As last-chance saloons go, you could do a lot worse than the pillars-and-stucco grandeur of Number One, Unter den Linden.
The Berlin home of media giant Bertelsmann, a new building from 2003 with an old facade, is where federal finance minister Lars Klingbeil chose to sketch out his rescue plan for an old country seeking a new idea.
After seven sclerotic years, compounded by ongoing US trade uncertainty and rising Chinese competition, the Middle East conflict could see Germany’s economic crisis go into extra time.
Crisis is also gripping the Social Democrats (SPD), with polls showing support has slumped to a record low of 12 per cent. After five years as SPD co-leader, and 10 months as federal finance minister, Klingbeil used his Bertelsmann speech to warn of the real danger facing his party and his country.
“Whoever chooses the status quo is choosing decline,” said Klingbeil in a keynote address that offered broad brushstrokes of reform including income tax cuts; an end to tax privileges for married couples and for early retirees as well as looser labour protections.
But almost a year after the SPD signed up as junior coalition partners with the centre-right Christian Democratic Union (CDU), audience members departing the Klingbeil speech asked: where is the sense of urgency?
The speech contained no new ideas on how to cut costs to boost corporate investment or to slash the red tape strangling German firms. Even worse: divisive political hot potatoes – pension reform and rules for budget deficits – have been kicked off to expert commissions.
There was aspirational talk – but nothing more – of a digital tax on tech companies, a federal housing agency and mobilising the staggering €3.6 trillion that German savers have squirrelled away.
Rather than policy, Klingbeil argued his country’s most pressing problem was mentality. Too many Germans thinking “every risk and every possible problem has to be regulated by the state or solved with tax money”.
Rising fuel prices are affecting German consumers. Photograph: Tobias Schwarz/AFP via Getty Images
The last time Germany encountered such plain-speaking and reform rhetoric was in 2003, the last time the country faced economic disaster.
Back then it was ex-SPD chancellor Gerhard Schröder who knocked heads together in his party, warning that “either we reform ourselves or will be reformed by the markets”.
The subsequent Agenda 2010 welfare and labour-market reforms split his party, and curtailed Schröder’s chancellorship, but they revived Europe’s largest economy and triggered a years-long boom.
Last week the 81 year-old Schröder warned that “grumpy agreement to reforms and small steps is the wrong path”. Any new reform plans will work only if the SPD shows “real courage and will”.
So is Klingbeil the right man to knock heads together?
A ZDF public television poll on Friday suggested just 17 per cent of Germans – and 29 per cent of SPD voters – think he can lead the SPD – and the country – out of crisis.
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Klingbeil aides acknowledge their boss “is not a Schröder, basta type” but insisted he is no less ambitious – or determined.
“He doesn’t bang on the table, but when he speaks cautiously about ‘one should’ or ‘one could consider’ what he means is ‘we will’,” said one senior SPD official.
Over at the finance ministry, senior officials insist Klingbeil’s speech was the soft launch of what will be Germany’s most concentrated reform period in 20 years.
“April is going to be a very busy month because the reform agenda and [government] savings programme are closely interlinked,” said Jens Südekum, economic adviser to Klingbeil.
There is real financial urgency to act: despite borrowing over €1 trillion for infrastructure and defence investment, Klingbeil’s finance ministry is scrambling to address a €12 billion deficit in the day-to-day budget, likely to balloon to €60 billion within three years.
Hoping for the best but preparing for the worst, Berlin is planning major cuts across the board such as long-standing subsidies and healthcare spending. Even a full-scale tax on alcohol – until now a political taboo – is on the cards.
German’s minister for finance and vice-chancellor Lars Klingbeil and chancellor Friedrich Merz. Photograph: Tobias Schwarz/AFP via Getty Images
As vice-chancellor, Klingbeil has to strike – swiftly – a reform deal with his coalition partners. On Wednesday CDU leader chancellor Friedrich Merz, praised the Klingbeil speech for “at least not saying what isn’t possible”.
“We have to try to find a sensible common solution,” said Merz in a swipe at the negative reaction to Klingbeil’s proposals from his CSU Bavarian allies.
The final challenge for Klingbeil will be selling reforms to his party, wearing his third hat as SPD co-leader.
Last year’s federal election result of 16 per cent was a historic disaster followed, a week ago, by the loss of the western state of Rhineland-Palatinate after 35 years, and Munich city hall after 40 years. Opinion polls show the 160 year-old political home of Willy Brandt and Helmut Schmidt is now just half as strong as the decade-old Alternative for Germany (AfD).
Poll after poll shows the far-right AfD pulling in younger and working-class voters while the SPD, which emerged from the 19th-century labour movement, is perceived as chief lobbyist for Germany’s unemployed and welfare recipients.
Lars Klingbeil acknowledged as much in his Berlin speech: “We, and by that I also mean my party, have created a system in the last decades that has increasingly made it not worthwhile to work.”
While Klingbeil’s “work harder” demand was a calculated nod to his CDU coalition partners, his demand for higher wealth and inheritance taxes was a nod to his own voters. Pleasing everyone – particularly in his own party – will be impossible.
One-third of SPD voters want their party to continue its previously leftist path, according to a poll on Friday, and another third want more CDU-aligned centrist approach while a final third is undecided.
Equally ambivalent are SPD officials – mayors, state leaders and ministers – who gathered for an emergency meeting on Friday in Berlin. Many demanded Berlin party leaders, if they want to keep their jobs, focus on real bread-and-butter issues.
“The SPD has to concentrate seriously on economic policy, rescuing jobs and good living standards,” said Thomas Jüng, SPD mayor of the Bavarian city of Fürth.
In advance of Friday’s meeting, Klingbeil officials said their man is prepared to go down fighting if necessary.
Germany’s minister for finance: Lars Klingbeil: Lars Klingbeil acknowledged as much in his Berlin speech: ‘We, and by that I also mean my party, have created a system in the last decades that has increasingly made it not worthwhile to work.’ Photograph: John MacDougall/AFP via Getty Images
“The reform path Klingbeil has sketched out comes with risks and will annoy some, perhaps even make some leave the SPD,” said Jens Südekum, “but it has been prepared for months and he knows he has support from key figures.”
The window for big-bang economic and welfare reform in Germany is extremely tight: the parliamentary holidays loom in July while the next round of state elections in September could see the AfD take power for the first time.
As the politicians talk and the gloom spreads, many younger Germans appear to be working on an exit strategy. Last week’s edition of an annual youth study showed that that 41 per cent of 14-29-year-old Germans could imagine leaving their homeland.
One in five, according to the report, have concrete emigration plans. The Bild tabloid warned that, without drastic action, Germany was on well its way to becoming a graveyard for ambition.
“Soon the only way to stop the flight of German youth,” it added grimly, “will be to build a wall.”