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Germany’s Rail Politik

Prepared by: Lee Hudson Teslik
Updated: August 8, 2007

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A showdown pitting German labor unions against the state-owned national railroad, Europe’s largest, threatens privatization plans for the company and could spell major disruptions for the continent’s rail grid. Initial plans for sweeping strikes (Deutsche Welle) by the German train drivers’ union, or GDL, were shot down by court order (FT) in advance of an August 8 strike. But the union maintains it may still hold walkouts against Deutsche Bahn if the company fails to grant train operators substantial pay increases under a new labor contract. Should this happen, the disruption could cost the country’s economy nearly $700 million a day (Economist). More broadly, the dispute spotlights the challenges facing Chancellor Angela Merkel’s government as it pushes for economic reforms in a country where state-owned monopolies once dotted the industrial landscape.

Merkel has made Deutsche Bahn (DB) a centerpiece for reform, pressing for a partial privatization of the company to help CEO Hartmut Mehdorn attract investment and expand international freight transport services. But the effort comes against staunch political opposition. A 2003 special report on European rail in TIME noted that Deutsche Bahn consistently ranks below all other German companies in its public approval ratings. And despite pressures from Berlin, Germany’s state governments tend to look unfavorably (Spiegel) on rail-industry liberalization, which they fear will exacerbate unemployment.

The DB dispute unfolds in the context of a broader debate on European rail. Unlike in the United States where intercity passenger rail travel outside a few major urban areas is often written off as economically impractical, Europe’s denser population and well-established rail lines compete on favorable terms with air travel. Europe’s system is widely perceived to be “run haphazardly by bloated monopolies immune to the concept of service,” as the TIME report put it—although analysts say some of Europe’s rail titans now are whipping themselves into shape. A new multinational alliance aimed at improving rail travel across continental Europe and Britain is increasing optimism (Economist).

More generally, the debate over German rail mirrors a more sweeping move toward industrial privatization. Since the 1980s, German labor unions have lost successive battles on steel, coal, shipbuilding, auto manufacturing, and telecommunications. John Kornblum, a former U.S. ambassador to Germany, writes in a recent essay that German politicians feel increasing pressures from businesses to reform or privatize state-owned companies. The Economist argues that wage competition spurred by these pressures and the introduction of the euro has done wonders to bolster Germany’s international competitiveness. Now, under fire from Merkel and DB alike, German labor will attempt to reverse this drift, hoping August strikes don’t represent a last stand.

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