makes for a much richer experience. It is a way to deepen business contacts without really talking about business."

For many executives Italy versus France was a chance to watch the World Cup live after a busy few weeks.

Klaus Kleinfeld, chief executive of Siemens, the German conglomerate, was forced to work through the Germany-Sweden match on a Saturday, only turning round each time the noise from the television told him a goal had been scored.

His invited guest for the opening game, Werner Wenning, Bayer's chief executive, was even more unfortunate having to cancel at the last minute as Merck, a rival drug company, looked like scuppering his takeover of Schering. "He was almost in tears when he had to cancel," said Mr Kleinfeld. But Mr Wenning made it to Berlin last night.

Not all businessmen are there for the networking opportunities. Some, such as Heinrich von Pierer, Siemens' chairman, are big football fans.

For Dieter Zetsche, DaimlerChrysler's chief executive, a reception with Angela Merkel, the German chancellor, before Germany's last game on Saturday was in stark contrast to how he watched the semi-finals. "It is certainly more pleasant than seeing it in a Tokyo hotel room at 4am," he said.

Copyright The Financial Times Limited 2006

Merkel’s marriage of convenience looks shaky (FT)

Last week, something profound happened in Germany. A large number of Germans lost faith – not in their spirited football team, but in their spiritless government. The trigger was a shocking healthcare reform package, which Angela Merkel, the German chancellor, hailed as a big step forward. Some political commentators joked that Jürgen Klinsmann, the national football coach, might make a more effective political leader.

Ms Merkel’s star has tumbled over the past week as the government’s reform agenda has come unstuck. Only seven months ago she enjoyed the highest popularity ratings ever recorded by a postwar chancellor. Today it looks as if the grand coalition of Social Democrats and Christian Democrats is failing to deliver change. Der Spiegel, the influential German news magazine, last week asked whether she might end up as a less successful chancellor than Gerhard Schröder, her not very successful predecessor.

How could the public’s opinion of Ms Merkel and her government change in such a short time? Looking at Germany from the outside, Ms Merkel appears to be a modern, dynamic leader. She has transformed the country’s foreign policy. She managed to mend relations with George W. Bush, US president, with whom she has established a good personal rapport. She was instrumental in the difficult negotiations over the European Union’s budget. Under her leadership, Germany has become a more reliable and effective player in EU politics. After seven years of Mr Schröder’s national corporatism, Ms Merkel seemed like a breath of fresh air. What happened?

The basic problem with Ms Merkel is her evident lack of a coherent domestic policy agenda. She is respected for her intelligence and efficiency. But as chancellor of a grand coalition, she seems to value the fact of a compromise more than its content. When in opposition, she went out of her way to associate herself with radical reform ideas such as a flat income tax. In government, she appears to have made a Faustian pact with the enemies of reform.

Healthcare reform should have been the defining issue for this grand coalition. Ms Merkel said so herself many times. The problem with the German system is not its quality, but how it is financed. Germany has a compulsory insurance scheme, paid for by employers and employees in equal measure. It is not the only country in the world facing rising healthcare costs, but in Germany those costs are linked to wages. Without structural reform, the rise in healthcare costs will lead directly to a loss in competitiveness.

The compromise Ms Merkel tried to sell to the German public last week failed the main test – to break the link between health costs and wages. Nor did it include market-based mechanisms that would put a lid on overall spending on healthcare. Its main element was an increase in user charges. What Ms Merkel calls reforms in reality amount to little more than a hike in insurance rates. The main structural change is a new layer of bureaucracy to shuffle money between patients and the various health insurance companies.

The irony here is that the Christian Democrats and Social Democrats each started out with workable proposals. It is the compromise between the two that does not work. The SPD wanted a tax-based health insurance system with some similarities to Britain’s National Health Service. The CDU favoured a system with greater market freedoms. Both proposals would have led to a gradual delinking of healthcare costs from wages. Both would have restrained total healthcare spending, albeit through different mechanisms. If they had not been stuck in this wretched grand coalition, either party might have delivered a better system on its own.

Until last week, the public and the business community gave Ms Merkel and her coalition the benefit of the doubt. The country had been enjoying a cyclical boom. It seemed the wrong time to spoil the party when the economy appeared to be doing so well. But it was becoming increasingly obvious that this was a fool’s paradise. When the cycle turns down, as it eventually will, the country’s old economic problems will resurface, unless the government implements economic reforms. So far, the government has wasted precious time.

Last week, the critics finally came out from their hiding places. Rarely have German political commentators used such vituperative prose as they did last week. The style of debate is getting rougher even within the grand coalition itself. Its leaders spent the last few days openly trading insults, accusing each other of a breach of trust. After seven months, this is the first genuine coalition bust-up.

Grand coalitions are marriages of convenience. They are not meant to last forever in a modern democracy. The healthcare debacle has shown that this particular marriage is not nearly as convenient as it first appeared. Do not expect any upheavals in the short term. There is at the moment no alternative to this grand coalition. But it is far from certain that it will last the full term.
wolfgang.munchau@ft.com

Germany presses on with contentious law (FT)

Germany is to press ahead with a contentious law despite claims by Brussels that the legislation would protect Deutsche Telekom from competition.

The proposed measure could allow Deutsche, Europe's biggest phone company, to restrictrival operators' access to the €3.3bn ($4.2bn) broadband network that it is building.

But after a meeting in Berlin with EU telecoms chief Viviane Reding, Michael Glos, economy minister, yesterday insisted that the legislation would meet European rules and spur investment.

