Schroder rides high in polls but faces tough decisions over fuel tax and EU expansion

The German Chancellor, Mr Gerhard Schroder, has every reason to celebrate this week, but no time

The German Chancellor, Mr Gerhard Schroder, has every reason to celebrate this week, but no time. His centre-left coalition government has reached the midpoint of its term of office riding high in the opinion polls, enjoying just under 50 per cent of popular support.

Like other leaders in Europe, he has come under attack over spiralling fuel prices, but Mr Schroder has an added monkey on his back: an unpopular "ecotax" on fuel introduced last year in an attempt to reduce fuel consumption. The Social Democrat/Green government is likely to announce a package of measures tomorrow to cut heating fuel bills for the less well-off. But any concessions on the eco tax will be limited to keep his Green party colleagues happy, and to keep the government's master plan on track - reducing unemployment, reducing personal income tax and increasing tax on energy.

After two years at the helm, Mr Schroder looks every bit the statesman, something that surprises German political commentators.

"In terms of practical achievement, Schroder has been astonishing," says Robert Leicht, political correspondent of the weekly newspaper Die Zeit.

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"No one expected he would be able to establish himself, particularly considering the difficulties he faced in his first months in power," he says.

Five months after taking office, the centre-left government was paralysed by a power struggle between the Chancellor and his finance minister, Mr Oskar Lafontaine, the man who had revived the fortunes of the SPD party.

Mr Lafontaine clashed with Mr Schroder over taxation and environmental policies, with critics saying he was driven by a Keynesian ideology that was alienating business.

The dispute culminated in a succession of policy reversals and Mr Lafontaine was forced to resign.

Mr Schroder and his new Finance Minister, Mr Hans Eichel, successfully introduced wide-ranging tax reforms earlier this year, cutting income tax and introducing tax breaks for small businesses. However, their most revolutionary move was the decision to abolish the 58 per cent tax on profits from the sale of company cross-holdings.

That decision will change the landscape of German business forever, smashing the cartel of cross-ownership of Germany's biggest firms, from Deutsche Bank to the Allianz insurance group.

The next major reform on the Chancellor's agenda has been an overhaul of Germany's pension system to offset the impact of the country's ageing population. The overhaul is being financed by revenue raised from the controversial eco-tax on fuel.

Mr Schroder's term of office has been remarkably scandal-free, with any controversy overshadowed by the implosion of the opposition Christian Democratic Union (CDU). Allegations of illegal party fundraising and bribery have cost the CDU dearly in terms of political leadership and has allowed Mr Schroder the luxury of being able to concentrate on policy.

He has entered the second half of his term showing a greater interest and confidence in foreign affairs. "Foreign policy is something you can only learn in office," he has said.

Germany is pushing for a seat at the UN Security Council and Mr Schroder and his Foreign Minister, Mr Joschka Fischer, have pledged vital support for EU expansion by 2005, though only one in five Germans are supportive, with the rest fearing a new wave of cheap immigrant labour from Poland and the Czech Republic.

If Mr Schroder cannot change public opinion soon, he may leave his push for EU expansion to one side, not wanting to affect his election prospects in 2002.

After all, he got into power promising to cut unemployment, and it is on this that he will be ultimately judged at the next election.

Reuters adds:

Mr Schroder unveiled a plan yesterday to boost Internet use by Germans, including Internet training for the unemployed and online computers for all schools and libraries. However, some of his measures showed caution, such as a pledge to make all government services accessible via Internet within five years, an eternity in the Internet age.