Just In: Red Oskar's Out

Chris Burford cburford at gn.apc.org
Thu Mar 11 16:14:37 PST 1999

Rather weak reporting in the English language media tonight on the web and on television and my German is not good enough to pick up the subtleties, but Green spokespersons sounded disappointed and terse about implications for the coalition.

There appears to have been a standoff at a cabinet meeting yesterday. The exact wording is presumably confidential but I guess it was on a formula that would have summed up a whole number of things, but most likely that cabinet members should not make statements that sound anti-business.

I guess that Schroeder was prompted to the showdown more by the set back for the SPD in the Hesse regional elections, than by the further slip in the Euro prompted by Soros's prediction, which perhaps came after the cabinet meeting.

Tonight CNN TV had a clip linking his resignation to his support of currency exchange regulation, which seems to me unlikely. Their Europe website appears to have blundered with no item that I could see at 11pm GMT.

BBC site seems best, FT had little specific to Germany, more general about Euro, Guardian was better on Germany, Bloomberg's was detailed about Euro effect.

I could not find a web-access site for a similar breaking news service in German.

Chris Burford



Thursday, March 11, 1999 Published at 20:28 GMT

World: Europe

Resignation rocks German


Oskar Lafontaine: Gave no reason for quitting

German Finance Minister Oskar Lafontaine has resigned

after a prolonged power struggle with Chancellor Gerhard

Schröder over economic policy.

Mr Lafontaine, 55, the most powerful

man in the German Government after

Mr Schröder, has also quit his

chairmanship of the Social

Democratic Party (SPD).

The surprise resignation had an

immediate impact on the money

markets, with the Euro - for whose weakness Mr

Lafontaine was blamed by many analysts - rising from

$1.0880 to $1.0930 in New York.

Speaking shortly after the

resignation, Chancellor

Schröder said the German

Government would remain

stable and that the SPD

would propose a successor

to Mr Lafontaine on Friday.

The decision will be made in

a "friendly and united"

atmosphere, he said.

BBC Berlin Correspondent

Caroline Wyatt says the

chancellor's authority will be bolstered by the resignation

of his powerful rival.

The SPD heads the centre-left coalition which took office

in October, 1998, ending 16 years of conservative ruler.

Mr Lafontaine wrote his resignation in

a three-line letter which simply

thanked the SPD's membership for

their "trust and friendly co-operation".

It ended: ''I wish you successful work

for freedom, justice, and solidarity.

Yours, Oskar Lafontaine."

No reason was given for the

resignation, but newspapers reported

that the chancellor had warned Mr

Lafontaine during a Cabinet meeting

on Wednesday that his leftist policies

- particularly on taxes - were

alienating voters and industry.

In stern tones, Mr Schröder accused Mr Lafontaine of

making a "strategic error" in raising taxes on the energy

industry during negotiations on phasing out nuclear

power, Die Welt reported.

Power struggle

The cabinet outburst followed

a power struggle between the

chancellor and Mr Lafontaine

and months of wrangling

between his Social

Democrats and the ecologist


Mr Schröder's centrist

policies are aimed at

establishing a good business

climate, while Mr Lafontaine's

traditional leftist politics lean

more towards relieving

average earners.

Mr Lafontaine took over the

SPD at a low point in its

political fortunes in 1995.

But he reluctantly put aside

his own ambitions for the

chancellery in favour of the more popular Schröder -

setting the stage for a simmering rivalry that continued

after the Social Democrats' election victory last fall.

'Most dangerous man in Europe'

Mr Lafontaine was branded "the most dangerous man in

Europe" by one British newspaper when he outraged UK

eurosceptics by suggesting that the country should lose

its power to decide its own tax rates.

Reports said his departure from the German Government

would leave him free to challenge former Italian Prime

Minister Romano Prodi for the coveted role of next

President of the European Commission.


from Guardian site:-

> Since the euro's launch in January his
> persistent demands for the European
> Central Bank to reduce interest rates to
> help the German weakening economy had
> been blamed for entrenching the ECB's
> resistance to a cut in order to assert its
> political independence.
> The Bundesbank blamed him for the fall in
> the value of the euro and his policies led
> to a collapse in the popularity of
> Germany's recently-elected "Red-Green"
> coalition.
> It was the left-wing Mr Lafontaine's
> determination to push ahead with tax
> changes - which were estimated to add
> £10 billion to the costs of German
> industry - which lay at the heart of the
> crisis.
> It led to a showdown at Wednesday's
> meeting of the German Cabinet when the
> centrist Chancellor Gerhard Schroeder
> confronted Mr Lafontaine and his allies in
> the Green Party.
> Afterwards the German press reported
> that Mr Schroeder had threatened to quit,
> but it was Mr Lafontaine who had to go.


>From Bloombergs:-

> Central bankers had said Lafontaine's repeated
badgering for
> a cut in the ECB's benchmark 3 percent interest
undermined the
> bank's independence, possibly having the opposite
effect on the
> bank's rate decision.
> ``You get rid of somebody that isn't considered a free-
> market thinker and that's good for the euro,'' said Bob
Lynch, a
> currency strategist at Paribas Corp. ``Traders didn't
like the
> socialist side of his policies which emphasized government
> involvement in markets.''
> Euro money-market rates fell as traders bet his
> would remove an obstacle to an ECB rate cut. The yield
on the
> June three-month Euribor futures contract fell 7 basis
points to
> 2.88 percent, far enough below current three-month
market rates
> of 3.07 percent to suggest the likelihood of a cut by
> ``It gives (the ECB) a chance to be driven not by
> personalities but by fundamentals,'' said Mike Grimble, an
> investment strategist at Norwich Union Investment
Management in
> Norwich, England, which has $49 billion in assets.

> Not all investors and analysts believe the resignation
> a steady recovery in the euro.
> ``If the ECB had reason not to cut, I don't think having
> Lafontaine out of the way is going to change that,''
said Eric
> Nickerson, global head of currency strategy at
BankAmerica Corp.,
> who expects the euro to drop to $1.05 by mid-year.

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