Berlin denies U-Turn on reforms

3rd May 2004, Comments 0 comments

3 May 2004 , BERLIN - German ministers denied Monday the government was changing its course on welfare and other reforms amid concerns budget cutting efforts may be stifling economic recovery. Press reports Monday said the government is to halt further spending cuts until growth picks up in Europe's largest economy. Instead Berlin plans to launch a programme costing billions to revive education and innovation, it is reported. However, ministers denied the government was changing its Agenda 2010 reform cour

3 May 2004

BERLIN - German ministers denied Monday the government was changing its course on welfare and other reforms amid concerns budget cutting efforts may be stifling economic recovery.

Press reports Monday said the government is to halt further spending cuts until growth picks up in Europe's largest economy.

Instead Berlin plans to launch a programme costing billions to revive education and innovation, it is reported.

However, ministers denied the government was changing its Agenda 2010 reform course in any way and that efforts to reduce the budget gap would continue.

Finance Minister Hans Eichel said reports of a course change by the government were "utterly wrong and completely fictitious".

He told a meeting of the ruling Social Democratic Party (SPD) executive there was no alternative but to continue to make savings.

Economics Minister Wolfgang Clement also ruled out any u-turn on the government's programme of social and other reforms.

Press reports said a programme to boost education and innovation would require more new borrowing despite a budget gap of EUR 18 billion this year and a risk that Germany could breach European Union deficit limits for the fourth year running.

The weekly Der Spiegel news magazine said Chancellor Gerhard Schroeder met last week with Eichel, chief of staff Frank-Walter Steinmeier, party chairman Franz Muenterfering and Foreign Minister Joschka Fischer to draft the plan.

Fischer is quoted as saying: "For a limited period, the economic recovery must take priority without us bidding farewell to structural reforms. We won't get the growth we need by just saving and making cuts."

A government spokesman said efforts to consolidate the budget should be done in a way "which does not affect the German economy's growth prospects".

Sueddeutsche Zeitung said the coalition was "giving up" its strict course of spending cuts for a limited period, and will instead invest billions in education and innovation to stimulate the economy.

Reports say Schroeder will call a special cabinet meeting to discuss the new course which is hoped will boost domestic consumer confidence as the economy struggles to pick up.

To finance the programme, the government may sell gold as well as holdings in companies such as Deutsche Post and Deutsche Telekom, reports said.

However, Eichel said Schroeder had announced the programme to boost education and innovation earlier this year. Up to EUR 8 billion saved from cuts in subsidies to home owners could go into the programme, he said.

Other coalition politicians denied Monday the government was abandoning its spending cuts programme.

Greens parliamentary leader Katrin Goering-Eckardt said there would be no change in the reform programme started by the coalition of Schroeder's SPD and Greens.

Germany's leading industrial associations have called on Schroeder not to change reform policies. Dieter Hundt, president of the Association of German Employers' Federations, said any change would be "a catastrophe" for Germany.

Last week, Germany's six leading economic research institutes scaled back their 2004 growth forecast amid weak consumer demand and high unemployment, predicting an economic growth rate of 1.5 percent for this year and 2005.

The growth is being largely fuelled by demand for German exports, with the cutbacks and higher health and welfare costs leading domestic consumers to reign in their spending.

Last October, the institutes had predicted a 1.7 percent growth rate for 2004 amid optimism that Germany was on course to an upswing after three years of economic stagnation.

DPA

Subject: German news

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