Budget cuts
June 3, 2010
It's no secret that the German government is on the brink of some serious belt-tightening to get its budget deficit under control. However, it is still unclear exactly what those measures will entail, and where the cuts will come from.
On Thursday, members of Chancellor Angela Merkel's cabinet are meeting to continue the debate on the issue ahead of a special session beginning on Sunday where concrete plans are expected to be made.
Berlin is on track to exceed the European Union's budget deficit limit of three percent of gross domestic product by a wide margin in 2010. The predicted five percent deficit is modest compared to the deficits in some other EU member states, but for Europe's largest economy and chief crusader for tougher budget discipline, it's still too much. Merkel's ruling center-right party hopes to slash the deficit with austerity measures beginning in 2011.
On the chopping block
The German government faces the mammoth task of saving 10 billion euros per year. Chancellor Merkel had previously declared pensions and education to be safe from the drastic savings measures that are expected to be applied to other areas.
Defence Minister Karl-Theodor zu Guttenberg has said steep military spending cuts would be necessary in light of the federal government's precarious financial position, and the German media offers all kinds of speculation as to what this could entail. The daily Stuttgarter Zeitung reports that the size of the German military could be slashed by 40 percent. There is also talk of abolishing Germany's mandatory military service completely.
Last weekend, Finance Minister Wolfgang Schaeuble signalled that Germans may have to endure a tax hike to get the country back on the right track. Merkel's government may consider whether to raise the value-added tax (VAT) to the full rate of 19 percent on certain items that currently benefit from a reduced rate of seven percent, the Reuters news agency reported.
mz/sh/reuters/dpa
Editor: Chuck Penfold