Economic woes take shine off Kohl gathering

Embroiled in a heated dispute with their coalition partners, Germany's Christian Democrats attempted to rouse themselves yesterday from their mid-term slumber with a pledge to reverse their country's economic decline.

Delegates to the CDU's annual conference in Hanover had gathered under the slogan "Action for the Future", and proceeded to dwell at length on their glorious past. Celebrating 14 years in power, Chancellor Helmut Kohl's party seemed in no mood to crow about the record unemployment and eroding competitiveness that are their fruits of his reign.

Mr Kohl set the scene with a lacklustre keynote speech peppered with the word "future" but virtually devoid of detail. Germany, he said, was losing in the world market because it punishes achievement with high taxes and rewards labour with inflated wages. "We cannot sidestep the advancing globalisation of the world's economy," he said.

He cited the price of one hour's work by a research engineer - DM135 (pounds 57) in Germany - against DM99 in Britain, DM54 in Hungary and DM35 in India. "We must not be surprised, therefore, if research moves abroad at an ever growing pace."

On unemployment, which hit a post-Weimar high of 4 million this year, he offered little comfort, admitting for the first time that his promise to halve the figure by 2000 was unrealistic. The new target is two-thirds.

The main reason for the country's economic woes is a tax system which drives up the cost of labour. The CDU are committed to a fundamental overhaul by 1999, bringing the top rate down to perhaps as low as 35 per cent, but their endeavours keep coming up against the brick wall of economic reality.

After promising to reduce the "solidarity surcharge", tax earmarked for eastern Germany, by the beginning of next year, the government was forced to ditch the commitment last week because it could not afford it. The budget, strained by efforts to meet the Maastricht criteria for European monetary union, is depleted. Additional revenues can be raised only by raising taxes, which in turn would depress growth and reduce the government's tax income. Therein lies Mr Kohl's dilemma.

His junior coalition partners, the free-marketeer Free Democrats, feel betrayed, and are whispering again about pulling the plug on the government. That will no doubt prove to be an idle threat, and the coalition will soldier on till elections in 1998.

But the credibility gap between the Chancellor and the voters is widening, the opposition have caught up in the polls, and the time bomb of EMU is ticking away. Mr Kohl yesterday called on the coalition to close ranks, and urged his own party to rediscover its Christian faith. The party expressed its faith in him by re-electing him as chairman with 95.5 per cent of the vote, and adopting his proposal for affirmative action for women members.