Germany – euro-stresses begin to fragment government

Source: Frankfurter Allgemeine Zeitung

Not only are German government finances in a mess, there is now growing disagreement amongst senior politicians about what to do about it.

At the centre of the disagreement, is the revelation of an 18 billion euro gap in the budget, arising from a shortfall in the tax take, which looks set to get worse. Some financial journalists are forecasting that the gap between tax collected and spending may reach 47 billion euros, seven billion more than the record deficit of 1996 under the Christian Democratic government.

But the real news is an apparent inner-party dispute over what to do about the shortfall. Schröder has been meeting with SPD party leader Franz Müntefering, foreign minister Joschka Fischer of the Greens and his finance minister Hans Eichel, apparently to argue for a public spending increase to kick-start the ailing economy.

But no sooner had this news emerged then Schröder started back-tracking. He was still going for “structural reforms”, a “frugal fiscal policy” and “the right growth impulses”, with Eichel blaming Fishcher for the “confusion”. The only clarity now evident in the situation senior ministers cannot deciide what their fiscal policy is.

On the cards now, to balance Schröder’s planned tax cuts, is a blitz on tax-breaks. Economics minister Wolfgang Clement is planning to remove tax relief on interest income for individuals, clawing back some 2.5 billion euros, and to abolish a subsidy for first-home buyers – although this measure was reject by the Bundesrat.

Beyond that, there seems nothing else in the locker. A cut in the interest rate would, of course, help considerably, but Germany remains trapped by the eurozone policy, the stresses of which are beginning to tear his government apart.