Gerhard Schroeder's High-Stakes Gamble

Insight on the News, November 10, 2003 | Go to article overview

Gerhard Schroeder's High-Stakes Gamble


Byline: Jamie Dettmer, INSIGHT

LONDON - Gerhard Schroeder's High-Stakes Gamble

German Chancellor Gerhard Schroeder has taken the gamble of his political life by ordering the first cut in pension benefits in postwar German history. The cut one of five cost-saving measures designed to plug a budget shortfall likely will make his government or break it. The move could alienate large sections of his Social Democratic Party and may, if it fails and is beaten in Parliament, scuttle his ambitious structural-reform package, which is designed to stimulate employment by lowering nonwage labor costs.

Schroeder is under pressure to jump-start an ailing economy that is flirting with recession and has grown a paltry 1.3 percent annually, on average, during the last decade. Germany's poor economic performance during the last 10 years partly can be traced to the aftereffects of German reunification the mistaken decision to equalize Western and Eastern wages and benefits at the start has meant German public subsidies have been soaked up, dragging down the country's competitiveness and growth.

But the rigidities of the labor market and the cost of the welfare state also are to blame. High taxes and social-security contributions have deterred companies from hiring and put off foreign investors. Until Germany gets its economic house in order, experts say, the euro area will continue to underperform as well.

Forgive Iraq's Debt?

The debate continues about what to do with Iraq's massive Saddam-era debts. Should creditors forgive them or insist on payment? In October the South Korean firm Hyundai Motor Co. announced that it is organizing a coalition of companies to seek repayment of more than $10 billion in such debts.

U.S. officials fear the debt issue will undermine efforts to secure major foreign donations for the rebuilding of Iraq. Some officials argue there is a good case in terms of justice and economic expediency to write off most of Iraq's $350 billion debt. They say German debt largely was forgiven in 1945 and that the burden of the debt will cripple Iraq for decades.

But the argument is unlikely to sway creditors, who no doubt will allow a rescheduling and writing down of the debts but not a write-off. The main argument? It would set an awful precedent and allow countries that move to democracy or just change regimes to walk away from debts.

Buffett Backs Hunt For Natural Gas

Billionaire investor Warren Buffett has teamed up with a veteran gas hunter to prospect for natural gas in Poland, the business has learned. So far, more than 15 sites have been drilled and the company Buffett is backing, FX Energy, has hopes of making a significant commercial find soon. …

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