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Merkel's cabinet backs tough austerity package

AFP/The Local · 1 Sep 2010, 15:02

Published: 01 Sep 2010 15:02 GMT+02:00

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The €80-billion ($102-billion) package of spending cuts over the period 2011 to 2014 include big cuts in unemployment and parental leave benefits, while ministers were told to tighten their belts across the board.

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

"We are convinced that budgetary consolidation, fiscal stability, is one of the most important principles guaranteeing a strong and safe euro," Merkel said in Berlin on Wednesday after talks with Finnish Prime Minister Mari Johanna Kiviniemi.

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

Most controversially, Finance Minister Wolfgang Schäuble's sums foresee tapping German energy firms for billions of euros in return for extending the lifetime of nuclear plants beyond a planned phase-out 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 part of what the cabinet approved.

In military spending, Defence Minister Karl-Theodor zu Guttenberg's proposals for doing away with conscription are provoking strong resistance even within government ranks.

Also on the income side, Berlin wants to raise funds from new taxes on financial transactions and a levy on flights, earning Merkel the ire of banks and airlines.

Germany 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.

Schäuble 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.

He warned that the high growth rate of the second quarter would not be repeated in the coming year, but that Germany was "on the right path" and was the "growth engine of Europe."

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

"I remind you that in 2009, GDP contracted by 4.7 percent, a drop that in the history of the Federal Republic had seemed unimaginable ... Now that the crisis is over, we have to implement an internationally coordinated exit strategy step by step in order to reduce excessive deficits."

Schäuble also rejected accusations that Berlin was depending too heavily on exports for growth while not doing enough to boost demand among German shoppers for goods made in other countries.

"We had the highest level of imports (in the second quarter) in the history of the Federal Republic. This shows that we are living up to our responsibilities."

AFP/The Local (news@thelocal.de)

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Your comments about this article

15:46 September 1, 2010 by chicagolive
This will only damage the people who are already struggling to live as it is case in point, with the nuclear energy issue, I can understand why people have issues with it, but what is the viable option right now their are none to deal with large scale energy use.

The environmentalist say well people should conserve energy which would be good for Mother Earth and also better for your pocket book, I guess that pocket book memo was lost because last year my energy bill went up by 40 bucks so I said okay gotta fixs this and at the same time my fridge, TV, and Washer went out within a few weeks of each other so I took that opportunity to replace all my major appliances and get energy savers all A++ type appliances got energy saving bulbs, even got the little shut off when things are on standby.

So yea figured I should be in for a little refund since I cut my total wattage by way more then a half and since this last year I was gone for 3 months I really expected to get a cheaper bill.....hahahahaha Yea right forgot where I live at the word cheap is banned like people talking about immigration ;-/ my energy bill went up by another €48 now green people explain this crap out to me. The energy companies excuse was they are using more renewable energy then last year and that is why for the increase. So why do I want the nuclear plants closed and just depend on some wind.
16:37 September 1, 2010 by William Thirteen
it will be interesting to see if fiscal consolidation in response to imagined bond vigilantes will end up foiled by declining revenues as a result of deflationary pressures once the exports fall off. even axel weber is playing coy about when the ECB's exit from liquidity measures will be necessary. first quarter? or never?
22:30 September 1, 2010 by Bishopbayern
merkel knows what she is doing. Her medicine will see germany healthy again. I just hope germans have the sense to realise she is doing what is needed. In the end this will make germany great again.
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