Merkel defends economic reforms
Chancellor-designate Angela Merkel today defended her coalition’s programme of hefty tax hikes and benefit cuts as the right action for creating jobs, stimulating growth and putting Germany back among Europe’s top three countries.
Presenting her Conservatives’ 143-page coalition agreement with her former rivals, the Social Democrats, Merkel – who will become Germany’s first woman Chancellor – acknowledged that the plan makes demands of Germans, but said it did so in the name of moving the country forward.
“We know that we are asking things of people,” she told a news conference. Ut her government was acting on an “honest analysis” of Germany’s problems, she said, and attempting to “do what we consider right” for the country.
Titled ‘Together for Germany – with courage and humanity,’ the coalition deal is the product of nearly two months of tough negotiations, and has already been criticised for hitting taxpayers too hard and failing to do enough to stimulate the chronically sluggish economy.
It places top priority on creating jobs in an effort to combat Germany’s 11% unemployment rate, which has weighed heavily on public finances, producing the new government’s other major problem: a gaping budget shortfall of £23 billion.
“We want to give people hope of having jobs,” she said. “I am absolutely certain – I know – that the success of this coalition will be measured by the question: Are there more jobs?”
The new government will loosen rigid laws that make it difficult to fire workers, and rules that industry says discourage hiring. Newly hired workers will enjoy legal protection from dismissal after two years, rather than six months at present.
“Naturally, this was not easy for us, but we see the need to do something here,” said Social Democratic chairman Franz Muentefering, Merkel’s designated Vice Chancellor and labour minister.
An increase in value-added tax to 19% in 2007, from 16% today, will be used partly to cut a payroll levy for unemployment insurance. However, much of the money will go toward shoring up the budget, and contributions to the state pension system are to rise.
Other measures include eventually raising the retirement age and cutting a range of subsidies.
The Conservatives fulfilled the Social Democrats’ demand for a higher income tax for top earners.
That will mean a new top tax rate of 45%, compared with the current 42%.
Industry and labour leaders have expressed concern that the tax hikes will dim hopes of a recovery, and German media gave the accord a scathing reception today.
“The two big parties, which with decades of doing nothing have led the country to the verge of bankruptcy, are now helping themselves from creditors who cannot defend themselves: our citizens,” the mass-circulation Bild daily, which has long advocated tax cuts, said in an editorial.
Opposition leaders also charged the two main parties with betraying voters.
“The grand coalition of those who lost the election will make many people in this country losers as well,” Greens party leader Claudia Roth said.
The deal still needs endorsement on Monday from Merkel’s Christian Democratic Union, its Bavaria-only Christian Social Union sister party and the Social Democrats of outgoing Chancellor Gerhard Schroeder.
That would allow parliament to elect Merkel as Chancellor on November 22.
The two sides were forced into talks on a so-called “grand coalition” – the first at the national level since 1969 – after both failed to secure a majority in September 18 elections to govern with their preferred smaller partners.
