Germany commits to €24bn stimulus programme

 

GERMAN CHANCELLOR Angela Merkel’s new government has dedicated itself to a €24 billion debt-financed gamble to lift Germany out of the worst recession in its postwar history.

After three weeks of negotiations, Dr Merkel will sign a 124-page programme for government that will cut taxes, boost family welfare payments – and keep the German budget in the red for the next four years.

“We need to blaze a trail for growth, otherwise it will be impossible to generate the savings we need,” said Dr Merkel, presenting her Christian Democrat (CDU) agreement with the liberal Free Democrats (FDP) in Berlin.

The most powerful man in her new government is Wolfgang Schäuble, her surprise choice as finance minister. Asked to explain her decision, Dr Merkel praised the “breadth of experience” of the 67-year-old politician she ousted as CDU leader a decade ago.

Mr Schäuble went to work yesterday, defending the coalition agreement’s lack of financing detail.

The economic crisis forced a “wait and see” approach on financing, debt consolidation and spending cuts, he said. “We have to own up to the fact that we’re continuing to drive by sight,” said Mr Schäuble.

With borrowing in the 2010 budget set to top a record €86 billion, the finance minister-elect admitted he faced “unusually small” scope for tax cuts.

The government has discarded plans to shift some debt into a shadow budget after the plan was universally panned as financial sleight-of-hand.

The new administration’s fiscal promises carry the FDP’s signature: a promise of a simplified three-level tax system – yet to be agreed in detail – as well as increased allowances for dependent children and milder inheritance taxes.

Ms Merkel’s new cabinet contains only a handful of new faces.

Her trusted chief-of-staff Thomas de Maizière succeeds Mr Schäuble in the interior ministry.

Media darling Karl-Theodor zu Guttenberg becomes Germany’s youngest defence minister, though the 37-year-old is no longer the youngest in cabinet.

That honour now goes to incoming FDP health minister Philipp Rösler (36).

A newcomer to federal politics, the doctor turned politician is the first minister with an immigrant background to sit at the cabinet table.

The FDP has five portfolios in total, including the foreign development and economics ministries as well as justice, where FDP veteran Sabine Leutheusser-Schnarrenberger returns to the ministry she occupied under Helmut Kohl.

FDP leader Guido Westerwelle, the incoming foreign minister, won unanimous rank-and-file support yesterday for a coalition agreement he dubbed an “FDP triumph”.

“Promises kept; that is the bottom line,” he said.

The CDU-FDP coalition agreement has been given the thumbs up by business leaders, the thumbs down by unions and a mixed reception by economists.

Media reaction was also mixed: in a critical cover story, Der Spiegel magazine predicted Mr Westerwelle will face painful compromises in office, particularly over ambitious healthcare reform plans.

“Welcome to Angela Merkel’s joyless school of political realism,” the magazine warned the FDP leader, “with the dream shredder just inside the door.”

Meanwhile, in their first joint decision, the new government has agreed to appoint as Germany’s next European commissioner Günter Oettinger, state governor of Baden-Württemberg.

With her appointment of the CDU veteran, Dr Merkel has removed from the domestic political landscape a little-loved rival.

The two have had a frosty relationship since 2007 when, after days of controversy, Dr Merkel forced a public apology from Mr Oettinger for eulogising as a resistance fighter a Nazi-era judge who condemned men to death.

Coalition deal: main points

  • The main points of Germany’s new coalition agreement are:
  • Tax cuts and welfare increases worth €24 billion over four years;
  • Kindergarten subsidies to be widened to allow a €150 monthly payment for parents who care for children up to age three at home;
  • €3 billion extra spending on biotech/genetic research;
  • €750 million programme for dairy farmers;
  • Lifting of general moratorium on GM crops;
  • Obligatory military/civil service cut from nine to six months;
  • Promise to “improve the balance of rights and privileges of (same-sex) civil partnerships”;
  • Intention, but as yet no firm agreement, to extend the life of nuclear plants beyond a 2020 shutdown; and
  • Intention to remove remaining US nuclear weapons from German territory.