Merkel warns of problems before Germany emerges from slump

 

CHANCELLOR ANGELA Merkel has promised an “unsparing analysis” to map Germany’s way out of its economic slump, while warning that “the problems will get bigger before things get better”.

In a speech that was full of determination but light on detail, Dr Merkel vowed yesterday to deliver on election-winning promises of tax cuts and fiscal reform. Her new administration’s main priority, she said, was to stimulate economic growth.

“Without growth, there is no money for investment, there are no jobs, no money for education or the socially disadvantaged,” said Dr Merkel in her first speech to parliament as head of the new Christian Democrat (CDU)/Free Democrat (FDP) coalition.

The export-dependent German economy will contract this year but is forecast to grow by 1.2 per cent next year. To stop dole queues growing, state-funded short-time working arrangements would be extended, she said.

This is just one of several stimulus measures that will push up new borrowing from 3.5 per cent of gross domestic product this year to over 5 per cent in 2010.

After tackling the economic crisis, she said, her new administration would work to redefine citizens’ relationship with the state, and agree measures to address the ageing of German society.

Climate change was another priority, she insisted, saying the world “cannot afford” a failure of climate talks next month in Copenhagen.

“We would never allow the worldwide financial and economic crisis to be a cheap excuse for failing to protect the environment,” she said. “That is the biggest error we could make.”

After four numbing years of grand coalition consensus, political correspondents perked up in the Bundestag press gallery yesterday as the German leader came under fire from her former cabinet colleague, Frank Walter Steinmeier.

Relishing his new role as Social Democrat (SPD) opposition leader, he dismissed Dr Merkel’s address as “less a speech than a puzzle”. “You don’t even have the answers yourself,” he said.

He belittled Dr Merkel’s promise to “solidify social cohesion”, saying debt-financed cuts to income and inheritance tax would have the opposite effect.

“Millions of people are worried about their future, and you’re giving money away to tax consultants and heirs,” he said. “If that’s your answer to the crisis, then it’s the wrong one.”

Mr Steinmeier delivered a stinging attack too on CDU-FDP healthcare reforms. Plans to freeze employer contributions – leaving employees to foot all future cost increases – would, he said, end Germany’s solidarity-based healthcare model envied by other countries.

As a smiling Dr Merkel looked on, Mr Steinmeier predicted that the two-week-old administration “had its best days already behind it”.

A day after hosting world leaders in Berlin, Dr Merkel’s speech contained nothing new on foreign policy.

“Perhaps it is an expression of modesty,” suggested Dr Gero Neugebauer, political scientist at Berlin’s Free University. “Perhaps she wants to prevent people looking to us and saying, ‘Germany wants to take a leadership role’, a role that perhaps doesn’t suit us.”