Eastern Clout Beckons Chancellor
Schröder Talks U.S.-German Ties Over Aperitífs

Chancellor Gerhard Schröder * Photo courtesy of German Press and Information Office, German Embassy in Washington, D.C.

A hush spreads across the crowd of hundreds of German bankers and senior executives gathered in an extravagant convention center in Berlin’s downtown Mitte district, as everyone realizes Chancellor Gerhard Schröder has arrived and is headed for the podium.

The throng includes some of the most powerful leaders of German industry, with top executives of major corporations ranging from Deutsche Bank to Siemens to Daimler Chrysler. They expect a pep talk about the flagging German economy, which is a potential political liability for Schröder -- particularly in Eastern Germany, where unemployment is high and voters have already proven they can swing national elections.

The number of eastern Germans out of work has remained troublingly high for some years, as jobs created by the swelling ranks of high-tech start-up firms, entrepreneurs and new production facilities have been offset by layoffs at companies with roots in the Communist era. Now, however, some of these older companies are gone, while others are streamlined and profitable, and international investors are rediscovering Eastern Germany.

Led by U.S. companies, foreign corporations are opening factories and taking advantage of the region’s brand-new infrastructure, high-skilled and ambitious workforce, fast permit approvals, low property and labor costs and handsome subsidies offered for up to half the costs of building new plants.

The Chancellor’s aides and bodyguards fall back as he heads to center-stage alone, sporting an elegant double-breasted gray suit and striding with the confidence of a powerful head of state. Eyes glinting in the spotlight, his hard-set jaw widens in an expansive smile.

He is a man with a message, but it is not what most in the crowd expect.

Many of them have operations in the country’s eastern states, while others are involved in financing those operations. They want to know what the federal government will do to help the nation avoid recession.

Instead, Schröder speaks of America and the need for solidarity across the Atlantic in the face of new international threats and challenges. Consumer confidence and business confidence will go hand in hand with a strong, proactive response to terrorism by a united international community, he says, and Germany must step forward to play a leading role.

His remarks win hearty applause, but those in the front row can hear a quip from a tall, heavy-set banker standing by the dinner table where Schröder will dine after his speech: "Interesting economic theory," he mutters. Several businessmen nearby chuckle.

The German economy, Europe's biggest, stalled in the second quarter of 2001 and shrank slightly in the third, leading the government to slash its overall growth forecast for this year to 0.75 percent.

Schröder has had to concede that his goal of cutting the nation’s jobless count to 3.5 million by mid-2002 now seems unlikely. The government’s latest forecast is for the jobless figure to average 3.9 million next year.

Chancellor Schröder woos voters in eastern Germany. * Photo courtesy of German Press and Information Office, German Embassy in Washington, D.C.

Over pre-dinner drinks following the Chancellor’s convention-center speech, he seems to prefer talking about international affairs rather than unemployment. Seated at the dinner table, he tells a reporter that ties between Germany and the United States are about to grow stronger. Asked whether this might lead to greater U.S. investment in Eastern Germany and a decrease in joblessness there, he keeps to his focus on political solidarity.

"Now, more than ever, we need to pull together and show solidarity with the Americans," Schröder says fiercely, twirling the stem of his wine glass.

"We need to avoid shrinking back in fear, whether it is fear of recession or fear of terrorists, but instead drive forward with optimism and strength," he adds, raising the glass in a toast both to the power of positive thinking and to America.

With unemployment levels still higher in Germany’s eastern states than in the rest of the country, the Chancellor will need to work hard to shore up support in that region. In the nation’s first unified election in 1990, eastern Germans eager to move as far rightward from communism as possible helped the right-of-center Christian Democratic Chancellor Helmut Kohl stay in power. But in the 1998 general election, millions in the east switched their votes from the Christian Democrats to the Social Democrats, ushering in Schröder and showing that the eastern vote can swing elections.

He has created a new ministerial post within the Chancellery to focus exclusively on issues affecting the eastern states and their economic development. [Article page 4, on Minister Rolf Schwanitz.] And a new agency, the Industrial Investment Council (IIC), now publicizes the impressive transformation Eastern Germany has achieved from a land of Communist-era industrial conglomerates to one offering unique advantages to investors, producers and entrepreneurs. [Article page 1, on IIC.] Corporate taxes have been slashed and huge government subsidies are on offer to firms interested in locating in Eastern Germany.

Politically, the focus on international affairs has helped boost Schröder’s standing in opinion polls, though his decision to send 3,900 German troops to help in the war against terrorism nearly cracked the governing coalition between his Social Democratic Party and the Green Party. Pacifism runs deeper in postwar Germany than in the United States: some Social Democrats, and many Greens, were opposed to letting Schröder send German troops outside Europe -- no German leader has done so since Adolf Hitler.

A spontaneous memorial near U.S. Embassy in Berlin following 9/11.

At the same time, however, Germans’ astonishingly deep and widespread outpouring of empathy and support for the United States right after the attacks went beyond the masses of flowers, candles, letters and placards piled outside the American Embassy in Berlin in mid-September. It went beyond the ten minutes of work stoppage and silence observed by businesses across the country, including a temporary shutdown of metro and train lines, to commemorate the innocent victims in New York and Washington.

The sense of a need to show support for a close ally has run deep and wide in Germany, from students and factory workers to political leaders and businessmen like those gathered in the downtown Berlin convention center.

The Chancellor's approval ratings are running high now and, with the opposition Christian Democrats continuing to see their support wane in key state and local elections, Schröder's chances for re-election seem strong. His party's incumbent candidate for mayor of Berlin retained power easily in key October elections, while the right-of-center Christian Democrats (CDU) -- normally the main rival to Schröder's left-of-center Social Democrats (SPD) -- barely brought in as many votes as the formerly communist Party for Democratic Socialism.

The rejuvenated popularity of the Party for Democratic Socialism (PDS) – which increasingly is seen not as an advocate of communist policies, which it has rejected, but as the sole champion of eastern German voters – has served as a wake-up call for Schröder and the SPD. If the CDU lost the Chancellery in 1998 because it failed to deliver on promises to eastern Germans, the same could happen to the SPD in 2002, unless the nascent rise in business interest in the region continues to blossom and grow.

Prospects for such growth seem brighter now than at any time over the past twelve years since the fall of the Berlin Wall, however. Massive government investment in Eastern Germany’s infrastructure, educational system, business subsidies and marketing have finally brought the region to the attention of transnational corporations, along with the fact that such a highly trained and motivated workforce cannot be found in other low-wage regions.

Both high-technology companies and mass production plants are moving into the region in rising numbers and discovering its unique combination of advantages; examples of them can be found throughout the pages of this Special International Report on Eastern Germany.—