German Chancellor Angela Merkel outlined new economic and social priorities to address the challenges facing Germany in her first major policy speech since winning re-election in September.
REUTERS - Chancellor Angela Merkel said in a speech to parliament on Tuesday that tax cuts were the best way to lift Germany out of its deepest downturn since World War Two but was vague about the size of future relief.
In her first major policy address of her second term, Merkel did not lay out any new plans and conspicuously omitted mentioning the 24 billion euros in income tax cuts her new centre-right coalition has promised to push through from 2011.
She also promised "more solidarity" for Germans hit by economic troubles -- comments that could disappoint her new coalition partners, the Free Democrats (FDP), who favour a laissez-faire approach by government.
"I want us to do everything we can to create the conditions for new, stronger growth," said Merkel. "Without growth, there will be no investment. Without growth, no jobs. Without growth, no money for education. Without growth, no help for the weak."
Since unveiling its tax plans late last month, her government has come under criticism from industry and central bankers for ignoring Germany's rising budget deficit and failing to spell out how it will pay for its pro-growth policies.
Although Merkel said her government planned to implement income tax cuts from 2011 and make "long-term structural changes" to the tax system, she did not mention any numbers.
The German government expects the economy to contract by 5 percent this year, easily its worst performance in the post-war era. The downturn has hit tax revenues and boosted the costs of the welfare state, sending the deficit spiralling higher.
Next year, it could hit 6 percent of gross domestic product (GDP), double European Union limits.
Merkel, 55, laid out five priorities for her new coalition -- overcoming the economic crisis; improving public faith in government; providing answers to Germany's ageing population; developing a natural resources strategy; and striking the right balance between freedom and security, in view of new threats.
Touching on the first goal, she warned about the fragility of a nascent recovery, saying unemployment would rise in the months ahead and cautioning about the risks of a credit crunch for "Mittelstand" small and medium-sized businesses.
Because of these challenges, she said the government would continue to play a big role in the economy, extending a part-time work scheme to discourage layoffs and possibly stepping up aid to crisis-hit companies.
"In the end we will have more solidarity, not less," she said, repeatedly stressing the need for government to ensure the "cohesion" of society.
The address was a wake-up call to those who expected Merkel to take a more hands-off approach to the economy now that she has ended her awkward "grand coalition" with the Social Democrats (SPD) and teamed up with the business-friendly FDP.
Frank-Walter Steinmeier, her former foreign minister and election challenger who now leads the SPD in parliament, derided the speech in parliament after Merkel spoke.
"It's a mystery when and where the promised tax cuts will be implemented and it's a mystery how you will finance these tax cuts," Steinmeier said.
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