Lafontaine’s dream was to create a Eurozone exempt from the harsh economic realities of the “Anglo-Saxon” world. He saw the European Union as an economic entity powerful enough to turn back the tide of raw capitalism and live by more socially sensitive rules. If he could push Germany toward higher wage growth, then it was just possible that France and Italy–and then the rest of Euroland–would follow. The vision is a seductive one, especially given global capitalism’s setbacks in Asia and Latin America. But as Germany’s business leaders know, the market’s power grows by the day. Their competitors keep pushing them. And so they pushed Lafontaine.
Lafontaine’s leaving is only the latest example of an increasingly obvious political truth: political leaders have two constituencies to please–voters and financial markets. It’s a lesson other “third way” leaders–notably Bill Clinton and Tony Blair–have learned well, though Clinton had to suffer his first-term health-care debacle before he completely got the point. As for Blair, he campaigned as a centrist candidate and is governing as one. His first official move was to give the Bank of England its full independence (something Margaret Thatcher had steadfastly refused to do), and his second act was to produce a tighter budget than his conservative predecessor had ever dreamed possible.
Lafontaine’s departure clears the way for Gerhard Schroder to take control of his own government and to fulfill the pledge he made in the decisive cabinet meeting this week to turn Germany into a “business friendly” country. Investors are encouraged by the words, but after the government’s disastrous start they’ll be looking for proof. That could come quickly as the government puts the final touches on a tax-reform bill that has outraged the business community. If the bill gets scaled back, confidence will improve dramatically and capital may start flowing into Germany for the first time since the euro’s debut this January.
If so, Germany will find itself more in sync with its European partners–never mind that they’re run by nominal leftists. French Finance Minister Dominique Strauss-Kahn may have had some private sympathy for what Lafontaine was trying to accomplish, but he was far too clever to let anyone know about it in public. Italian Prime Minister Massimo D’Alema–a former communist–sat silently by while Lafontaine fought for a worker’s zone where pay increases would equal productivity gains.
Look for the European Union experiment to return quickly, and strictly, to the conservative lines laid down by the stability pact that dictates tight budgets and the European Central Bank statute that demands extremely low inflation. Expect Tony Blair, who had been overshadowed by the burst of social-democratic energy out of Bonn, to return to the scene in full force and join hands with Schroder and French Prime Minister Lionel Jospin to create a third way that is less social and more market-oriented. Think of it as the “2.1 way”–a slightly updated version of the familiar capitalist software.
