Schroder seeks reforms to back German recovery

 

German Chancellor Mr Gerhard Schröder pointed to growing signs of improving business and consumer confidence at the weekend to back his government's plans for structural reforms to the economy.

Mr Schröder, who is to meet finance minister, Mr Hans Eichel and economy minister Mr Wolfgang Clement later today for talks on planned changes to local business tax laws and welfare benefits, said the reforms were needed to underpin and strengthen recovery.

The business tax proposals - expected to widen the local tax base to help cash-strapped municipalities and shift responsibility for social welfare pay-outs from local authorities to the Federal Labour Office - go hand in hand with key welfare reforms in Schröder's wider "Agenda 2010" reform programme.

The chancellor said the government's structural reforms and plans to bring forward a €15.5 billion package of tax cuts by a year to the start of 2004 would support increasing signs of recovery in Europe's largest economy.

"More and more economic indicators and forecasts from national and international institutions are pointing to a revival in the economy," Mr Schröder told the Frankfurter Allgemeine Sonntagszeitung in an interview.

The tax plans are due to be approved at a cabinet meeting on August 13th, but will still require approval from the opposition-dominated upper house of parliament, the Bundesrat, if they are to take full effect next year.

Mr Schröder said it was important that structural reforms, aimed at making the labour market more flexible and cutting the spiralling costs of health, pension and unemployment benefits, were passed this year. "These policies are in Germany's interest," he said.

Germany's economy, now in its third year of sluggish growth, is still hovering close to recession and economists have warned that hopes that the slump may be slowly coming to an end could yet turn out to be premature.

But key sentiment indicators have improved recently and the closely-watched Ifo index, the most important leading indicator for Germany, has risen for the past three months in a row.

ECB chief economist Otmar Issing added to the optimistic tone at the weekend, saying the economy in the euro zone was set for a moderate recovery in coming months. "If the global economy regains its footing, moderate optimism is certainly appropriate," he said in a guest article for Bild am Sonntag.