Discontent in Chancellor Schröder's Party

Embattled German Chancellor Gerhard Schröder finds himself in the thick of another controversial debate, this time one prompted unwitting by himself.

During a heated debate at a meeting of his Social Democratic Party (SPD) in Berlin on Monday, Schröder is reported to have said, "Anyone who believes they can do it (govern) better, should do it."

The moment the damning words escaped the Chancellor’s lips, some top party members interpreted it as an indirect threat by the Chancellor to step down.

The media has been quick to seize upon it and the country’s papers and news programs have been dominated by frenzied speculation about whether Germany’s recently re-elected Chancellor has finally lost his nerve and decided to throw in the towel.

Though the SPD public relations machinery is now in overdrive - denying the Chancellor’s threat to resign and protesting that he has been grossly misinterpreted - there is little doubt that the Chancellor’s provocative statement has drawn attention to the unhappiness and divisions that have erupted in the top echelons of his party over further tax hikes and policy issues.

Nagging issue of captial gains tax raises its head again

On Tuesday, the SPD premier of the state of Lower Saxony, Sigmar Gabriel (photo) reasserted the resolve of SPD-ruled states to reintroduce the capital gains tax, which is fiercely opposed by Chancellor Schröder.

Schröder, who has come under fire for reneging on electoral promises and introducing a rash of tax hikes, has refused to re-introduce the controversial tax. The tax foresees a 1 percent tax levied on companies whose assets exceed 2.5 million euro and on individuals who own more than 1 million euro in property, cash and investments.

The tax was ruled unconstitutional and abolished in 1997 because it ran against the principle that the state must not take more than half of any citizen’s income.

Gabriel also rejected criticism that the reintroduction of the capital gains tax would scare away investors. Most of the SPD-ruled states that are pressing for a reintroduction of the tax argue that it would generate around 20 billion euro ($19.8 billion) in annual revenues.

Gabriel announced on Tuesday in parliament that he plans to introduce the issue of the 1 percent capital gains tax in the Bundesrat or upper house of parliament in January.

SPD too meek in policy-making?

Gabriel, who faces crucial elections in Lower Saxony on Feb. 2 and has been faring badly in recent opinion polls, called on Schröder to show more "courage to take risks" in pushing through reforms in the social and education sector.

Taking a dig at Chancellor Schröder’s traditionally close relationship to labor unions, he said that the SPD shouldn’t "fear demonstrations" and " we shouldn’t duck from lobbyists." Recent days have seen demonstrations and threats of strikes by registered doctors and medical practitioners against the SPD’s proposed reforms to the health sector.

Sceptical voices within the SPD

Gabriel hasn't been the only doubting voice within the SPD ranks.

Schröder’s categorical "no" to the introduction of the capital gains tax last week prompted much surprise within his party. Though his opposition to the tax was well known, his pronounced rejection of it ran counter to the SPD states‘ long-planned proposals to reintroduce the tax and took many by surprise.

Even the Chancellor’s outburst on Monday during his party meeting, as he engaged in a verbal duel with parliamentary group leader Franz Müntefering was described by many present as "overbearing and arrogant".

One party member told the Berliner Zeitung that the atmosphere at the meeting was "resigned" and that the SPD leadership had a "orientation problem".

"The Chancellor will not leave the ship" - Schröder

On Wednesday however Schröder showed himself in his usual spirited form and distanced himself from any speculation of his stepping down.

"The Chancellor will not leave the ship," he said. "All those who had hoped for that, are wrong. And all those who would have been disappointed, can be happy about it."

Eager to play down the differences within the SPD over the controversial capital gains tax, Schröder said, "It has to be clear that in the end only that will happen, what the German Chancellor and the party chairman believe to be right."

Schröder calls for unity with eye on elections

Schröder also called upon his party to unite in the face of upcoming elections in the states of Lower Saxony and Hessen on February 2, 2003.

"Within the party one can discuss heatedly, but one must speak with one voice outside. It’s my duty to make sure that happens," he said.

With eroding support and a drastic slide in opinion polls showing no signs of easing, the SPD is pinning its hopes on the upcoming elections in Hessen and Lower Saxony.

But the outlook for the SPD doesn’t look bright. Pollsters are predicting that the opposition Christian Social Democrats (CDU) would win both in Hessen, a conservative stronghold as well as in Lower Saxony, a traditional SPD-dominated bastion.