Kohl Allies Carp As Bonn Readies For Budget Cuts

Otto Lambsdorff, honorary chairman and economic spokesman of the FDP, sounded more like an opposition Social Democrat (SPD) when he said the government's deficit in 1997 would be DM10 billion larger than planned. Germany was moving further away from qualifying for the single European currency, he said. In view of the dramatic labour market situation, one can only fear that this figure will rise even higher, Lambsdorff, told the Cologne-based newspaper Express.

The SPD sees an DM18 billion gap between budgeted spending and revenues next year that is not covered by planned government borrowing.Even with cuts in outlays, lower tax revenues mean the government will not achieve its earlier deficit-reduction goals.

 

The weekend talks were expected to approve a plan by finance minister Theo Waigel to raise the level of 1997 government borrowing to DM56.5 billion, up seven billion marks from a medium-term plan drafted in 1995. The 1996 budget deficit, planned at DM60 bilion, is now seen at DM70 billion to DM75 billion.

The 1997 draft budget was approved by the cabinet in July and should have a first reading in parliament next week.The weekend could also see political temperatures rise as unions hold demonstrations in major cities across the country to protest against the government's planned savings measures, which they say will hurt jobs.

This is an unholy alliance of capital and cabinet, Ursula Engelen-Kefer, deputy chairman of the DGB union, said. They want to be able to hire and fire like mediaeval lords. Waigel has vowed to bring Germany's overall public deficit down to 2.5 per cent of GDP in 1997, comfortably below the 3.0 per cent target set by the Maastricht Treaty.

for participants in European monetary union (EMU).

But few believe that rosy scenario. The Organisation for Economic Cooperation and Development (OECD) said on Thursday that Germany might just make the 3.0 per cent target in 1997 if it implements all its planned savings measures.

The federal budget deficit, however, accounts for only half of Germany's total public deficit. The rest stems from state and local governments, pensions and social security, over which Waigel has less control.

Hitting the Maastricht economic criteria required for EMU membership will be hard. An economic slump has hurt tax revenues, boosted outlays for jobless benefits, and lowered the tolerable deficit ceiling.

FDP deputy Juergen Koppelin backed the SPD view that unemployment benefits alone would run seven billion marks above budgeted levels in 1996. Koppelin said further austerity measures would have to be found to make up this sum.

Germany and other European nations must meet strict deficit and debt targets if they hope to qualify for EMU in 1997, the key year for deciding the starting participants when a single European currency, the Euro, is launched in 1999.

Lambsdorff said the situation was getting worse instead of better, as German unemployment was headed towards five million. Unemployment has hovered around a postwar record of four million since the start of the year.

The government's goal is to halve this figure by the year 2000 but Lamsdorff called the target illusory.