Germany's New Start (Not)

Article excerpt

Europe's largest economy - and the world's third largest - opens a new chapter in history Tuesday. Angela Merkel becomes Germany's first female chancellor, and its first from the former communist East Germany. But these firsts won't be enough.

Ms. Merkel likens the job of reviving and reforming her country's moribund, welfare-burdened economy to the task of rebuilding Germany after World War II.

Certainly, the citizens of Germany, idled with a jobless rate of 11 percent and discouraged by a forecast economic growth rate of a tepid 1 percent, want Ms. Merkel to succeed. And so do neighbors such as France, itself struggling with high unemployment that's helped to fuel a social explosion in its largely Muslim community.

And yet, it's hard to see how no-nonsense Merkel can get the job done based on the policy plan her party agreed to with its rival - now turned coalition partner.

In Germany, there's no more urgent task than revving up the economy. Basic economics would prescribe two ways of doing that. Depending on ideological preference, the government could choose to invest in job creation (a "New Deal" approach), or it could stimulate growth by cutting taxes (a la Ronald Reagan and George W. Bush). These are stimulants that, in Germany's case, would have to be accompanied by major reform to its bloated welfare system and inflexible labor market.

Stunningly, the two parties in Germany's new coalition government chose none of the above. Instead, they opted for an overarching goal of fiscal discipline, bringing Germany's budget deficit to heel so that it falls within agreed upon guidelines that govern Europe's single currency, the euro. …