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Europe

Merkel rolls out unpopular austerity package

Text by News Wires

Latest update : 2010-06-08

German Chancellor Angela Merkel's coalition has agreed a package of budget cuts and taxes to bring the structural deficit of Europe's biggest economy within EU limits by 2013.

AFP - Chancellor Angela Merkel unveiled Monday deep government spending cuts intended to shore up the finances of Europe's top economy, in a package full of bitter pills for German voters.

Protracted wrangling on the "historic" savings package ran into the afternoon, forcing Merkel to postpone talks with French President Nicolas Sarkozy amid ongoing fiscal turmoil in the 16-nation eurozone.

Merkel, who has already seen the popularity of her eight-month-old centre-right coalition plummet in recent months, pledged to find around 11.2 billion euros (13.4 billion dollars) in savings in next year's budget.

By 2014, the government hopes to cut 86 billion euros in spending.

"I think recent months have shown, in the case of Greece and other eurozone countries, how extraordinarily important sound finances are -- they are basic conditions for stability and prosperity," Merkel told reporters.

"These are serious times, these are difficult times. We cannot afford everything we would like if we hope to plan for the future and that is why the budget has been laid out like this for the coming years."

Berlin has presented itself during the European fiscal crisis as a star pupil, following eurozone rules and seeking to lead by example.

The German government last year passed a constitutional amendment requiring an approximately balanced budget by 2016. The austerity package is intended to bring the budget into compliance with that law.

It focuses on changes to unemployment and family leave benefits for new parents, a new "green" tax on airline flights, taxes on nuclear power plants and the elimination of certain exceptions for industry to energy taxes.

The chancellor had asked ministers in her fractious coalition, comprised of her conservative bloc and pro-business Free Democrats (FDP), to put forward proposals for belt-tightening.

After two days of fraught negotiations, the plans include shrinking some legal entitlements into means-tested welfare payments for the jobless and cutting benefits for new parents on high incomes.

"Despite the difficult decisions, I say this is necessary for the future of our country," Merkel said.

The government is also considering cutting up to 15,000 jobs from the federal administration by 2014.

The armed forces may be slashed by 40,000 soldiers and major projects such as the rebuilding of the Hohenzollern Palace in Berlin, which was badly damaged during World War II, has been postponed until at least 2014.

But the cabinet ruled out hikes to value-added tax or income taxes.

The chancellor presented the painful cutbacks at a low-point in her five years in power.

Voters are angry over two recent mammoth bail-out packages -- for Greece and for other debt-stricken members of the eurozone -- at a time when the country's own public finances are under pressure.

Merkel's coalition suffered a devastating defeat in a state election last month which resulted in her losing her majority in the upper house of parliament and has been plumbing new depths in the polls.

Last week, popular German President Horst Koehler made the shock announcement he was resigning.

"The opposition will pile scorn and ridicule on the results of the meeting and the criticism will gain traction with voters," the centre-left daily Sueddeutsche Zeitung wrote Monday ahead of the budget announcements.

"The government has no goodwill left to credibly present even sensible decisions."

Germany has also come in for criticism in Europe and the United States for cutting spending as the global economy struggles to emerge from recession, saying that its strength actually allows it to take the lead in boosting consumption.

 

Date created : 2010-06-08

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