Gerhard Schröder: The Man Who Rescued the German Economy

The WSJ weekend interview feature former German Chancellor Gerhard Schröder.  Schröder was behind the revival of the German economy from 1998 to 2005.


The point to take away from the article is that Germany had not always been as strong as it is today.  Germany had to go through reforms and cost cutting measures that they are asking of their fellow EU members.  Making these tough choices ultimately cost Schröder his office.


Eventually the US will have to go through this very reform and cost cutting process as well.


Full article here

• Circumstance forced economic reform onto Gerhard Schröder's agenda as chancellor. When he took office in 1998, Germany's unemployment rate was 11% and economic growth was close to nil.
• The result was a radical reshaping of the German welfare state. To reduce labor costs, Agenda 2010 merged social-welfare benefits with benefits for the long-term unemployed, paring down the total amount and availability of assistance. Employers' health-insurance costs were trimmed back. Planned income and corporate tax cuts were accelerated: The top personal income tax rate was lowered to 42% from 48.5% and the bottom rate went down to 15% from 19.9%. The corporate tax rate dropped to 19% from 25%.
• "And now the results speak for themselves," Mr. Schröder says. "For a long time we were the sick man of Europe. Now we are the healthy Frau of Europe." With German unemployment at 6.8%, nearly the lowest level since reunification in 1990, it's hard to disagree. German GDP growth has so far kept the euro zone from falling into another recession this year.
• Mrs. Merkel may have kept the spirit of the Schröder reforms alive in Germany, but in most of Europe there has been little evidence, in seven years, that the reform wisdom Germany displayed has rubbed off. French President François Hollande has spent his first months in office raising the minimum wage, lowering the pension age, and standing by his notorious pledge to tax high earners at 75%. Adopting Mr. Hollande's policies would be "a real catastrophe" for Germany, Mr. Schröder says.
• Aware of the political and historical sensitivities, Mr. Schröder counsels that Germany and the European Union shouldn't be encouraging Agenda 2010-style reforms as a cure for Southern Europe without concurrent measures to promote domestic spending and forestall immediate collapse. He echoes the suggestions of Mr. Hollande and others that the EU should invest in wobbling economies via the EU's regional development funds and project bonds for infrastructure.
• That Germany and France were never punished for their debt transgressions is still seen as evidence that no EU rule is so important that the Continent's largest members cannot get around it. Many blame Berlin and Paris's original sin for, in effect, licensing the Mediterranean governments' borrowing sprees. But Mr. Schröder says that fiscal rules ought to be negotiable "in countries where structural reform is really taking place—where, if you like, an Agenda 2020 is being implemented."
• The cost of insuring against German government default has been ticking up. If Germany has to pitch in substantially more to rescue the Southern states, its own public debt—already more than 80% of GDP—could raise market hackles.
• Germany's political class may find itself disabused of the hope that Europe's national governments can reform their way to solvency. The long record of disappointments that have come out of Athens, Madrid and Rome raises the scary thought that this is not just a crisis of European money or of European institutions, but of European-style social democracy itself.