Germany facing massive budget deficit
Germany faces a €35bn budget shortfall, its two main political parties said yesterday, signalling tough spending cuts or tax hikes under a planned coalition even as its economy struggles.
Conservative Chancellor-designate Angela Merkel said the sum was the shortfall a right-left government had to make up by the end of 2006 to bring Germany within EU budget limits the following year.
“We face a heavy burden,” Merkel said late yesterday after a second round of coalition talks with outgoing Chancellor Gerhard Schroeder’s Social Democrats.
“We want to master the problems but will have to make big, big efforts” to tackle the problems left by Schroeder’s seven-year tenure, she said.
Merkel said there were still “considerable differences” over exactly how to tackle the budget deficit and reform Germany’s tightly regulated labour market.
But both she and Social Democrat leaders said they were confident they would find an agreement by mid-November, opening the way for her to become the country’s first female chancellor.
Years of sluggish growth have driven unemployment figures into double digits and pushed Germany’s budget deficit over the EU-mandated limit of 3% of gross domestic product.
Consequently, a new government will have limited room to manoeuvre, amid warnings that both new taxes and reduced spending could hurt Europe’s largest economy.
Conservatives were forced to seek a “grand coalition” with their erstwhile Social Democrat opponents after neither won a majority in September 18 elections.
The two sides started formal coalition talks a week ago, and working groups tasked with hammering out the details presented their first reports yesterday.
Merkel and Social Democrat Chairman Franz Muentefering said concrete budget measure had yet to be discussed, leaving open whether Merkel’s campaign pledge to finance a cut in non-wage labour costs by increasing value-added tax was still alive.
They insisted there would still be room for measures to foster growth.
“Money is short and it’s clear that milk and honey will not flow, but there will still be healthy bread and decent jam,” Muentefering said after the talks in the headquarters of Merkel’s Christian Democrats.
He also said they were broadly agreed on foreign policy, including “good” relations with the US, which suffered under Schroeder’s opposition to the war in Iraq.
But commentators expect the Social Democrats to block Merkel’s drive to accelerate reforms begun under Schroeder, who accused her during the campaign of favouring the wealthy and wrecking cherished welfare safety nets.
The negotiations have been partly overshadowed by rancour among Merkel’s party at the election result and wrangling over Cabinet portfolios.
The Christian Democrats and their Bavaria-only sister party polled just over 35% of the vote, despite scoring over 40% in surveys before the election.
In a bid to cap a debate about who was to blame, Christian Democrat leaders agreed Monday to analyse the election result only on Dec. 5 – after the expected swearing in of a new government.
