Merkel cabinet approves German spending cuts

1st September 2010, Comments 0 comments

Chancellor Angela Merkel's cabinet signed off Wednesday on a hefty austerity package that critics say will hit the poorest hardest and could endanger Germany's recovery.

The 80-billion-euro (102-billion-dollar) package of spending cuts over the period 2011 to 2014 include big cuts in unemployment and parental leave benefits.

Ministers were told to tighten their belts across the board, including in military spending, with Defence Minister Karl-Theodor zu Guttenberg proposing a sharp cut in the size of the Bundeswehr and doing away with conscription.

On the income side, Merkel's centre-right government wants to raise funds from new taxes on financial transactions and a levy on flights, earning her criticism from banks and airlines.

Finance Minister Wolfgang Schaeuble's sums also foresee tapping German energy firms for billions of euros in return for extending the lifetime of nuclear plants, although this is highly divisive and has yet to be approved.

When the plans were first announced in June, Merkel, 56, was attacked from all sides both at home and abroad, with critics saying they were unjust and could snuff out Europe's recovery from its worst slowdown in decades.

In a poll by the television channel ARD in June, 79 percent of Germans said the austerity plan was not socially balanced, while tens of thousands of people took part in demonstrations.

Since then, however, Germany has posted a surprisingly strong recovery, with gross domestic product (GDP) expanding a record 2.2 percent in the second quarter, the fastest expansion since reunification in 1990.

Schaeuble said on Wednesday that this has proved the government right.

"Internationally, there was a strong debate about our reductions to our public deficit supposedly being too early, too big and too quick, and that we were not doing enough for growth in Europe and in the globalised world.

"This debate has since quietened down ... I have repeatedly told my colleagues from other countries that one of the biggest barriers to growth and to domestic demand is growing insecurity among the population about high deficits," he told reporters.

© 2010 AFP

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