Recession, Neo-Nazis Shadow Kohl Regime

German government faces doubts over the cost of reconstructing the East - a letter from Bonn

THE ruling party has been in power for years now, and the government leader has shown remarkable resilience and an ability to come from behind. Moreover, if the government's program sometimes seems to be running out of steam, the opposition has not exactly come up with an alternative that has won over the voters.

On the other hand, the chief is haunted by a pledge of "no new taxes," that has already been broken once, and the opposition charges the government with running up levels of debt unprecedented in the country's history.

This scenario may seem familiar to Americans, but it describes Germany as well. Chancellor Helmut Kohl's conservative government has just introduced its budget for the 1993 fiscal year - 436 billion marks ($306 billion), a 2.5 percent increase over last year. He calls it a "solidarity and austerity budget," but the opposition Social Democrats charge that it is out of touch with reality.

Germany may appear a relative bright spot on a recession-ridden world economy, its own slowdown notwithstanding. The deutsche mark is the 800-pound gorilla of foreign-exchange markets.

But concern here is widespread that the government has seriously underestimated the cost of reconstruction in the new federal states of the former East Germany.

The projected appropriation for the Labor Ministry, to which responsibility for retraining east Germans falls, represents an increase of 8.8 percent to 98.78 billion deutsche marks. The Transport Ministry faces an increase of 10.7 percent, to 44.25 billion marks, to cover the investment in infrastructure in east Germany. Debt-service cost is also up 14.1 percent, from 12 billion to 13.7 billion, and the budget includes 38 billion marks in new public debt.

THE budget was approved by the Cabinet in July, but since then a whole public discussion has arisen over whether this budget is realistic, and whether the government can finance the programs it needs without a tax increase.

Chancellor Kohl and his finance minister, Theo Waigel, insist that it can. Others are not so sure. Rumors have been flying around the capital about a palace coup (later firmly denied), to replace Kohl as party leader and about a grand coalition government that would include the Social Democrats. (Kohl insists this is not needed; he commands a majority in the Bundestag. The Social Democrats have not been keen on this idea either.)

Similarly, proposals for financing reconstruction in the east have been in the wind, but not pinned down firmly. Kohl gathered his coalition partners Sunday for a long discussion on rebuilding the east, but it produced mainly expressions of "solidarity." The party leaders floated the idea of a "compulsory bond," a sort of interest-free or low-interest loan from better-paid westerners to the east, then dropped the plan.

East Germany isn't proving to be the golden opportunity for investors it was once thought to be. The east is no longer a low-labor-cost location, now that people there have found out what westerners earn. And the east German productivity problem has been brought home this week by the release of the first official statistics comparing east and west. East German productivity rose 9 percent in 1991 - because employment fell 18.7 percent. But overall, east German labor productivity was only 32 percent of tha t of the west for the second half of 1991.

Still, the urgency of eastern reconstruction is brought home by virtually nightly television news reports of violence against asylum-seekers and other foreigners in the eastern German city of Rostock and its environs. If the perpetrators' energies can be redirected into more meaningful economic activity, many in Bonn say, attacks against foreigners would abate considerably.