A backlash to Schröder's reforms

Germany's chancellor calls for early elections after a stunning defeat by his party in a crucial election Sunday.

Following a historic defeat in state elections that his party has traditionally dominated, Chancellor Gerhard Schröder has called for new federal elections this fall - a surprise move that will put the fate of his ambitious labor reforms for Europe's largest economy in the hands of German voters.

The resounding defeat of Mr. Schröder's Social Democrats (SPD) in North Rhine-Westphalia, a state that had been friendly to the party for nearly four decades, is a neon sign of growing discontent with a reform agenda that critics say has so far delivered the worst of both worlds: cuts in the country's generous welfare system and no major boost in economic competitiveness or job growth.

But Schröder stands by the reforms, and his call for elections - nearly a year ahead of schedule - means German voters will decide whether he, or the rival Christian Democratic Union (CDU), will take responsibility for Europe's most populous country. More significantly, the vote will be a test for wider questions now roiling the Continent: Should Turkey be admitted to the European Union (EU)? And will Germany, like much of Western Europe, continue to balance socialist and capitalist ideals, or will it embrace the unbridled capitalism of fast-rising Eastern Europe?

"After the loss of power, it would have been difficult in every sense" to continue, says Everhard Holtmann, a professor of political science at the University of Halle, in eastern Germany. "From this standpoint, it is logical that he would call for early elections."

Polls indicate that the majority of Germans say that their economic system, suffering under a 12 percent unemployment rate and rocketing rates of public spending, is in need of serious change. But two years since Schröder launched his modern-sounding "Agenda 2010" program with promises of more jobs and higher rates of investment, voters say little has changed.

Nowhere was that more clear than among the residents of North Rhine-Westphalia, Germany's most populous state and Europe's sixth-largest economy. The rust belt of Germany was once brimming with factories and mines. Now its biggest cities have unemployment rates rivaling those of cities in Germany's depressed eastern half. One million people are currently out of work.

CDU candidates played up the weak economic numbers in their election campaign, but they were careful not to promise anything. Analysts say that's because they, and their likely coalition partners in the Free Democratic Party (FDP), will probably propose even tougher reforms.

"Many voters who don't like the difficulties the reforms are putting them through, don't even realize that it could be more difficult under a CDU and FDP government," says Mr. Holtmann. "It's an abstract point for them."

That's why Schröder will push the CDU to offer more than criticism of his reform agenda.

The CDU's likely candidate, Angela Merkel, has been billed by some as an east German Margaret Thatcher, who favors even tougher changes in the labor market.

Ms. Merkel and the CDU have also come out against Turkey's full membership in the EU, something that some expect will be a major issue in the German campaign. As chancellor, Merkel and the CDU could also put the brakes on further plans to expand the EU, which is currently considering membership proposals from Romania, Bulgaria, Ukraine, and Croatia.

"There could be significant effects on the European level," says Uwe Andersen, a political scientist at the Ruhr University Bochum in North-Rhine Westphalia. "The question of Turkey's membership will also play a role in the election campaign." But it won't play the lead. That will be reserved for Germany's unemployment problem and which of Germany's two major parties is better equipped to solve it.

The SPD will have to overcome party rifts as to how aggressive it should be in liberalizing the labor market. A potentially catastrophic split between the party's leftists and those who support Schröder's course was one of the reasons the chancellor called early elections.

"He is worried that there will be serious inner-party fights over the reforms that could tear the party apart," says Jürgen Falter, a professor of political science at the University of Mainz. "In forcing them into a campaign, he defuses that."

In the coming months, they will once again have to rally around Schröder if they want to stay in power on the federal level. Analysts say Schröder, who routinely scores higher than the distant, stiff Merkel on likability polls, is eager to take on his rival in an extremely personal, US-style election campaign.

"Schröder is getting ready for a duel," says Mr. Falter. "Because it will be so short, it will be less a topical campaign than a personality one."