Bush’s German Challenge

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

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Chancellor Merkel has made a fabulous impression on her visit to America this week. On Wednesday, she chatted with President Bush, who promised that he would join her in visiting the Federal Republic’s new Laender. Yesterday at lunch, the American Council on Germany hosted Mrs. Merkel in a hall so packed the waiters had trouble getting the salad to the tables. Last night, she joined the American Jewish Committee in celebrating its 100th anniversary. Mrs. Merkel, a conservative Christian Democrat, repeated at lunch some of the free-market themes of her campaign last year. She said that sustaining the relative competitiveness of the German economy was important and that she and Mr. Bush intended to make clear to their citizens that Germany and America “greeted the prospect of world competition optimistically.” Standing on the dais at the Pierre beside Paul Volcker, she did look optimistic.

The same can’t be said for the chancellor’s colleagues in her Grand Coalition at home. Even as she was traveling to America, they announced that they were extending subsidized maternity leave to 12 months from six weeks. The change, Agence France-Presse noted, is the idea of Christian Democratic family minister, Ursula von der Leyen, who has seven children herself and believes that more cash will encourage German families to reproduce more and pay for pensions later. That may make sense later. But it certainly doesn’t help German competitiveness now.

Some of the other news from Germany, most of it generated by Social Democrats, has been equally negative. Germany plans to raise its value-added tax by three percentage points to 19% next year. The Bundesbank has already criticized the move as dangerous because it might cause inflation. But that is off the point. The big problem with increase in the VAT is that it dampens the entrepreneurial spirit, burdens the consumer, and hurts investment. Even the finance minister, Peer Steinbrueck, has admitted as much, conceding recently that he knew the change was “counterproductive from the point of view of growth.” Also disastrous is the coalition’s plan, announced this week, to raise the income tax rate on top earners to 45% from 43%.

Mrs. Merkel is a far better partner on questions such as Iran than her predecessor, Chancellor Schroeder. But the German economy is also a factor the Atlantic relationship. The best kind of partner for America is a country that is growing. The new economic policies aren’t Mrs. Merkel’s fault. Her own instincts are in the right direction. She lacks the support in the Bundestag to rule without the Social Democrats. No wonder she has had a good time while in the States. She can talk about the sort of change she likes here and find an audience that understands her. No doubt she wants to take those ideas back to Germany and apply them. The challenge for Mr. Bush is to find a way to help her.


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