Crisis to greet Germany's 'Herr Blair'

By Gwynne Dyer

LONDON (JP): "The audience's fatigue won out," wrote Munich's Sueddeutsche Zeitung on Sunday night as German Chancellor Helmut Kohl went down to defeat. "(Kohl) held power so long, 16 years long, because his way of exercising power had something soothing, almost banal about it. But towards the end the feeling got stronger and stronger that the same old song was no longer good for new times."

Fair enough, but they shouldn't expect new tunes from Gerhard Schroeder, the man who finally toppled Kohl and completed a center-left sweep of all four big European Union countries (Germany, France, Britain and Italy). "Realism and action are more important to us than ideology," Schroeder promised, seeking to counter Kohl's "red-scare" campaign against his Social Democratic Party (SPD) and its likely coalition partners, the environmentalist Greens. "We won't do everything differently, but we'll do it better."

In fact, they'll probably just do less, because the new German government is almost bound to be semi-paralyzed by its internal divisions. The SPD may have gone all centrist, but the Greens espouse policies like removing all nuclear weapons from Germany, letting Turkey into the European Union, banning genetically modified foods, and legalizing soft drugs.

They won't win many of the arguments, but it's going to be a very bumpy partnership. Which means that the largest country in the European Union is getting a new and inherently weak government just three months before 200 million Europeans abandon their traditional marks, francs, liras, pesetas and guilders in favor of the "euro".

Changing currencies is always a delicate business, but here we have the second-largest economic bloc in the world attempting to change currencies in the midst of a global market meltdown. This may end up being a quite exciting exercise, for the "single currency" was very specifically Helmut Kohl's baby, meant to tie Germany inextricably into Europe and so "Gulliverise" the dangerous giant that was created by unification in 1990.

If Kohl were still the German chancellor on Jan. 1, 1999, the markets would doubtless trust him to do whatever was needed to make the new currency's birth a success. Whereas Schroeder was a late and reluctant convert to the euro, and most people suspect that he only changed his religion for electoral purposes: he has never said a kind word about the euro in public.

If the markets don't trust Schroeder to defend the euro, then it is very vulnerable indeed. In the circumstances, the safest course would be for Schroeder to propose a two-year postponement of the introduction of the euro the moment he takes office. Nothing would be lost except a bit of face (none of it Schroeder's), and the possibility of the global panic spreading into European markets would be much less. But the likelihood that Schroeder can form a cabinet capable of such decisive action is approximately zero.

History at the best of times tends to be one damned thing after another, and these are not the best of times. The financial crisis that began sixteen months ago with the devaluation of the Thai currency has spread inexorably until it engulfed first all of South-East and East Asia, then Russia, and now even one of the biggest Western hedge funds, U.S.-based Long-Term Capital Management (which was bailed out for US$3.5 billion last week).

At this point in the proceedings, a happy ending to this economic cycle seems highly unlikely. (But then, when have they ended happily?) However, this still leaves us with a range of options from "small recession, not many hurt", at the optimistic end, to a reprise of the Great Depression at the other extreme.

The likeliest outcome, of course, is somewhere in between. Just where in between depends to a large extent on the actions of governments -- but this makes for a grim scenario, since almost all the larger countries have governments of unprecedented weakness.

The limiting cases, of course, are the American and Russian governments, which are respectively paralyzed by sexual scandal and systemic collapse. But few other big countries are in better shape.

Japan's new prime minister, Keizo Obuchi, is a neutered compromise not expected to last more than a year or two. France's President Jacques Chirac shot himself in the foot by calling a premature election that gave the socialist opposition a parliamentary majority. Italy's Prime Minister Romano Prodi faces an imminent Communist threat to topple him. Even India has a highly unstable government; among the 10 biggest economies, the only ones with strong and stable governments are Britain, China and Canada.

Gerhard Schroeder fits very comfortably into this alarmingly large group of under-achievers: he is a man who promises little and will probably deliver less. He has been marketed in Germany as "Herr Blair", the German clone of Tony Blair, who led the British Labor Party back into office last year after 18 years in the wilderness, but his credentials as a "new man" are rather shaky.

Quite apart from the fact that Schroeder is older than Blair, has been married four times, and never played guitar in a rock band, he simply lacks visible ideas of his own. He claims to represent Germany's "New Center", but most of his own party, the SPD, is well to his left, and his probable coalition partners, the Greens, are somewhere else entirely.

In the next six months, Schroeder will be called on to take over the presidency of the European Union and preside over the introduction of the euro; to approve or veto NATO military action in Kosovo; to decide whether and how to rescue Russia financially; and to withhold or commit Germany's resources (for with Japan's decline, Germany is now the world's second-biggest economy) to any plan to shore up the foundering global market economy.

Unfortunately, neither his personality nor his probable political alliances make decisive action on any of these fronts likely. As the crisis deepens around the world, the list of weak or downright paralyzed governments grows apace.