GERMAN BUSINESS COMMUNITY DISAPPOINTMENT WITH FEDERAL

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E.O. 12958: N/A
TAGS: ECON ELAB BEXP GM
SUBJECT: GERMAN BUSINESS COMMUNITY DISAPPOINTMENT WITH FEDERAL
GOVERNMENT


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Sensitive but Unclassified -- Contains Proprietary Information.
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1. (SBU) Summary: German business leaders are expressing
disappointment with the lack of economic reforms under the
Merkel government. Some executives go so far as to say that the
previous SPD-led government was more active in pushing reforms
and paid greater attention to business' concerns. They argue
that if Germany continues to avoid difficult but necessary
economic decisions, it will no longer be competitive against
dynamic, emerging market economies, in particular China and
India. The business community appears to be far ahead of the
government in considering how Germany can compete in a global
economic environment. End Summary.

Business Complaining The Government Too Slow On Reforms
-------------- --------------


2. (SBU) At a meeting in its Cologne headquarters in November,
a senior Ford Motor Company executive provided Minister
Counselor for Economic Affairs and D|sseldorf Pol/Econoff an
overview of the firm's relationship with the German government.
He observed that Ford Europe is "simply not getting what it
needs and wants." Numerous AmCham North Rhine-Westphalia (NRW)
leaders have echoed these comments to CG over the last several
months, expressing strong disappointment with the support they
get from Berlin, even while saying they understand how difficult
it is for the CDU to force through a pro-business agenda in the
Grand Coalition.


3. (SBU) Mission Germany has heard similar complaints over the
lack of economic reforms from other parts of Germany. The Ford
executive's opinions are widespread in the business community,
where support for the CDU has traditionally been strong.
"Chancellor Schroeder did more for industry than Chancellor
Merkel has," he declared, by reducing such costs for employers
as unemployment and health insurance. Germany is also doing too
little to tackle unemployment: "the recent decrease in
unemployment to below 10% (9.8%) is not/not a victory," he
stated. Others in the NRW business community also argue that
the former SPD-led Berlin government worked more closely with
them than has Chancellor Merkel, in terms of communication,
consultation, and addressing individual concerns.

Fears of Losing Competitiveness
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4. (SBU) Germany needs to change to be competitive against
emerging economies such as India and China, the Ford executive
stated. Germany will be more expensive, but even with higher
costs it can compete if it is a world leader in innovation,
whether in terms of products, technologies, or production
techniques. At the moment, he stated, "it has no sense of
urgency to adjust and make itself more competitive." The
society needs to be more innovative and is still too slow at
positioning itself for the future, especially in education.
Top-quality engineers once kept Ford in Germany; that is no
longer the case. Weaknesses in the education system have become
a real obstacle; Ford is unable to fill apprentice positions
because it cannot find enough individuals with basic skills such
as reading and writing. He, like other German observers, noted
the move of pharmaceutical research and development out of
Germany -- largely to the U.S.

Allianz in Munich - A Similar View
--------------


5. (SBU) In a meeting with CG Munich, Michael Diekmann,
Chairman of the Board of Management (CEO) of Allianz SE,
expressed little faith that the Merkel-led Grand Coalition would
succeed in making any tough decisions in areas such as tax
reform. He said the CDU/CSU members of the coalition were
afraid of losing power in state elections in the coming years.
Diekmann's reasoning was that in eight years, the number of
Germans receiving public assistance such as social security and
unemployment will exceed those who are employed -- these
recipients of assistance vote, and they will not vote to cut
their benefits. The only way any party will be able to retain
power in Germany will be to water down reforms and keep up
entitlements. Diekmann, like other German business leaders,
does not consider the CSU particularly business-friendly, saying
M-P Stoiber is essentially a socialist, who is "pro-business"
only to the extent that he does not want firms to leave Bavaria.


A Mixed Perspective from Leipzig
--------------


6. (SBU) The overall assessment of the performance of the
CDU-SPD government among business contacts in Saxony,

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Saxony-Anhalt and Thuringia is mixed. Some complain about the
slow path in handling reform projects, others stress positive
developments, such as lower social fringe benefits and new
regulations in the corporate tax system -- important factors
especially for small-and medium sized businesses. While many
contacts in these new Laender say the federal government has not
met their expectations, they often acknowledge that their
expectations had been much too high.


7. (SBU) Wolfgang Heinze, Vice President of European operations
at U.S. firm Southwall Worldwide and chairman of the Federation
of Employers in Saxony, talked about a recent meeting of the
Federation of Employers and Federation of German Industry
leaders in Berlin with Chancellor Merkel and other senior
Federal officials. He observed that while German business
people were very optimistic when Merkel's Grand Coalition was
formed last fall, optimism has since given way to frustration.
Within the Federations the majority of members complain about
the lack of a consistent reform strategy. They are encouraging
Chancellor Merkel to push through urgent reforms, especially to
reduce social welfare costs for employers.


8. (U) Only about 20% of managers are generally satisfied with
the Grand Coalition after one year, according to the results of
a recent Allensbach survey published November 20. Some business
leaders, however, who attended a Berlin consultation with the
Chancellor in mid-November put a more positive spin on the Grand
Coalition, while saying it needs to do more in terms of tackling
the structural reforms Germany has needed since the 1980s.
These defenders commonly say that while the Merkel government
may have been slow in making needed reforms, there is a sense of
a consistent overall strategy.


9. (SBU) Comment: The German business community traditionally
has a reputation for conservatism and opposing change. Yet many
business leaders are ahead of the politicians in strategizing
about Germany's position in the global economy. They look at
rising competitors in China, India, and other emerging economies
and want to be positioned to meet those challenges. Many feel
that the Merkel government may have to tread too narrow a path
between CDU and SPD interests and therefore lacks the ability to
take bolder economic measures.


10. (U) This message was coordinated with Embassy Berlin, with
input from Hamburg, Leipzig, Munich, and Frankfurt.
BOYSE