He did a thorough job of it. In three terse letters, Lafontaine, 55, gave up his cabinet post, his leadership of the ruling Social Democratic Party (SPD) and his seat in Parliament. The day before Lafontaine’s resignation, Schroder reportedly complained at a cabinet meeting that “anti-business” policies were being foisted on him by his team and hinted that he might resign himself. When Lafontaine quit instead, Schroder denied that he had forced him out; Lafontaine refused to say anything at all; Schroder also denied that he planned to make any radical changes in the course that his left-wing pilot had helped to chart. “There is no crisis,” he said.
Spoken like the disappointingly bland chancellor Schroder has become. He entered office last fall promising a politics of a “New Middle” that would energize the German economy. But from the start, he allowed Lafontaine to undercut business-friendly economic reforms. Lafontaine endorsed tax reforms that would close lucrative industry loopholes. He wanted to impose controls on currency markets, and he pushed so hard for the European Central Bank to cut interest rates that he antagonized even those who agreed with him. As a chief proponent of the government coalition with the leftist Green Party, Lafontaine was also criticized for unpopular items on the Green agenda, including a liberalization of Germany’s rigid immigration laws to allow resident foreigners to hold dual citizenship.
With Lafontaine at the economic helm, Germany’s growth projections began to drop, while the country’s chronically high unemployment inched up to more than 11 percent. The political toll was rising as well: recent polls showed Schroder’s SPD trailing the opposition Christian Democrats by 41 to 38 percent.
Fairly or unfairly, Lafontaine took much of the blame for the government’s failings. Now that Lafontaine is gone, Schroder should have more freedom to make good on his centrist campaign promises. The German press speculated that he might eventually switch coalition partners, replacing the Greens with the more moderate Free Democrats. Whatever he decides, Schroder will have to move quickly. “If he doesn’t set a more business-friendly course, all his problems will be back in a couple of months,” says Thomas Mayer, Goldman Sachs’s chief economist in Germany. And if that happens, Schroder won’t have Lafontaine to take the fall.
