25 SEPTEMBER 2002

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Toon This Week: The early bird catches the worm

German SPD/Green victory is good news for Malta

Political analysts will confirm that the enlargement of the EU would have suffered with Stoiber as Chancellor. Ironically, Malta’s Nationalist party is better off with the Social Democrat and the Greens.

Shroder has been criticised for his poor performance, but a recent review in The Economist had some praiseworthy comments for the Blairite German.

A portion of Germany's recent economic turmoil could be blamed on factors emanating from outside the government's control. Not only did Germany bind its economy into the European Monetary Union at what now experts are saying was a far overvalued exchange rate, but the European Central Bank's monetary policy is too tight for Germany. Nevertheless, politicians from both parties have done their share of damage.

Of course Stoiber blames his rival for turning Germany into what he refers to as a ‘basket case’. But when Schroder had taken over from Chancellor Helmut Kohl in 1998, after 16 years of conservative rule, the country was in some ways in an even worse state.

German unemployment was slightly higher than it is now, while Germany's debt, taxes and welfare contributions were all at record levels. The labour market, health, pensions and school systems, left virtually untouched throughout Mr Kohl's long reign, were crying out for reform. And the economy, which had been tottering along with average GDP growth of 1.3 per cent a year since unification in 1990, was being slowly suffocated under the same red tape about which Mr Stoiber so loudly complains.

Schroder can be, and has been, sharply criticised for failing to do more. During his term, average GDP growth, at 1.8 per cent a year, has been little better than under Mr Kohl. But he has at least made a start on reform, and it is not inconsiderable. Under his tax reforms, the boldest since the 1950’s, corporate taxes have been chopped from 52 per cent to 39 per cent, and the top income tax rate is being progressively brought down, from a peak under Mr Kohl of 53 per cent, to 42 per cent by 2005. Under the government's less spectacular pension reform, state subsidised privately funded pensions have been set up, for the first time, to supplement dwindling state pensions. This new scheme, though inadequate, is at least a basis to build on.

With his five year Sparpaket, or austerity programme, Mr Schroder has tried to consolidate the country's finances. Under Kohl, public spending had soared to over 50 per cent of GDP. But Schroder wants to cut that figure to 42 per cent; so far, he has managed only to lop off a couple of percentage points. But this, too, is a start. He has also halted the steep rise in the public debt, trimming it from a record 61 per cent of GDP, where Mr Kohl left it, to just under 60 per cent. Social welfare contributions, though still far too high, have likewise been pruned, falling from a peak of 42.3 per cent in 1998 to 40.8 per cent last year though, squeezed by the economic downturn, they have edged back up since. And although the government appears to have failed to bring the public deficit under control, its long term aim is still to balance the books, for the first time in 30 years, by 2006.

 



Copyright © Network Publications Malta.
Editor: Saviour Balzan
The Business Times, Network House, Vjal ir-Rihan San Gwann SGN 07, Malta
Tel: (356) 21382741-3, 21382745-6 | Fax: (356) 21385075 | e-mail: editorial@networkpublications.com.mt