Opposition Slams German Government Over Economic Performance

The German government attempted to return to business as usual on Thursday just a day after it experienced economic meltdown, in what is already being termed Black Wednesday.

And in Thursday's parliamentary vote on a number of measures of the coalition's savings package, the Social Democrats and Greens managed to pull off a minor victory by pushing through the first part of their environment tax reform. This first step means a tax increase on natural gas, liquid gas, heating oil and off-peak electricity. The government estimates that the increase will generate $1.4 billion in additional revenue.

However, this is little more than drop in the ocean given the massive economic problems facing the government and the opposition lost little time in reminding the ruling coalition of the mess the country was in.

The leader of the opposition Christian Democratic Union, Angela Merkel, her confidence sky high after a successful party conference at the beginning of the week, laid into Chancellor Gerhard Schröder and his policies, saying this was a "black day" for Germany as it headed into a "depression and deflationary cycle."

The CDU, its sister party the Christian Social Union and the smaller Free Democrats all called for the resignation of Finance Minister Hans Eichel. He in turn remained stoic, clinging to his projection of being able to present a balanced budget by 2006.

Merz threatens to block legislation

Friederich Merz, the CDU's spokesman on economic and financial affairs (photo), said his party would try and force the government to make changes in its economic and labor market policies. Merz said the CDU/CSU would not offer their support for further tax hikes. The Bundesrat, the upper legislative chamber, is dominated by the CDU/CSU, giving them the power to block government legislation.

Merz criticized the government's approach saying that dabbling superficially with fiscal instruments would not solve the fundamental economic problems. What was needed, he said, was more flexibility on the labor market.

Some €350 billion ($352 billion), Merz said, were generated in Germany's black economy which showed that the country did indeed possess economic dynamism, but that rules and conditions on the labor market were driving people into the black economy.

More than 5 million unemployed

Bert Rürup (second from left), the designated chairman of the government-appointed commission to reform Germany's social security system, said the country would have to face a number of painful reforms in order to fundamentally change the parameters. On unemployment, Rürup advised the government to confront the powerful trade unions and accept a "limited dispute" with them to pave the way for a deregulation of the labor market.

He also estimated that there were currently around 5.7 million people unemployed in Germany, as opposed to the official figure of 4.05 million. Many, he said, failed to show up in the statistics.

Managers give Germany thumbs down

Germany's top managers also joined the long queue of critics. A survey released by the Handelsblatt Business-Monitor showed that the country's elite has little or no confidence in the government's policies. 80 percent of those polled said that Germany as a business location would become even more unattractive over the next 12 months.

As a result, an increasing number of business leaders are demanding an interest rate cut for the euro zone. So far, the European Central Bank has refused to acknowledge that necessity, but there were signs on Wednesday that the bank may review its stance on the issue.