Welcome to Oberhausen, one of Germany's own bailout cities

Sat, May 12, 2012, 01:00

Not all German cities are booming, many have mountains of debt writes DEREK SCALLYin Oberhausen

THERE IS a depressed, dazed atmosphere in downtown Oberhausen. Solid red brick buildings recall the city’s proud mining past; but the retail units in the main shopping street are either vacant or house tatty discount stores. It’s sorry proof of a shocking structural collapse in this city and the western Ruhr region.

“Everything is transitory, the politicians here are managing decline,” pronounces Werner, a Jehovah’s Witness holding his Watchtower magazines, as pensioners stagger by on walking frames.

Oberhausen has been a financial basket case for 25 years with a falling population of 213,000 and rising debts of €1.85 billion. Every day the city borrows another €600,000 to pay the daily bills. Like Ireland and Greece, Oberhausen is a bailout recipient – its budgets overseen not by an EU/IMF officials but officials in the state capital, Düsseldorf. If Oberhausen departs from a strict calendar of savings targets, Düsseldorf turns the screws.

“People around Europe don’t realise that, while Germany is a wealthy country, there are areas like ours with extremely serious financial difficulties,” said local Social Democratic Party (SPD) politician Apostolos Tsalastras. Last July he took up the finance portfolio in Oberhausen’s red brick town hall, built on the city’s former “Gallows Hill”. Every year the financial noose tightens, and not just in Oberhausen.

The western state of North Rhine-Westphalia is home to one in five Germans – 18 million people – squeezed into an area half the size of Ireland. The state has almost 400 cities with combined debts of €57 billion and many, like Oberhausen, are in an “emergency budget” bailout situation. Reliance on external funding brings with it punitive reform conditions in the face of existing structural problems. The outlook is so bleak that NRW politicians refer to the Vergeblichkeitsfalle, or “futility trap”.

It’s a trap inextricably linked to the decline of mining and heavy industry. Rather than a Thatcher-style cull the SPD, dominant in the region for decades, tried a social approach. Billions in subsidies were agreed to finance a gradual wind-down of mines. Then, in the 1990s, the multi-trillion bill for German unification blew a further hole in budgets of post-industrial cities which by that stage were struggling with record unemployment.

When the people of NRW go to the polls tomorrow to elect a new state government, they are likely to follow France and Greece last weekend and register their unhappiness with austerity.

The debate gripping all of Europe is being fought here in Germany. The country’s most populous state is like the EU in miniature except boom and bust are a short train ride from each other. After two years leading a minority government, the local SPD hope to return to power on Sunday with the Green Party and a solid majority in the state parliament or Landtag.

The SPD has built its campaign around its Stärkungspaket, a “strength package” worth €3.5 billion for targeted investment in education, child care and other future-oriented projects.

While Angela Merkel preaches austerity in Berlin and abhors deficit stimulus the SPD here are proposing exactly the opposite – to widespread support in even unlikely places.

“There has been a paradigm shift in thinking about budgets here, which I support,” said Ms Anne Lütkes, the so-called “Savings Commissioner” who supervises “emergency budgets” in cities like Oberhausen.

“We have to give these cities air to breath, room to manoeuvre. You cannot close everything and save everything or the cities will go down the drain.”

Despite the “Strength Package” carrot, Lütkes wields the stick too: all bailout cities have to keep saving and present balanced budgets by 2016.

The spending package has gone down well with NRW voters, judging from polls: together with the Greens, the SPD have nearly 50 per cent of the vote.

At the market square in Oberhausen’s Holten district, SPD Landtag candidate Stefan Zimkeit says local issues dominate the campaign. But the saving and spending debate, like never before, is in chime with similar debates all over Europe.

Oberhausen’s bailout imposes strict savings targets, he says, but its share of the “strength package” has allowed some targeted investment to, as he puts it, “give people some hope”.

“We say that, if you just save, you won’t get where you want to be,” he said. “If you push saving so far that you destroy the social and cultural structure, you’ll make Oberhausen so unattractive that people will just move away.”

The SPD’s deliberate departure from the official Berlin line – no economic stimulus with debt – could have political consequences: elections in this populous state which has traditionally had a bell-weather character. There are financial consequences, too. The “strength package” – cash not loans – is funded by debt. Add up all of NRW’s debts – municipal, cities and state – and you soon reach €200 billion, with annual interest payments of €4 million.

With pressure already building in Europe on growth measures, the last thing Chancellor Merkel needs is domestic pressure for debt-fuelled spending measures.

CDU’s luckless candidate in NRW Norbert Röttgen incurred Dr Merkel’s wrath for suggesting in public that tomorrow’s vote is a referendum on save-or-spend policies. The result, he said, would decide “whether Angela Merkel’s course in Europe is strengthened or…weakened”.

Alarmed, Dr Merkel tried to shut down the debate: “This election is about NRW, no more and no less.” She’s only half right. Tomorrow’s NRW poll is unlikely to change the balance of power nationally but, ahead of François Hollande’s inaugural visit on Tuesday, it could begin a shift in Germany’s austerity debate towards the more flexible SPD position ahead of next year’s general election.

Back in Oberhausen, town hall politicians say the German leader should stop lecturing others and embrace growth measures to address huge financial problems at home.

“The austerity policies of Angela Merkel are simply wrong,” says Mr Tsalastras. “She can exert as much pressure as she wants but eventually it will come to nothing.”