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Germany needs `big spending cuts` to reduce deficit

Last Updated: Saturday, January 9, 2010 - 22:48

Berlin: Germany`s finance minister Wolfgang Schaeuble says the centre-right government faces the "colossal" task of making major spending cuts to reduce the public deficit starting in 2011.

Germany`s 2010 budget foresees a record 85.8 billion euros (123.1 billion dollars) in public debt, and the government will need to start "preparing the citizens for spending cuts" to take effect next year, said Schaeuble in an interview with the Tagesspiegel am Sonntag newspaper to be published Sunday.

Chancellor Angela Merkel`s coalition of the Christian-Democrat bloc and the business-friendly Free Democrats, formed after victory in September`s polls, must deal with this "colossal" task which will call for "a lot of political agreement," Schaeuble added.

The government expects the economy to grow 1.2 percent this year after slumping around five percent in 2009 in the worst decline since World War II.

Stimulating growth in Europe`s biggest economy has been one the most contentious issues for the new coalition with experts saying the country can ill-afford proposed further tax cuts.

The conservative Merkel only narrowly succeeded in December to push through the upper house of parliament a first wave of tax cuts, worth 8.5 billion euros.

To help pull Germany out of recession, the government had decided to allow the deficit to grow in the short term, mainly by lowering taxes.

Schaeuble said the measures taken to reduce the deficit "will depend in part on how the economy is doing by May and, on other hand, what spending cuts the coalition is prepared to make."

He added: "Everyone needs to realise that we can only stimulate growth with lower taxes if at the same time we reduce spending."

Schaeuble also said Germany aims to bring the public deficit below the eurozone limit of three percent of gross domestic product by 2013.

Meanwhile, the newsmagazine Der Spiegel has reported the finance minister plans to delay the anticipated fiscal reforms until after 2011.

A spokesman for the minister, when contacted by AFP about the report, said it was "pure speculation".

The heads of the three parties in the ruling coalition are expected to meet about the divisive economic policy issues on January 17.

Bureau Report

First Published: Saturday, January 9, 2010 - 22:48
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