Where’s the lifebelt?

Something up Waigel’s sleeve?
THINGS never seem so bad for Helmut Kohl these days that they cannot get worse. As his centre-right coalition government came close to a split over budget policy and scrapped with the Bundesbank over gold, word came in of the left’s triumph in France. Now even the determined chancellor risks being blown off his single-currency course—and perhaps from office.

Part of the government’s current mess was avoidable. Mr Kohl’s luckless and inept finance minister, Theo Waigel, did not have to take on the Bundesbank in a public row he was virtually bound to lose. Germans tend to treat their central bank with near-religious awe, and most politicians know better than to risk their reputations by getting into a fight with it.

Not so Mr Waigel, although he has just notched up a post-1945 German record of more than eight years in the finance job. Long an outspoken fan of tough debt and deficit criteria to make sure weaklings do not join the euro, he is now running scared that Germany itself will fail to qualify. By getting the Bundesbankers to revalue their gold reserves and pay over part of the book profit to the government (albeit indirectly) this year, he hoped to make German public finances euro-worthy after all.

Even if Mr Waigel had got his way, the European Union’s statisticians might have gulped a bit about the gold dodge. But he has had to back down after the predictable public outcry. He will get no payout—at least none this year, which is the crucial one for judging which countries can adopt the euro if it starts in 1999.

The skirmish with the Bundesbank has brought Mr Waigel jeers and indignation from all sides, including his own. It has let the opposition Social Democrats portray themselves, somewhat speciously, as champions of financial rigour. And it has set off a new debate on whether the start of the euro, an idea long regarded with dismay by a majority of Germans, should at least be delayed. Mr Kohl doggedly says no, and there is no reason to doubt he means it. He decided recently to stand for chancellor again in the election next year, not least to help ensure that the single currency would arrive on time. But now his main ally, Jacques Chirac, has lost most of his authority and the new Socialist government in Paris may prove a lot trickier than the old one over terms for bringing the euro in.

That aside, the row with the Bundesbank is only one symptom of the budget crisis now threatening to destroy the nearly 15-year-old ruling alliance among Mr Kohl’s Christian Democrats, their fraternal Bavarian party, the Christian Social Union (led by Mr Waigel), and the Free Democrats.

Squeezed between rising spending, especially for the 4.3m Germans out of work, and tax revenue that is yet again less than expected, Mr Waigel has next to no options left. A bid for more social-security cuts would founder because the Social Democrats have a majority in the Bundesrat, the second chamber of the federal parliament. Chopping investment spending below the level of new government borrowing is forbidden by the constitution. Selling off state enterprises (as the government promised to do with vigour when it came to power in 1982) could bring in a tidy sum, but would not do much to help Germany qualify for the euro. That seems to leave Mr Waigel with a single, sorry course: to boost taxes. But it is one the Free Democrats reject, saying that, if their partners try to go ahead with it, they will abandon the coalition.

Would they really? Many Christian Democrats and their Bavarian brethren doubt it. They sneer that the Free Democrats have made such idle threats before and, besides, are barely able to muster the minimum 5% of the vote needed to keep themselves in parliament. If they cast themselves adrift now they would certainly find no ally in the shape of the Social Democrats for their tax-cutting, privatisation plans. Left without any obvious coalition partner, they would be blotted out in next year’s election. Apply enough pressure, the conservatives say, and the Free Democrats will come around as usual.

That reasoning looked sound enough once, but it may not be so now. At their congress last month, the Free Democrats cast themselves more sharply than ever as the party in favour of tax cuts and deregulation, the party for less state and more private initiative. Arguably, that combination could win them more votes if they were to cut links with Mr Kohl’s floundering Christian Democrats and fight alone. Nor need they fear that Mr Kohl’s lot and the Social Democrats might squeeze them to death by forming a “grand coalition”. That might have been possible a year or two ago but is highly unlikely now. The Social Democrats reckon Mr Kohl’s party is sinking fast and are not disposed to toss it a lifebelt.

Besides, old Bonn hands recall that once before the Free Democrats really did make good their threat to walk out of a coalition under a Christian Democratic chancellor after a dispute over tax rises. The date was October 1966, and the chancellor, Ludwig Erhard, resigned a month later. Mr Kohl is tougher than Erhard ever was, but the challenge he faces is tougher too.

© Copyright 1997 The Economist Newspaper Limited. All Rights Reserved