Sarah Laitner, Brussels

Copyright The Financial Times Limited 2006

Germany ‘on course to meet EU fiscal rules’ (FT)

Germany’s public finances have been brought under control, setting the country on course to comply with European Union fiscal rules for the first time in five years, the government declared on Wednesday. The brighter outlook for Europe’s largest economy was also boosted by data suggesting the football World Cup was helping the upswing.

Peer Steinbrück, finance minister, said Germany was returning to its “responsible role” in EU fiscal affairs, with the budget deficit likely to fall to 3 per cent of gross domestic product this year and to 2.5 per cent in 2007.

The budget turnround reflected the strength of German growth, which could approach 2 per cent this year – high by the country’s recent standards – but could slow the pace of expansion in months ahead. “It is a good year, yes, but the degree of fiscal tightening is enormous,” said Jörg Krämer, economist at Commerzbank.

Over the past five years, Berlin has clashed repeatedly with Brussels over its budget deficit. Mr Steinbrück expected the European Commission would soon drop any formal steps against Germany.

France has also reported progress in restoring its fiscal record.

Separately the German minister said his planned corporate tax reforms would in the long term cut companies’ overall tax bills by up to €5bn ($6.4bn £3.4bn) a year.

The reform aims to cut average nominal tax rates by nine percentage points to around 30 per cent from 2008.

Mr Steinbrück’s comments came as figures showed German service sector growth had accelerated sharply last month.

NTC Economics said the “business activity” index it publishes with the Royal Bank of Scotland was at the highest since the survey began in June 1997.

The jump was attributed largely to the World Cup, which boosted activity in sectors such as hotels and transport.

Across the eurozone, service sector growth was at a six-year high, confirming the robustness of the economic recovery in the 12-country region.

The European Central Bank will be watched closely on Thursday for signals about expected further rises in interest rates, although its main rate is expected to be left unchanged at 2.75 per cent.

The precise economic impact of the World Cup on Germany remains unclear – especially after its national team lost to Italy on Tuesday night. Chris Williamson, economist at NTC Economics, said some activities such as home improvements would “be affected by people’s obsession with football”.

A sharp fall in German high street sales in May – in the run-up to the World Cup – largely explained unexpectedly weak eurozone retail sales figures on Wednesday, which were 0.6 per cent lower than in April.

Copyright The Financial Times Limited 2006

Germany's World Cups: less cold war, more commerce than in 1974 (FT)

Few people are in a better position than Bernd Bransch to welcome as a "refreshing change for Germany" the flag-waving that is accompanying the national team's progress through the football World Cup.

The imposing defender who captained communist East Germany's team in the 1974 cup - the last time the competition was staged in Germany - remembers no displays of "such relaxed patriotism" back then, in either the west or the east.

"Things were much more restrained back then" as memories of the country's Nazi past were still relatively fresh, he recalls in an interview at his home football ground in Halle, south-west of Berlin.

As for Mr Bransch, Germany's success so far in this year's tournament has for many of his compatriots revived memories of 1974. Now as the team prepares for tomorrow's semi-final match against Italy in the western industrial city of Dortmund, many Germans in both the east and west are recognising anew the radical changes the country has gone through over these three decades.

The fall of the Berlin Wall and the euphoria of unification of east and west in 1990, and Germany's emergence as a "normal" European country that has become a vital player on the world stage, are just some of the staging-posts of the last 16 years.

In Angela Merkel, Germany has its first female chancellor. She is also the first leader from the former East Germany - a personal history she shares with Michael Ballack, captain of the national team.

Some trace the overwhelmingly positive atmosphere in Germany since the tournament opened last month at least in part to these historic transformations.
"The whole background to the [German] bid for the World Cup was to show the world that Germany has changed. The warm welcome [this month] for the foreign fans, and the flags waved by ordinary Germans, suggests this is working," says Ulrich Hesse-Lichtenberger, author of a social history of German football.

For Mr Bransch, it was the "cold war atmosphere" of the 1974 tournament that stands out in contrast with today. In particular, West Germany was "absolutely convinced" they would thrash his eastern team. In fact East Germany shocked the sporting and political world with a 1-0 victory.

The communist regime "used the victory to score points in the class war with the west", he says. The historic match was the only time the West and East German sides met for a full international game. Despite the defeat in the tournament's qualifying stage, West Germany went on to beat Holland in the final.

Mr Hesse-Lichtenberger says there are parallels in the security worries in both 1974 and 2006. The 1974 event came only two years after Palestinian terrorists killed Israeli hostages at the Munich Olympics, while al-Qaeda - and football hooligans - are the main threat today.

Yet politics aside, the focus in the 1974 tournament "was really on the matches, on football. In contrast, in this year's competition that is only one of many considerations [for the organisers]", he says, pointing for instance, to the central role of business and of Germany's image campaign in shaping the event.

For Jürgen Croy, East Germany's goalkeeper in 1974, the turning point in this transformation process was the fall of the Berlin Wall in 1989.

In frequent job changes that mirror broader patterns in eastern Germany since unification, he has turned to business and politics, working at times for Puma, the sports goods maker, and as mayor of Zwickau, his home town south of Leipzig. "I've been glad to meet new challenges," he says.

Mr Bransch is pleased history appears to be coming full circle. The German football association has given East Germany's 1974 team free tickets for some World Cup matches, and Mr Bransch is attending tomorrow's semi-final.

He hopes for a win, of course - but knows that, even if Germany lose, he will have his own, rather special memories to hang on to.
Copyright The Financial Times Limited 2006