Merkel Challenger The Improbable Mr. Schulz

After more than a decade in the political desert, Martin Schulz is finally giving Germany's center-left SPD a shot at winning back the chancellery. His narrative centers around unwinding unpopular welfare and labor reforms enacted by the last SPD chancellor.
Quelle: dpa
Martin Schulz is portraying himself as a man of the people. But can he grow the German economy?
(Source: dpa)

Martin Schulz is a natural orator. He seems most comfortable when he can speak freely, without notes. But that's not always possible when you're campaigning to be Germany's next chancellor.

At a recent speech in the German city of Bielefeld, out in the country's industrial west, Mr. Schulz did something uncharacteristic: He stuck to the script. He didn't pick up the microphone, walk around the stage or improvise like he usually does. Instead, he stayed put, gripping the sides of the podium with both hands and frequently looking down at his notes.

That's because his speech was more substantial than spirited. In Bielefeld, Mr. Schulz announced no less than his Social Democratic Party’s departure from the unpopular – yet arguably necessary – welfare and labor reforms it pushed through more than a decade ago. Those reforms, known as "Agenda 2010," were credited with breathing new life into the German economy at a time when the country was regarded as "the sick man of Europe."

Mr. Schulz said he wanted to "correct" certain parts of the reform package, which was pushed through by former Chancellor Gerhard Schröder in 2005. Unemployment benefits, for instance, would be paid out longer under Mr. Schulz's new plan; temp jobs would only be permitted under limited circumstances; and pensioners would be guaranteed a monthly stipend well above the poverty line.

"We too have made mistakes," Mr. Schulz told a crowd in Bielefeld. "When mistakes are recognized, they must be corrected. We have recognized ours."

Mr. Schulz's proposals are in line with other SPD narratives, such as a more progressive tax policy and an upper ceiling for managerial salaries. They are also familiar among Social Democrats in Germany, many of whom have been clamoring for more wage redistribution ever since the Industrial Revolution. Mr. Schulz envisions himself as a modern-day Robin Hood.

People are acutely aware that - despite all the successes - conditions are becoming less fair in our country. Reiner Hoffmann, President, Confederation of German Trade Unions

With his carefully-delivered speech in Bielefeld, Mr. Schulz began to push the SPD in a direction that most of the party's members have long been clamoring for: to the left.

But it's a change of strategy that raises two important questions: Will the SPD increase its chances of winning this way, or will it lose voters in the middle of the political spectrum in order to gain them on the left? And what would it mean for Germany if a Chancellor Schulz was able to actually implement his campaign promises?

One thing is for sure: Germany's upcoming federal election campaign is going to be more eventful than anyone guessed. Come the fall, German voters will have a choice between at least two fundamentally different party platforms offered by the country's two main governing parties, the SPD and Chancellor Angela Merkel's Christian Democrats.

The conservative CDU is once again presenting itself as a safe bet. It means to continue down the path blazed by Mr. Schröder a decade ago: Employment over welfare. Better to have low-wage jobs and uncertain employment conditions than mass unemployment and zero growth.

The SPD, on the other hand, wants to transport Germany back to the pre-Schröder era. It wants more unemployment benefits, more rights for workers and a close relationship with trade unions.

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When Mr. Schulz gave his speech in Bielefeld earlier this week, a man named Reiner Hoffmann was sitting in the front row. Mr. Hoffmann is the head of the Confederation of German Trade Unions, or DGB. After Mr. Schulz's speech, the two of them hugged before sitting down next to one another.

The "Agenda 2010" reforms have long been a source of contention between the SPD and Germany's powerful unions. Now, however, that alliance is up and running again.

Mr. Schulz had provided very clear examples of where the labor market was in need of change, Mr. Hoffmann told Handelsblatt in an interview.

"This is what people are expecting," he said. "It's clear they're tired of hearing that Germany doesn't have any problems."

Sure, the country has a robust labor market and a stable economy. "But at the same time in Germany, we also have the largest low-wage sector. People are acutely aware that – despite all the successes – conditions are becoming less fair in our country," Mr. Hoffmann continued.

One in four employees earn less than €9.60 ($10.15) an hour. In some sectors, such as academia, young people have been fobbed off with temp jobs going on for years. "This is what's behind Germany's record employment levels, and it's unacceptable," Mr. Hoffmann said.

Quelle: Getty Images
Former SPD leader Gerhard Schröder with Martin Schulz, who if elected plans to undo some of his predecessors reforms.

The "Agenda 2010" reforms have, in fact, had undesirable side effects. Some have been rectified, such as with the introduction of a country-wide minimum wage, but other imbalances remain. For instance, wages in Germany have risen more slowly than in many other countries around the world. This has bolstered German exports, but the flip side of that coin is that Germany's trade imbalance has also increased. Germany has a current account surplus of almost 9 percent. This not only weakens the economies of Germany's neighbors in the euro zone, but Germany's economy as well.

There are other goods reasons why Mr. Schulz's Robin Hood rhetoric could be well received by many Germans. Wage disparities in Germany are growing ever wider, according to unpublished data from the German finance ministry made available to Handelsblatt. According to the data, the top 10 percent of earners in Germany accounted for 31.7 percent of wage earnings in 2016. The year before, it was 31.4 percent.

