ot, germans are getting together tomorrow (ECB) to decide on a rate cut, if any; it's expected they'll leave rates alone, however. the incoming finance minister favors a rate cut in Germany as well:
16:07 DJS Incoming German Finance Minister Lafontaine Supports A Rate Cut
16:07 DJS Incoming German Finance Minister Lafontaine Supports A Rate Cut
FRANKFURT -(Dow Jones)- Germany's newly elected chancellor Gerhard
Schroeder will tap Social Democratic Party leader Oskar Lafontaine, a strong
proponent of cutting interest rates to reduce unemployment, as finance
minister, the German newspaper Rheinische Post reported Wednesday.
The report gave no sources, and party officials declined comment. Party
leaders have said, however, that no cabinet appointments are definite pending
talks with the environmentalist Green Party on forming a coalition government.
The report followed Schroeder's meetings in Paris earlier in the day
with French President Jacques Chirac and Prime Minister Lionel Jospin in which
he supported LaFontaine's calls for lower European interest rates and for
trading bands to be set in the future for the world's major currencies.
Schroeder, speaking at a press conference after the meetings, said that
proposals along those lines would be presented to leaders of the Group of
Seven industrialized countries this weekend. The G-7 meets Saturday after
annual meetings of the International Monetary Fund and World Bank in
Washington.
Schroeder added that improved economic policy coordination between
major governments is essential. He repeated calls to curb capital flows and
regulate international financial markets.
The new policies mark a big change from outgoing Chancellor Helmut
Kohl's support of central bank independence, which served as a counterweight
to the jobs-oriented policies championed by France and other socialist-led
countries in the European Union, The Wall Street Journal reported Wednesday.
The shift could signal clashes with the European Central Bank, which will
guide monetary policy for the new euro currency. The euro, a common currency
for 11 European countries, is set to be introduced Jan. 1.
Lafontaine has lost no time in making known his views on interest
rates. Germany's repurchase rate, the most important rate for Germany's
central bank, the Bundesbank, stands at 3.3%. "Monetary policy must react in a
timely way to growth and employment," Lafontaine said Tuesday. Schroeder and
the Social Democrats, or SPD, defeated Kohl and his Christian Democratic Union
in a federal election Sunday, ending Kohl's 16 years as chancellor.
Lafontaine's comments came on the second day of negotiations between
the SPD and the Green Party about forming a government. The Greens insisted
Tuesday on having as many as four of an expected 16 ministries in the new
government. The two sides have a month to complete their talks, but SPD
officials said they hope to be done in two weeks.
As expected, the Greens are pressing for their charismatic
parliamentary leader, Joschka Fischer, to be foreign minister, a job
traditionally given to a member of the junior coalition partner. In addition
to the Foreign Ministry, the Greens "would also like to have the Environment
Ministry and a third or fourth cabinet post which is still open," said Antje
Vollmer, a member of the party's negotiating team. The parties said their
first order of business will be to set common policy goals designed to prevent
infighting.
At the top of that agenda, Schroeder said, will be measures aimed at
bringing down unemployment. Germany's stubbornly high 10.6% unemployment rate
was at the center of the campaign. The man widely expected to become the next
labor minister, Walter Riester, warned Tuesday that he expects the jobless
rate to rise in the early months of the new government. Riester, whose
previous job was second in command at Germany's largest labor union, IG
Metall, cited temporary government-funded jobs created in recent months by the
Kohl administration; the jobs are to expire soon.
Lafontaine told party members that he has received calls from other
European leaders urging the new German government to take the fight against
unemployment to the European stage. "They know that employment policy has to
be better coordinated," Lafontaine said. "We've also gotten signals from the
U.S. (calling for) better cooperation of economic and finance policy."
The core of the SPD's plans for creating jobs, however, rests with its
"Alliance for Jobs" to bring together unions, employers and the government for
joint talks. A similar effort by Mr. Kohl in 1996 led to modest cuts in the
welfare state that the SPD vows to roll back. There is hope that Mr. Schroeder
will have more credibility with the unions and win greater concessions.
"He wants to organize talks in which everyone agrees to a compromise,"
said Wolfgang Scheremet, a labor economist with the German Institute for
Economic Research in Berlin. "Mr. Kohl had the idea to bring unions into the
talks just so that they would be responsible for cuts in social security."
Mr. Schroeder declined during the party conference Tuesday to say
exactly what he expects from this effort.
Mr. Lafontaine's remarks on interest rates follow his earlier calls for
fixing exchange rates between the dollar, yen and euro. His sentiments are
echoed by Mr. Chirac, who this week sent a letter to President Clinton calling
for such a move.
But such a project is unlikely to become a reality soon, and some
economists believe Mr. Lafontaine will tone down his rhetoric when the
business of running the country starts in earnest.
"These remarks are part of the government's initial enthusiasm. . . .
If Lafontaine were to in fact take the post of finance minister, he will
realize that the Bundesbank and the European Central Bank don't like to be
given advice by politicians," said Elga Bartsch, economist at Morgan Stanley
Dean Witter & Co. in London.
Copyright (c) 1998 Dow Jones & Company, Inc.
All Rights Reserved.
09/30 4:07p CDT
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