Berlin rejects cuttingaid for poor areas

13th September 2004, Comments 0 comments

13 September 2004 , BERLIN - The German government Monday rejected calls by the country's mainly ceremonial president, Horst Koehler, for cuts to massive subsidies for it poorer regions - mainly in the former communist east. Chancellor Gerhard Schroeder's deputy spokesman, Thomas Steg, said subsidies under a law which requires richer German states like Bavaria to transfer money to poorer states such as Brandenburg, remained a priority and would not be halted. "We have good experiences with this ... solidar

13 September 2004

BERLIN - The German government Monday rejected calls by the country's mainly ceremonial president, Horst Koehler, for cuts to massive subsidies for it poorer regions - mainly in the former communist east.

Chancellor Gerhard Schroeder's deputy spokesman, Thomas Steg, said subsidies under a law which requires richer German states like Bavaria to transfer money to poorer states such as Brandenburg, remained a priority and would not be halted.

"We have good experiences with this ... solidarity system and have no reason to give it up," said Steg.

Given tough election challenges for Schreoder's Social Democrats (SPD) in the eastern states of Brandenburg and Saxony on September 19 the government was apparently keen to underline payments would continue.

About EUR 25 billion is shifted from richer to poorer regions in Germany each year under the system which also includes federal transfers.

President Koehler, who formerly headed the International Monetary Fund (IMF), attacked the complex Laenderfinanzausgleich law in a Focus news magazine interview.

The law's goal is to create equal conditions of prosperity throughout Germany. But critics allege it subsidizes bad practices and slows reform in economically weak regions.

Koehler underlined that despite the transfers there remain big differences in wealth not just between former East and West Germany but also between booming southern Germany and the generally poorer north.

"Those who want to flatten out (differences) are cementing the state subsidy system and placing an unbearable debt burden on the younger generation," warned Koehler who is a conservative and often holds contrasting views to Schroeder's centre-left government of SPD and Greens.

Germany needs to get away from the subsidy mentality, said Koehler.

The President also dismissed the widely held German view that jobs need to be taken to workers and not the other way around.

"If someone seeking employment fails to find a job near their home which corresponds to what they are seeking then they must decide: either go where they see chances ... or make a conscious decision to give priority to staying in their hometown," said Koehler.

Traditionally, Germans have been less mobile than, say, Americans when it comes to changing jobs. But in a major shift, east Germans have over the past decade left their economically hard hit region in big numbers to take jobs in western Germany.

Koehler is Germany's mainly ceremonial head of state but his office has considerable moral authority in setting the political agenda.

The President's remarks were widely criticized in eastern Germany but some western German leaders were more welcoming.

North Rhine-Westphalia's Premier Peer Steinbrueck said his state suffered enormous financial burdens because of cash transfers to eastern Germany.

About two-thirds of the EUR 700 million of debt held by the city of Duisburg has been caused by sending money to the east, he complained.

Rolf Peffekoven, a former member of the Chancellor's council of economic advisers, also welcomed the Koehler initiative.

Peffekoven noted that wealthy states like Baden-Wuerttemberg lose 0.80 cents of every 1 euro in additional tax revenue to the transfer system.

"It's not worth it for them to make bigger efforts (to boost tax revenue)," he said in an interview with Der Spiegel magazine's website.

DPA

Subject: German news
 

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