Merkel sticks to guns on 'brutal' austerity 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 and therefore Europe's economic recovery.

The 80-billion-euro (102-billion-dollar) programme for the period 2011 to 2014 includes big cuts in unemployment and parental leave benefits, while ministers have to tighten their belts across the board.

In a poll by the television channel ARD when the cuts were first unveiled in June, 79 percent of Germans said the austerity plan was not socially balanced and tens of thousands of people took part in protests.

Sigmar Gabriel, head of the opposition Social Democrats, said Wednesday the cuts were "brutal for the unemployed, single parents and for parents."

"This budget is taking away from the weak and giving to the strong," said senior SPD lawmaker Thomas Oppermann.

Much of Merkel's plans rely on measures that are still in the works, slowed down by squabbling among ministers in her fractious centre-right coalition which took office in October.

Most controversially, Finance Minister Wolfgang Schaeuble's sums involve tapping energy firms for 2.3 billion euros per year that critics say is in return for keeping nuclear plants running beyond a planned shutdown around 2020.

The utility companies are putting all their considerable lobbying powers into resisting such a levy, while postponing the date on which Germany goes nuclear-free is likely to go down very badly with many voters, surveys show.

The nuclear tax was not in the package the cabinet approved Wednesday and the government aims to hammer out its new "energy concept" by the end of the month.

Merkel wants to shave four billion euros off military spending but Defence Minister Karl-Theodor zu Guttenberg's proposals for doing away with conscription are provoking strong resistance even within government ranks.

Berlin also wants to raise two billion euros per year from new taxes on financial transactions but only if other countries follow suit, and one billion euros from a levy on flights, earning Merkel the ire of banks and airlines.

It has also pencilled in 1.5 billion euros annually by removing certain corporate tax breaks.

Merkel has been cut some slack, however, by 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.

"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.

"In the view of the German government, a growth-friendly deficit reduction is an essential and the most important way to ensure a sustainable and favourable economic development," he said.

"Now that the (global) crisis is over, we have to implement an internationally coordinated exit strategy step by step in order to reduce excessive deficits."

He said the government aimed to achieve savings of 11.2 billion euros in 2011 and that Germany's budget deficit would fall within the EU limit of no more than three percent of GDP by 2013.

© 2010 AFP

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