Kohl's Grand Plan to Rescue East Falters

Stalled `solidarity pact' has cost credibility and deepened Germany's economic slide

GERMAN Chancellor Helmut Kohl's vision of a "major national effort" to bring east Germany up to west German standards has turned into a pipe dream.

Two years ago Chancellor Kohl first launched the idea of a "solidarity pact," in which federal, state, and local governments, as well as trade unions, industry, and the political opposition, would pull together and rescue the eastern half of Germany from economic ruin.

But what began as a broad initiative for shared sacrifice has been reduced to a financial package of budget cuts and revenue enhancers. It involves just two groups: the federal government and the 16 states.

"In reality, there is no solidarity pact," says Fritz Fliszar, director of the Friedrich Naumann Foundation, which is affiliated with the Free Democratic Party, the junior coalition partner of Kohl's Christian Democratic Union (CDU).

Unions in west Germany have accepted reduced wage hikes this year (a 3 percent increase as opposed to 6 percent last year). But they have been forced into retreat largely by a worsening economy, not by any prodding from the chancellor.

Meanwhile, instead of forging consensus, discussions surrounding the solidarity pact have "opened up all kinds of fault lines between the federal and state governments, within parties, and between east and west," comments a Western diplomat in Bonn.

Last fall, the government was saying it wanted to wrap up the solidarity pact by last Christmas. Now, it is aiming for this week.

In two days of talks beginning today, Kohl wants to reach agreement with the state chiefs - the majority of whom belong to the opposition Social Democratic Party (SPD) - on how to share and pay for the east German bill of 110 billion deutsche marks ($66 billion) a year. This is the amount needed after 1995 to support recovery in the east and begin to pay off east German debt.

But both sides are entering the talks with hardened positions. The state chiefs refuse to shoulder as much of the burden as the government wants them to, they object to federal budget cuts in social spending, and they insist on tax increases before 1995.

Considering Germany is in a recession, tax increases before 1995 would be deadly, Kohl counters - although this has not stopped him from proposing a 13 pfennig (7.8 cent) per liter increase in gasoline taxes to take effect at the start of 1994.

If no agreement is reached, the government will send its proposals along the normal legislative route for approval in the Bundestag and then the Bundesrat, the upper house of parliament.

Economist Gustav Horn, at the German Institute for Economic Research in Berlin, warns that following the legislative route could be "harmful" to Germany's economy, which is expected to show less than 1 percent growth this year.

It is likely that the Bundesrat, which is made up of the 16 states, would refuse to pass the government's package. Finding a compromise acceptable to the Bundesrat could last well into the summer.

Germany does not have this kind of time to spare, Mr. Horn warns. The contracting economy "urgently" needs at least a 2-point drop in interest rates by the Bundesbank, Germany's central bank. Failure to reach an agreement now, he says, could delay significant interest rate cuts by the Bundesbank, which has repeatedly said it is looking for serious financial belt-tightening through the solidarity pact.

Kohl also has political reasons to reach a compromise over these next two days. Increasingly, voters regard him as incompetent. Asylum seekers are still pouring into Germany in record numbers; unemployment is climbing in west Germany, reaching 8.4 percent in February (it fell to 15 percent in the East); and the chancellor has been unable to achieve his foreign policy objective of German involvement in peacekeeping forces.

Local elections in the state of Hesse on March 7 showed "how fed up people are with politicians," according to the Western diplomat. Although it was the SPD that took the greatest rubbing by sliding 8.4 percent in the polls, Kohl's CDU also lost ground (2.4 percent). The extreme right Republikaners gained more than expected (8.4 percent of the vote), in the lowest voter turnout in Hesse since 1948.

The diplomat is not alone when he says that a Kohl failure on the solidarity pact will result in "political damage."