Germany faces budget crisis

The $17.7 billion shortfall in the German budget has prompted the finance minister to acknowledge painful economic reforms are due.

    Germany's economic woes are
    a problem for the whole EU

    Talking to Deutschlandfunk radio station on Sunday, Hans Eichel  blamed the massive budget imbalance on three years of slow growth, adding that “there must be no taboos" in the search for solutions.

    But his statement will not prevent eastern Germany’s steel industry workers from striking on 2 June over demands for a 35 hour week. Over 83 percent of the steel workers union voted in favour of industrial action.

    Recent figures show that Germany's economy shrank again in the first three months of 2003, as exports weakened in the face of a strong euro. Unemployment also remained above 4 million.
    Tax revenues are also sharply down by the equivalent of 10 billion dollars year on year, Eichel said, also citing the continuing high cost of 1990's reunification of East and West Germany for some of the country's economic problems.


    Eichel's remarks come as Chancellor Gerhard Schroeder tries to push through unpopular economic reforms designed to reduce unemployment benefits, pensions and litigation that makes it difficult for employers to dismiss workers.

    Eichel: supports
    Agenda 2010

    Thousands of opponents of the package, which Mr Schroeder calls "Agenda 2010", marched through towns across Germany on Saturday in protest, holding banners saying "Yes to reform, no to social regression".
    Head of Germany's biggest trade union federation DBG, Michael Sommer, told a march in the northern industrial city of Hanover that he was not opposed to the government but wanted it to start acting like a Social Democrat-Green coalition.

    Germany's stagnation has worrying implications for the whole of Europe as their economy accounts for more than one-third of total eurozone output, and figures indicate that it is performing much worse than the wider European average.
    While countries such as France have so far avoided the worst effects of slowdown and not gone over the 3% of GDP limit on deficits, Germany's possible slide into recession is likely to drag the whole region down, according to Thomas Knip, the editor of the Handelsblad, a German daily newspaper.

    “The news is coming through that the German economy had contracted by 0.2%, after shrinking last quarter by 0.3%, the textbook definition of recession,” adding that he believes things will get worse before they get better.

    “Problems come from the fact that consumers don't have enough money to spend, and on top of that exports are suffering from the strong Euro. So that's the double whammy for the German economy.”


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