Germany's big spender seeks allies

FAST RUNNING out of friends at home, Germany's combative Finance Minister is flying to Rome and London today to canvass support for his vision of a new European economic order.

Italy's leftist government will roll out the red carpet for Oskar Lafontaine. But the second most powerful man in Germany, who for reasons of physical appearance and unbridled ambition is nicknamed "Bonaparte" in his own back yard, can expect a cooler reception from the Chancellor, Gordon Brown. To New Labour, the policies Mr Lafontaine is peddling seem like old hat.

His prescription for the continent's ills - notably mass unemployment - is "spend, spend and spend". He frets about imbalances in world trade, rails against greedy currency speculators and appears to believe that a little bit more money in circulation would solve all problems.

Mr Lafontaine wants a Europe-wide programme to create jobs, financed by borrowing. To that end, he has tried to force the Bundesbank to cut interest rates, and will approach the new European Central Bank with the same kind of subtlety when the euro is launched in January.

Instead of cutting taxes at home to encourage job creation, he seems to want Germany's European partners to burden themselves with the same kind of taxes that have driven German companies abroad. With France, Germany is preparing a joint initiative to "harmonise" corporation tax across the European Union.

Mr Lafontaine is a Euro-sceptic's dream, the kind of German politician that had to be invented in the past by the anti-European propaganda machinery.

His attacks on the independence of central banks threaten to undermine confidence in the euro in the most vulnerable moment of its birth. The Murdoch press is happy to proclaim that the spectre of Mr Lafontaine's "red euro" is stalking the Continent.

As Mr Brown prepares to sell monetary union to an unenthusiastic British public, Mr Lafontaine's preachings are more than inconvenient. And as New Labour's dogma supplants the old, Mr Lafontaine is leading a crusade for an alternative to the "Third Way".

Much has been made of the fact that in 13 of the EU's 15 member states left-wing parties are now in power. But in reality, there is little common ground between supposed ideological soulmates, and the gulf is especially wide between Social Democrats of Mr Lafontaine's ilk and the Blairite tendency.

So wide that the struggle to redefine the left in the age of globalisation is tearing apart even the German government. The Chancellor, Gerhard Schroder, would like to be seen as a Blairite, and has surrounded himself with people who would stand a good chance of approval by a Millbank vetting committee

Mr Lafontaine, though, controls the German Social Democrat party, and has secured important positions and sweeping powers for himself and his allies. On matters of taxation, his authority is virtually unchallengeable. The Chancellery was cut out from recent negotiations with the Greens, the junior coalition partners, about the so-called "ecological tax".

The right wing is furious, but impotent. Mr Schroder will not come to the aid of his friends and business is losing heart. Yesterday, even the government's independent panel of economic experts, the so-called "Five Wise Men", felt obliged to weigh in with an unusually harsh note of foreboding.

"What has become known about the finance policy of the new government does not offer too many grounds for hope," they declared.

While Mr Lafontaine has been running amok, intense battles are being fought behind the scenes.

Mr Schroder has planted allies in most ministries, and the Chancellery itself is turning into his impregnable fortress. The latest remote-controlled foot soldier to be installed in an office near Mr Schroder's is the economist Klaus Gretschmann.