Merkel takes aim at spending to balance German budget

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German Chancellor Angela Merkel said the focus will be on slashing spending rather than hiking taxes as her government began work Sunday on austerity measures for Europe's largest economy.

"It's about focusing on the expenditure side," said Merkel as her centre-right coalition government sat down to hash out what could be its biggest post-war budget cuts.

The government plans to announce on Monday its "concepts" for the 2001 budget and public spending targets through 2014.

Merkel indicated that the axe was likely to fall on social benefits, while funding for training and research would be spared.

"It is essential that investments directed towards the future gain in importance and the instruments of social policy are organised more efficiently," she said.

Faced with a projected budget deficit this year nearly double the EU maximum, Merkel wants to save around 10 billion euros (12 billion dollars) next year, in order to comply with a new law that the country must have an approximately balanced budget by 2016.

Merkel avoided the question of tax rises, which are supported by her conservative CDU party but opposed by her junior coalition partner, the pro-business Free Democrats.

"It's time for savings" in order to "bring discipline to state spending," said Foreign Minister Guido Westerwelle, a Free Democrat.

"One can't always balance the budget by bringing in new money, instead one has to reduce expenditures," he added.

According to Der Spiegel magazine, the government is considering cutting 15,000 jobs from the federal administration by 2014 to start bringing in 800 million euros of savings in next year.

Among the measures under consideration, according to German media, are a special tax on flights, higher taxes for tobacco and brutal cuts across all government departments.

Like other countries, when faced with global financial crisis in 2008, Germany pulled out the budgetary stops to ensure the world's economy would not contract too sharply.

But the Greek debt crisis has brought Germans' traditional tendency towards fiscal conservatism back to the forefront.

"We'll change off this course of adverse developments in time" to give a "good impetus to our country," said Finance Minister Wolfgang Schaeuble.

He has not bothered trying to sweeten the pill, telling reporters earlier the measures would be drastic, even "stricter than necessary" to allow greater room for manoeuvre later.

However, Berlin's hair-shirt approach has caused consternation in some of its biggest trading partners, who worry Germany's stomping on the brake will stop the fragile global economic recovery.

Janusz Lewandowski, EU budgetary commissioner, said last week: "Germany is an island of stability in the crisis and does not need to make many savings."

French Finance Minister Christine Lagarde ruffled German feathers when she suggested that Berlin should "do a little something" to help its eurozone partners, proposing tax cuts to spur the economy.

On a recent visit to Berlin, US Treasury Secretary Timothy Geithner, complained that his country could not be the only engine driving global growth.

© 2010 AFP

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