[A-List] Germany: fiscal crisis, capital flight

[Michael Keaney]

Interesting that the Financial Times should feel moved to disclaim parallels
between Germany now and Callaghan-era Britain, a comparison I think is very
appropriate when considering the basis of Schröder's coalition and the
ambitions of key sectors of German monopoly capital.

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Infineon may quit HQ in Germany over high tax rate
By Ben Hunt, IT Correspondent
Financial Times; Dec 16, 2002

The chief executive of Infineon, has said the Munich-based semiconductor
group will consider moving its headquarters from Germany to escape high
taxes.

Ulrich Schumacher said German taxation rates, often double those paid by
competitors, were a dangerous burden on Infineon. "In a normal business
year, where there is for example $2bn (£1.26bn) in profit, it means there is
some $300m to $400m more [tax] than your competitor has. Think what you
would have to do to compensate for that. It's a brutal disadvantage," he
said.

Mr Schumacher said, in an interview with the Financial Times, that Infineon
had no immediate plans to move its headquarters from Munich, but he insisted
that all options were being considered.

"It's not easy to say we will go somewhere else but it has to be addressed.
Whatever the implications are, we cannot accept that we pay twice as much
tax as our competitors. We are a German company and what we can afford to do
in Germany, we will. There are many functions in Germany for historic
reasons, and it is not a good place for overhead functions or simple
functions you can do anywhere. Everything is under investigation," he said.

Infineon has moved its accounting and book-keeping operations from Munich to
Portugal, where it has made cost savings of 58 per cent.

The left-green coalition government of Chancellor Gerhard Schröder has come
under intense criticism from a number of leading German industrialists, but
few have been as outspoken as Mr Schumacher.

He insisted, however, that he was not interested in simply bashing the
government but wanted to engage in dialogue. "But dialogue means two people
talking. The government is not delivering a consistent message."

Mr Schumacher warned the government about the consequences of changes to
corporate regulations and tax regimes that were being considered. "What is
happening now in my country is really awful because if all the things that
today are on the table materialise, then in the next three and half years
[Germany's] position will deteriorate in a way that I doubt can recover in
the short term. We are definitely losing our position in the world market
very fast.

"We are dying of our own arrogance. Everybody in Germany claims that we are
so strong and powerful that we do not have to change. But we have now
reached the point that that is not true," he said.

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German business chiefs warn of crisis
By Haig Simonian in Berlin
Financial Times; Dec 16, 2002

The leaders of some of Germany's biggest companies believe their country
faces its worst crisis since the war amid deep scepticism about the ability
of the government to solve its problems.

Their anger comes as the government this week prepares to unveil a unitary
25 per cent savings tax and an amnesty to encourage the repatriation of
undeclared savings abroad.

Business leaders from some of Germany's biggest 100 quoted groups, surveyed
by the Financial Times and FT Deutschland, its sister paper, fear that rises
in taxation and non-wage labour costs imposed by Gerhard Schröder,
chancellor, since his re-election in September will stifle growth.

"Along with the majority of German citizens, I am shocked by the present
conceptionless government," said Herbert Hainer, chairman of the Adidas
sportswear group.

"Even with the best of intentions, one cannot identify any strategy in the
government's plans which could make our country fit for the challenges of
the future."

Alexander von Tippelskirch, head of the IKB Deutsche Industriebank, a
business lender, added: "Not since the end of the war have conditions been
as bad as today."

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LEADER: Germany's malaise
Financial Times; Dec 16, 2002

More bad news for Gerhard Schröder. An authoritative survey, conducted by
the Financial Times's sister paper FT Deutschland, shows many of Germany's
top business chiefs consider the chancellor's recently re-elected coalition
government to be a prime cause of the nation's current malaise.

Most of the 40 or so bosses polled lambasted the government's lack of
strategic thinking, the absence of a clear economic policy, its dependence
on short-term expedients and its willingness to burden already high-cost
activities with increased taxes and red tape. Some say Germany is in its
worst crisis since the second world war.

It would be tempting but wrong for the government to dismiss this as so much
whingeing. Wrong because there is also a hopeful message in the poll's
findings. Despite the gloom, many business leaders see great potential
advantages in being based in Germany. Although they depend on foreign
markets for today's sales and profits growth, none is so far prepared to
quit Germany. Thus it would be premature and foolish to write Germany off.

But there are caveats. A significant minority still believe in sitting round
a table to hammer out reforms with trade unions and politicians. This did
not work for the Social Democrat-led coalition in the 1970s. It will not
work 30 years later for Wolfgang Clement, the chancellor's economic supremo.

One reason, then as now, is the excessive power of Germany's trade unions.
Sheltering behind a wholly unjustified reputation for moderation, they have
fiercely resisted change. This has been good for their members and complicit
company bosses - the "insiders" with jobs - but poison for job-seekers and
growth.

The other caveat concerns the German people. In a country with a penchant
for railway metaphors, they have been told for months that their country is
"at the rear of the European train". That did not stop them voting in
September for more of the same policies. If voters are angry with Mr
Schröder, it is because he painted too rosy a scenario for the next four
years. They are unlikely now to be willing to bear painful structural
reform.

Germany is therefore unlike Britain in 1979. Like Japan, it still feels
immensely rich. It lacks the general sense of crisis essential for change.

Mr Schröder should not be deflected by this. Assuming the coalition with the
Greens holds, he will be in power for another 3? years. After an appalling
start, he should now be guided by the pleas for structural reform from the
business community and produce a strategy for a new Germany. This must
include slashing subsidies and shaking up the bloated, yet cash-strapped,
health, social security, pension and education systems with the ultimate aim
of lower taxes. Only that way can he restore Germany to growth and keep
alive any hope of re-election.

The FT Deutschland survey is a wake-up call for Berlin. If unheeded, Germany
could become the Japan of Europe. That is something neither Germany nor the
world can afford.