3rd UPDATE: Germany's Merkel: Need Tax Reliefs To Exit Slump
(Adds comments from Bruederle, Schaeuble in 9th paragraph)
By Andrea Thomas
Of DOW JONES NEWSWIRES
BERLIN -(Dow Jones)- German Chancellor Angela Merkel Tuesday defended her new
center-right government's planned tax cuts, saying they are needed to get the
country out of the worst economic crisis in sixty years.
Speaking at a conference organized by German magazines, Merkel said there is
no alternative to the government's growth promotion plans, which include tax
reliefs in 2010 and tax cuts from 2011 and amount to a total of EUR24 billion in
relief.
"If the global economic conditions don't improve, it will be a very difficult
path for us. That's why the government... has opted for growth. I indeed face
very critical treatment, as does the whole government, regarding the course that
we have chosen," said Merkel.
"But I just want to say, don't forget there has never been such an economic
slump in the 60-year history of the Federal Republic of Germany. The question
how quickly we will manage to get of this will be decisive for a lot," she said.
It is in our all interest "that we make progress quickly," she added.
Her comments come as the cabinet meets in Meseberg Tuesday for a two-day,
closed-door meeting to discuss the new government's program.
Speaking ahead of the meeting, Merkel told reporters that the cabinet aims "to
solve the difficult problems that our country is facing, such as overcoming the
economic crisis and the quick drawing up of the budget."
The ruling conservative Christian Democratic Union, the Bavarian Christian
Social Union sister party and the Free Democrats have been at odds in previous
days over the coalition's tax policy. While the Free Democrats insists on a far-
reaching reform of the taxation system, Finance Minster Wolfgang Schaeuble has
said there is currently no money for such a reform but only for income tax cuts.
Speaking at the sidelines of the meeting in Meseberg, Germany's Economics
Minister Rainer Bruederle said there is no conflict between cutting taxes and
consolidating the budget. "Without tax reliefs, we won't be able too boost
growth as much as needed," Bruederle said in televised comments. Finance
Minister Wolfgang Schaeuble stressed, however, that Germany's constitutional
debt limit rule has to be respected and the rule means that the federal
government's structural deficit must be reduced to around EUR10 billion by 2016.
Guido Westerwelle, the vice-chancellor and foreign minister, who heads the
Free Democrats, told reporters before the cabinet meeting that his party is "
very happy" with the so far approved economic stimulus measures for 2010 worth
some EUR8.5 billion.
"This is the right path. This will create jobs and this is the condition for
healthy public finances," said Westerwelle. The German government forecasts the
German economy to contract by 5% this year and to grow by 1.2% in 2010.
The plan to cut income taxes has earned criticism from European Union
officials and also from the council of economic advisers to the government,
because the government has failed to outline spending cuts and therefore risks
widening its budget gap.
However, the economics ministry said Tuesday that despite the recovery
underway, the economy still depends on fiscal stimulus.
"Available indicators hint at a continuation of the recovery during the final
quarter," the ministry said in its monthly report. "The German economy remains,
however, dependent on incentives that stabilize the economy. Its upward forces
aren't yet self-supporting and production capacity are still strongly
underutilized," it said.
-By Andrea Thomas, Dow Jones Newswires; +49-30-288-8410; andrea.thomas@
dowjones.com
(END) Dow Jones Newswires
11-17-091347ET
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