TONY BLAIR'S key ally in Europe had to turn away from New Labour's policy of letting the free market rip through the economy last week. Pressure from workers and trade unions forced German leader Gerhard Schröder to stump up £80 million of government money to save 28,000 jobs.
Schröder is the leader of the Social Democratic Party (SPD), which is the equivalent of the Labour Party in Britain. He signed a document with Blair in June endorsing the Third Way ideology, which abandons traditional Labour policies and embraces big business. But Schröder felt forced to fly into Frankfurt on Wednesday of last week to hold talks with banks to prevent the bankruptcy of Germany's second biggest construction company, Philipp Holzmann AG.
The company had invested heavily in construction contracts in eastern Germany and internationally. The investments turned sour as recession hit the German economy and East Asia last year. That left the company with debts of over £1 billion. Holzmann's closure would have thrown its own 28,000 workers on the dole and threatened the jobs of 70,000 more workers in the construction industry.
Thousands of construction workers protested in Frankfurt. The growing disillusionment with the government and the threat of strikes pushed Schröder to intervene. The man who has gone out of his way to appear business friendly went on television denouncing the bankers and talked about workers' interests.
Businessmen are alarmed that the government has buckled under workers' pressure. Mario Overkoefe, a spokesperson for Germany's bosses, said, 'You cannot go on pumping state aid into strapped businesses. This is almost like state-run industry.' Schröder's intervention is, in fact, a long way short of nationalising Holzmann and giving workers a say in how it is run. But it is a sign of how his government is caught in a deepening polarisation between bosses and workers.
Schröder recently admitted that signing up to Blair's policies in June was a mistake. Schröder's popularity has plummeted as workers have become bitterly disappointed with his two year old government. 'Blair' and 'British business' are terms of abuse among ordinary Germans. But Schröder is not breaking with big business.
Last week he also pushed through the last instalment of a £10 billion cut to next year's budget. He is trying to balance between workers and employers, and coming under increasing pressure from both sides. Schröder's U-turn over Holzmann is likely to encourage more protests from the left rather than win him greater support.