GERMANY: The German government presented a sobering coalition agreement of tax hikes and spending cuts in Berlin yesterday after three weeks of difficult negotiations.
The 88-page document, signed by the Chancellor, Mr Gerhard Schröder of the Social Democrats (SPD), and Mr Joschka Fischer of the Green Party, promises to reduce unemployment and national debt while supporting families, integration and the health system.
"This programme is ambitious but also realistic," said a bleary-eyed Mr Schröder. Mr Fischer was similarly downbeat, saying that the new government faced "four difficult, but opportunity-filled years". The two men raised glasses of mineral water rather than champagne to toast the new programme for government, a sobering indication of the belt-tightening on the way.
With just 13 ministers, the new cabinet has one minister less than the last government and is the smallest in post-war history. The Green Party did not secure an extra minister as expected, despite its strong showing at last month's election. Instead two of the three ministries they retain - foreign, agriculture and environment - will be given extra responsibilities.
Other ministers retaining their jobs are the interior minister, Mr Otto Schily, and Mr Hans Eichel, the finance minister, who faces the challenge of his career in coming months.
The ink was barely dry on the coalition agreement yesterday when he admitted that it was "no longer possible" to prevent Germany breaching the 3 per cent deficit ceiling imposed by the EU Stability and Growth Pact. He said the breach would not weaken the euro, saying that would happen only if Germany had "broken the spirit and the letter of the Maastricht Treaty, which we are not doing".
Mr Eichel hopes to balance the budget by 2006 by slashing public spending, but despite deep cuts and tax increases there would be a "significant hole" in next year's budget, he conceded.
Mr Eichel has a new colleague to help shoulder the economic burden in Mr Wolfgang Clement, the SPD governor of North-Rhine Westphalia and the head of a new super ministry responsible for labour and economics.
His task will be to stimulate the German economy, set for less than 1 per cent growth this year, while at the same time cutting unemployment from 9 per cent.
The government promises to implement fully the proposals of an employment commission, streamlining government employment offices and cutting down on red tape.
The coalition agreement contained an undisguised cry for help to the European Central Bank (ECB), urging lower borrowing costs for businesses and consumers in the euro zone.
Mr Edmund Stoiber, the defeated challenger in last month's election, said the government's new programme "made fools" of the electorate.
Ms Angela Merkel, leader of the Christian Democrats (CDU), said the programme was "backward. Taxes are being raised everywhere. That raises the cost of employment and leads to a situation where there is less work and less growth," she said.
Employers' organisations said the new government programme of higher taxes and spending cuts was "economic madness".
