A tale of riches to rags for German finance minister

PROFILE: Hans Eichel was an outspoken critic of the Republic's economic policy last year but the shoe is now firmly on the other foot, writes Derek Scally from Berlin

They sing Mr Hans Eichel's praises in Germany - quite literally. "He's thrifty, nifty and sometimes fair," sang German pop group Dezibel of Germany's finance minister last year.

This ode to Mr Eichel, Who Else But Him?, did little to improve the reputation of German pop music and even less for the reputation of the finance minister when it emerged he had commissioned it.

But you can't blame the man heading Europe's largest economy for trying to buy some good publicity. After three years in office he has been called everything from "a paperclip with glasses" to "a man with all the charisma of a plate of cold spaghetti".

Many would say it is precisely Mr Eichel's charisma-free personality that helped him keep a firm grip on the public purse. With Germany now in an election year, he is under pressure to spend some of the money he's been hoarding to generate goodwill among voters. With zero growth and rising unemployment, Mr Eichel's options - and finances - are limited.

Before becoming federal finance minister, Mr Eichel was prime minister of the state of Hesse. In Frankfurt, the state capital and Germany's business centre, Mr Eichel built his reputation as "the man who always gets his sums right".

After losing power in 1999 he got the call from Berlin and was parachuted into the fortress-like former Nazi Air Ministry headquarters, now home to the federal finance ministry.

His first task was to smooth over the cracks left by his predecessor, the controversial Mr Oskar Lafontaine, who fell out with everyone from Chancellor Schröder to Mr Wim Duisenberg, president of the European Central Bank.

Soon after taking office Mr Eichel got to work on the most radical tax cuts in the history of post-war Germany that came into effect last year. By 2005 the cuts will effectively reduce the overall tax burden in Germany by more than €25 billion (£19.7 billion).

Mr Eichel designed the cuts to spur the economy, improve sluggish growth and boost Germany's competitiveness, while helping the government to maintain a good financial position.

Mr Eichel has been a prudent hand on the German purse strings, even when the temptation to go wild was great. In the summer of 2000 he produced €50 billion from the auction of third-generation mobile phone licences. Weeks later, another €3 billion was raised from the sale of a 25 per cent stake in Deutsche Post.

Mr Eichel dismissed expectations of a public spending spree and put the money towards financing pension reform and lowering the federal deficit along the guidelines laid out in the EU Stability Pact.

Given his approach, it was probably no surprise that Mr Eichel was one of the Republic's most outspoken critics when the European Commission reprimanded the State's economic policy last year.

The shoe was on the other foot last month when Mr Eichel presented euro-zone finance ministers with Germany's revised budget proposal. Slowing growth and increased borrowing make a balanced budget unlikely until 2006, two years after the Stability Pact deadline.

The European Commission expects Germany's budget deficit to climb to 2.7 per cent of gross domestic product this year from 2.5 per cent last year, the highest in the 15-nation European Union and skirting the 3 per cent ceiling set in the Stability Pact.

Mr Eichel could achieve the dubious honour of being the man in the economic driving seat if Germany breaches the Stability Pact conceived by his conservative predecessors.

After bringing up the economic rear in Europe last year, data suggest the German economy will languish for most of this year as well.Unemployment rose every month last year and is expected to breach the four million level early this year.

Bundesbank president Mr Ernst Welteke has admitted that the German economy probably fell into recession in the second half of last year. Mr Eichel is more optimistic and insisted this week that recessions are mainly found "in people's heads but not in the economy itself".

He may have to revise his opinion, however, when fourth-quarter data is released later this month. He maintains Germany's growth prospects are being dragged down by other euro-zone countries, which are hindering his plans for boosting market liberalisation and deregulation.

"Similar to the postal services, we would open up the [telecommunication and energy] markets much quicker if other countries did not protect their state monopolies and therefore slow down liberalisation," said Mr Eichel. "Last year, growth gradually declined whereas this year, growth will resume pace again," he said. "But nobody knows yet when the turning point will come."

And that is the problem now facing Mr Eichel. With an election looming in September, his cabinet colleagues cannot wait for an economic upturn that may or may not come; they want money now to spend their way into voters' hearts before election day.

"I don't want to deny that it will be much more difficult this year to keep to budget plans," says Mr Eichel. The federal deficit rose by €510 million last year and Mr Eichel knows he has to hold his nerve if he is to meet the Stability Pact guidelines.