HIDE THE IRON UNDER VELVET:

BERLIN'S IRON LADY: Is Germany Desperate Enough? (Frederick Taylor, 9/13/05, Der Spiegel)

The question facing Germans in the autumn of 2005 is whether they're ready for a repeat of the English '80s. There is also the question, of course, as to whether Merkel is the one to deliver. Last year, she was a tough-talking reformer warning Germans that the worst was yet to come. Recently, she has been trying to soften up her image. Nevertheless, polls indicate that Merkel, backed by the reform-minded CDU, may soon be walking the halls of Berlin's Chancellery. An historical glance across the channel to the 10 Downing Street of 1979 may help indicate what's in store for Germany over a quarter century later.

While Thatcher, even in 1979, had the reputation of being a tough talker, there was little at first to indicate the subsequent emergence of the "Iron Lady." In fact, after she was elected leader of the Conservatives in 1975, she built a broad coalition within the party, proving her ability to unite it. She eked out the election with a majority of 43 percent over the popular, avuncular Labour leader James Callaghan following a disastrous winter of strikes and poor economic news.

Thatcher entered 10 Downing Street with a disarmingly gentle message from Saint Francis of Assisi: Where there is discord, may we bring harmony. Where there is error, may we bring truth. Where there is doubt, may we bring faith. And where there is despair, may we bring hope." Whatever her long-term aims, it took Thatcher some years of relatively cautious rule -- and a successful war in the Falkland Islands -- before the true "Iron Lady" began to emerge. And once she did, there was precious little harmony and an awful lot of discord. As for error versus truth, the jury is still out.

Thatcher arrived in the prime minister's office surrounded by powerful men, most of them not her natural supporters. Indeed, only a handful of ministers in her 1979 cabinet could be classified as hard right-wingers -- or "Thatcherites" as they later came to be called. The rest were center-right former supporters of Europhile Tory leader Edward Heath, the man who took Britain into the European Community in 1974, with a few traditionally aristocratic landowners thrown in for the sake of historical authenticity. There was a feeling in the early years of Thatcher's premiership that not just the opposition but a substantial number of her colleagues were waiting for her to self-destruct. Hence her relative caution.

Nevertheless, there's little doubt that Thatcher had always planned radical changes. A top priority was the reduction of deficits through draconian monetary measures. Then, the liberalization of the capital markets and reduced regulation. Finally came the drastic lowering of income and business taxes (compensated for partly by sales tax hikes).

Germany is facing widespread unemployment, but has little appetite for radical economic reform.
All these changes came quite early on. Inflation fell rapidly, but with interest rates high, unemployment jumped. British manufacturing industry had been struggling since the 1950s to compete -- with an eye on Germany and Japan in particular. Now it suffered further from the high pound and expensive borrowing. At the same time, the Conservative government attacked British protectionism and industrial subsidies which had compensated for low productivity and the restrictive power of the country's trade unions. Whole areas of Britain -- especially the industrial north -- were devastated as factories closed and workers were shed. By 1982, more than 3 million were unemployed making up 11 percent of the workforce.

Ms Merkel should have run against the reforms Mr. Schroeder has pushed and only once she won pushed through more radical ones. Continental Europeans won't elect reformers.

Posted by Orrin Judd at September 13, 2005 2:14 PM