Germany needs big spending cuts, says minister

Germany's centre-right government faces the "colossal" task of making major spending cuts to reduce the public deficit starting in 2011, said Finance Minister Wolfgang Schaeuble yesterday.

Germany's 2010 budget foresees a record €85.8 billion (Dh454bn) in public debt, and the government will need to start "preparing the citizens for spending cuts" to take effect next year, Schaeuble said in an interview with the Tagesspiegel am Sonntag newspaper.

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 that will call for "a lot of political agreement", he said.

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

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 2009 to push through the upper house of parliament a first wave of tax cuts, worth €8.5bn.

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".

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