The Minister for Finance, Mr Quinn, must be much envied by his counterpart in Bonn, Mr Theo Waigel. As Mr Quinn prepares the final touches to his Budget speech against a background of a booming economy and buoyant government revenue, Mr Waigel is trying desperately to boost Germany's economy, with criticism of his performance coming not just from opposition politicians but from government allies as well.
Mr Waigel has no easy solutions. He badly needs to cut income tax rates but the reduction in revenue has to be made up or else the Budget deficit, instead of coming down to meet the Maastricht criteria, will rise. Mr Waigel plans a reduction in the top income tax rate from 53 per cent to around 39 per cent and a drop in the entry level from 26 per cent to 20 per cent. Impressive stuff but to pay for it he wanted to push up VAT from 15 per cent to 17 per cent. Last weekend the plan was widely condemned and Mr Waigel has had to retreat.
It is accepted across Germany's political spectrum that income tax cuts are essential in the struggle against rising unemployment. At the same time the demand is for tax reform without any VAT increase. Mr Waigel is now suggesting that he can get by on an increase of 1 per cent which means tax revenue may be sought from elsewhere, perhaps on unemployment benefits and property sales. Whatever the mix, Mr Waigel must solve the conundrum now. As Mr Christian Wulff, the boss of the Christian Democrats in Lower Saxony, commented yesterday: "this week is the moment of truth in German finance policy."
It was expected that Germany's recovery would see the economy grow by 2.5 per cent this year. However Dr Hans Tietmeyer, the president of the Bundesbank, Germany's Central Bank, warned yesterday that growth could be as low as 2 per cent. Exports are soaring, especially to eastern Europe where Germany is now the main trading partner with almost every country. But the export boom has not translated into new investment, despite low interest rates and inflation.
The budget deficit last year was 3.9 per cent of GDP. In order to pass Maastricht, the deficit must be brought down to 3 per cent. This requires a sizeable drop in Government spending - which Mr Waigel can be reasonably sure of. He has gone for a 2 per cent cut in real terms and has increased pension contributions to record levels. Meeting the target also, however, requires growth of GDP by nearly 2.5 per cent and this no one can be sure of. The hard winter isn't helping. The construction industry is muttering about 400,000 lay offs if a thaw doesn't set in soon. That's in addition to the four million already unemployed.
The difficulties being faced by Germany are of immense consequence to its partners in the European. Union. A recent poll found that only 21 per cent of Germans favour a single currency as soon as 1999. The economy never really recovered from the horrendous cost of reunification - now running at £360 million and rising. Difficult times diminish German enthusiasm for change. They might undermine not just the timetable for EMU but also for the enlargement of the Union.