Germany remains 'rehabilitation case': Merkel

20th June 2006, Comments 0 comments

20 June 2006, BERLIN - Brushing off criticism by German business leaders over the slow pace of reform, Chancellor Angela Merkel said Tuesday that the country still remained a "rehabilitation case" given record new borrowing planned for the federal budget.

20 June 2006

BERLIN - Brushing off criticism by German business leaders over the slow pace of reform, Chancellor Angela Merkel said Tuesday that the country still remained a "rehabilitation case" given record new borrowing planned for the federal budget.

"The situation is serious," said Merkel in a speech to the Federation of German Industry (BDI).

Germany's parliament on Tuesday began debating the 261.6-billion- euro (328.7-billion-dollar) budget for 2006 which includes new borrowing of 38.2 billion euros - the highest level ever for a federal budget.

A staggering 39.1 billion euros are planned in the budget for paying interest and other debt-servicing costs.

"Germany is a rehabilitation case," said Merkel in reference to the budget.

But she insisted that spending would be brought under control in 2007 and Berlin would for the first time in years bring its budget deficit under the 3 per cent of GDP limit imposed for members of the eurozone.

Turning to planned reforms, Merkel vowed her government would present a bill to revamp Germany's creaking public sector health insurance companies by July.

The 255 public "sickness funds" - which insure about 90 per cent of all Germans - are struggling with high costs and big bureaucracy which Merkel vows to slash.

"You cannot even tell how much they are taking in and how much they are spending," said Merkel pointing to the public health sector's complex system of shifting money from insurers in richer parts of the country to poorer regions.

But Merkel also vowed not to dismantle Germany's private health insurance companies which give coverage to the remaining 10 per cent of the population.

Private insurers, which can choose their customers, are booming in Germany. In contrast, the sickness funds are obliged to insure everybody regardless of their risks.

Merkel was vague on other reforms and promised only "benchmark data" on a planned corporate tax changes by this summer.

An inheritance tax reform, planned for 2007, will not be "a bureaucratic monster," she said .

BDI leader Juergen Thumann on Monday accused Merkel's government of lacking the courage to carry out needed reforms.

"What are the government politicians waiting for?" said Thumann.

German unemployment remains stuck at 11 per cent and the economy has been in stagnation for most of the past five years.

Economists fear that a recent growth spurt may be choked off by the planned increase of value added tax to 19 per cent from the current 16 per cent on January 1, 2007.

DPA

Subject: German news

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