Within hours of being sworn into office yesterday as Germany's seventh post-war Chancellor, Mr Gerhard Schroder called his first cabinet meeting. The message was clear. The new government has much to do and wants to be seen to waste no time in starting. The ground-breaking coalition of Social Democrats (SPD) and Greens has an agenda that is lengthy and multi-faceted but, if it could be reduced to one word, that word would be jobs. However, the month since the election result has demonstrated that that there is sharp disagreement within the SPD over how best to deliver on the job pledge.
There are some four million people unemployed in Germany and it was the stubborn refusal of that figure to come down which, more than anything else, brought to an end the 16 years and 16 days rule of Dr Kohl's coalition. The new government knows that it is on job creation that it will be judged primarily but the balanced, centrist policies which it promised in opposition have now been replaced by a more centre-left strategy which places much emphasis on boosting demand. The strategy may work but it does not come without risks and it seems certain to jettison the corporate consensus politics which was at the core of Germany's extraordinary economic performance up to recent years.
Greater emphasis on boosting demand has been pushed by Mr Oscar Lafontaine, the new Finance Minister and chairman of the SPD. And he has pushed much else as well, including Mr Schroder. Mr Lafontaine insisted that a rival, Mr Rudolf Scharping, lost the leadership of the parliamentary party and demanded that the Economics Ministry be emasculated in favour of Finance. The man designated to head up the Economics Ministry pulled out and openly criticised Mr Lafontaine's economic blueprint as being anti-business and socially divisive. Industrial leaders and the country's six economic institutes agreed.
Mr Lafontaine intends to give taxpayers tax relief worth more than £5 billion next year in the belief that the resultant increase in consumption will help create jobs. But industry fears, with some justification, that it will be asked to carry the major share of the cost of the tax breaks through a broadening of the corporate tax base. Company tax in Germany is high, relative to the rest of the EU, and German industry now faces the prospect of sharp increases in other costs, especially energy. Mr Lafontaine will reduce significantly the taxes that companies pay on employing people but there is a risk that, on balance, his policies will render German industry even less competitive.
Mr Lafontaine, indisputably, is the person to watch in the German cabinet. He failed in his own bid for the Chancellorship eight years ago and agreed to Mr Schroder's candidacy over his own very grudgingly. Mr Lafontaine sees himself as the strongman of the Cabinet and has set about proving it. But while Mr Schroder may be unconcerned about Mr Lafontaine's naked desire for the top job, he should show some concern about his economic strategy and the possible consequences for monetary union.
The credibility of the euro depends, in great measure, on sound monetary policy being adopted by the member nations. This is why the stability pact on managing the euro is so vital. But what is the future for the pact when Germany's Finance Minister argues that it should be "more flexible" so that he can be set free from spending constraints? Mr Lafontaine's stance already has him at loggerheads with the European Central Bank. On January 1st, Germany assumes the presidency of the EU, just as it tries to bed in the single currency. Monetary union would not be happening were it not for the courageous impetus given it by Germany. Mr Lafontaine must resist the temptation to boost the German economy through spending that might undermine the single currency at birth.