Kohl's tax reforming strategy for growth is sunk

The "Great Tax Reform" that was to reinvigorate Germany and propel Helmut Kohl to a fifth term as Chancellor was sunk yesterday, submerged in inter-party conflict which marks an end to five decades of consensus politics.

Though tax giveaways would have amounted in the end to only DM30bn (about pounds 10bn), much more was at stake. By improving the stifling climate for business, the German government had tried to reverse the country's relative decline, and it failed.

Yesterday, it became clear that there could be no compro-mise between the government-controlled Bundestag and the opposition-dominated second chamber, the Bundesrat. Next week, MPs will be summoned from their holiday villas in Tuscany for an emergency session of Parliament. Their task will be to cobble together a finance Bill so that civil servants can be paid, but several planks of the reform will have to be jettisoned.

With the highest labour costs in the world and monumental unemployment, Chancellor Kohl's government was trying to reduce the burden borne by German industry. The opposition Social Democrats, tipped according to the polls to form the government after next year's elections, refused to oblige.

The SPD's leader, Oskar Lafontaine, had held several rounds of talks with Chancellor Kohl to hammer out a deal, but all attempts at compromise foundered. The SPD's last offer was a watered-down package giving away DM15bn. The party would not accept a reform "a la Kohl and Waigel," declared the Social Democrats' chief negotiator, Peter Struck.

"I have the impression that the SPD has learnt only one thing from Lafontaine - what the former Soviets used to practise at the United Nations - namely to say `nyet'," said Theo Waigel, the Finance Minister.

It was a classic Waigelian riposte, packaging as it did allusions to the Social Democrats' alleged Stalinism, with a dig at their obstructionism; a heinous crime in the consensus-seeking ethos of German politics. But to pin all blame on the main party of opposition for the failure of a government that has been in power for 15 years smacks of desperation. Perhaps Mr Lafontaine never wanted a deal, but it might also be true that the government was in no position to cut one.

The "Great Tax Reform" that emerged from the coalition coffee rooms at the beginning of this year was already a rather miserable little mouse. Billed to "make Germany fit for the 21st century", the plans were denounced by business as "a scandal" and the minutiae of VAT percentages nearly blew Mr Kohl's government apart.

That may still happen. The Chancellor's junior coalition partners, the Free Democrats, are holding Mr Kohl's future to ransom to a small cut in the "solidarity surcharge" levied to pay for rebuilding the East. Without the opposition's help, Mr Kohl may not be able to oblige.

If he does, he might have trouble fulfilling another important strategic goal: meeting the deficit requirements laid down in the Maastricht Treaty. In short, Europe's longest-serving leader is in a mess.