There's also a feeling of vulnerability among the middle class. People are aware that the only thing standing between their comfortable lives and a life below the poverty line is a year's worth of unemployment. To be sure, such regressions are rare – most people find a job within a year – but before the post-"Agenda 2010" welfare payments, known in Germany as "Hartz IV," there were such things as assurances for workers that if they lost their job, they would continue to receive a salary based on their previous income. Once a person made it into the middle class, the state guaranteed they could stay.

In order to make a fair assessment of the "Agenda 2010" reforms, one must consider the situation in which Germany found itself in 2004, a year before the reforms were enacted.

At the time, the German economy was the largest in Europe but also the most beleaguered. "The sick man of Europe," people called it. Germany was plagued by high unemployment, weak growth and an unwillingness to enact tough reforms. It was a country ruled by the status quo, void of all dynamism and vision.

The image of Germany today couldn't be more different. Business is booming. The labor market is moving slowly, but steadily, toward full employment. While the unemployment rate in 2004 was more than 11 percent, today it stands at 6 percent. Employment is at a record level and companies' willingness to hire remains high as well.

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About half of Germany's hard-earned competitiveness can be traced back to the "Agenda 2010" reforms, according to Richard Koo, an economist who crunched the numbers in a 2013 study. Mr. Koo said that was because, thanks to the reforms, salaries in Germany grew more slowly than in many other countries around the world.

Christoph Schmidt, the chairman of the German Council of Economic Experts, said he thought the reforms were so successful because they put pressure on the jobless to find work. The reduction of the unemployment benefits motivated the unemployed to look harder for a job than was previously the case.

"Rather than extending the length of time full benefits are paid out, it would be better to think about how older jobless people can find their way back to employment," Mr. Schmidt said.

Marcel Fratzscher, the head of the German Institute for Economic Research, considers the current debate going on within the SPD as regressive and counterproductive. The problems facing Germany now are different than they were 15 years ago when "Agenda 2010" was conceived.

"Germany's biggest problem today is inequality of opportunity," Mr. Fratzscher said. Investments in education and training are what he prescribes.

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A majority of German economists are warning against rolling back the reforms, however unpopular they were.

"Nothing of what Mr. Schulz wants is new, nothing is innovative and nothing is going to solve any problems," said Michael Hüther from the business-friendly Institute for Economic Research in Cologne. "The real problems – housing costs around cities, individual advancement, providing qualifications for the digital transformation – are being ignored and neglected," he said.

The peculiar thing is that many of those economists' arguments were long touted by Mr. Schulz himself before he began campaigning for chancellor. Mr. Schulz has long been firmly rooted in the right wing of the SPD, which often defended the "Agenda 2010" reforms against hostility from the left.

What's even stranger is that Mr. Schulz enjoys the backing of that conservative faction now - even as he drifts further to the left. Apparently no one in the SPD wants to jeopardize the euphoria surrounding Mr. Schulz. The party suddenly has a real chance of seeing an SPD chancellor after this year's elections and nobody wants to be the one to spoil it.

One look around Europe is all it takes to realize that a return to left-wing arguments may not improve the Social Democrats' chances at the ballot box later this year. In Great Britain, Jeremy Corbyn is having a miserable time trying to eradicate Tony Blair's legacy from the Labour Party. In France, it didn't help the Socialist Party to make Benoît Hamon their frontrunner in the presidential election campaign. Mr. Hamon is decidedly behind Emmanuel Macron, an independent candidate with a modern, socially-liberal reform agenda.

Mr. Schulz is likely to mobilize some frustrated non-voters with his shift to the left, but in the long run, he won't be able to wage a successful campaign that doesn't focus on the topics voters care most about at the moment, namely Germany's refugee crisis and domestic security.

Those are issues that Ms. Merkel and her Christian Democrats have been trying very hard to show they have under control. There is a general sense within CDU circles that the hype surrounding Mr. Schulz cannot last. He is focusing too much on the SPD's past, some say, whereas people tend to cast their vote with an eye to the future.

24 p53 The German Economy in International Comparison-01

The CDU wants to be the party of stability. Germany is doing well, the message goes - why should we change a winning team? The CDU's target audience is the 75 percent of Germans who, according to the pollster Allensbach, say they are satisfied with their quality of life. They are also setting their sights on the majority of Germans who say they agree that the "Agenda 2010" reforms were the right thing to do.

All the same, they're going to have a tough time going up against Mr. Schulz, who has at least two things going for him. One thing is his likeability factor; not only does Mr. Schulz talk about himself as a salt-of-the-earth, by-the-bootstraps kind of guy – he's also very approachable and liked by his party's rank and file.

The other factor is the resonance of Mr. Schulz's message. "In my opinion, a chancellor needs to not only show understanding for the people's everyday concerns, hopes and anxieties, but deep empathy," he said recently.

Empathy is central to Mr. Schulz's run for the chancellorship because it so perfectly articulates what Ms. Merkel is lacking, or at least what she has shown more of to Syrian refugees than Germany's unemployed.


Handelsblatt editors Heike Anger, Jens Münchrath, Christian Rickens, Donata Riedel, Thomas Sigmund, Frank Specht, Klaus Stratmann, Christian Wermke wrote and contributed to this piece. To contact them: [email protected], [email protected]