Vol. 74/No. 1      January 4, 2010

The ruling coalition government, which includes the Christian Democratic Union, the Christian Social Union, and the Free Democratic Party, is hoping that “stimulating” the economy through tax cuts, rising budget deficits, and record debt, will resolve the economic crisis.

They also hope to delay precipitating a confrontation with the working class. About 20 percent of the 2010 proposed budget is based on new government borrowing, with the deficit to increase to about 6 percent of its gross domestic product (GDP), double the limit set for countries in the European Union. The government’s debt will rise to 78 percent of GDP, up from 73 percent.

“What we are looking at frankly is the worst budget situation since the war [World War II],” stated Steffen Kampeter, deputy finance minister. The rising deficits and debt is essential “to prevent this dramatic economic situation from becoming worse,” asserted Finance Minister Wolfgang Schaüble.

This assessment comes on the heels of reports that in Greece, capitalist investors fear a government default because of mounting debts and a deficit four times above the EU-required 3 percent limit.

In presenting the 2010 draft budget to Chancellor Angela Merkel’s cabinet December 16, Schaüble expressed hopes that the economic crisis in Germany would soon be winding down. According to the Financial Times, he said that Germany is heading for a severe fiscal crackdown once the economic crisis is over. Reducing the budget deficit will “not be achieved with the conventional instruments,” he added.

Schaüble didn’t elaborate upon what unconventional measures the government would take, but the message was clear that social services for working people would be targeted for cuts.

Germany’s constitution requires a balanced federal budget by 2016 with debts to be reduced to 0.35 percent of GDP. This requires large spending cuts starting in 2011 for at least each of the next five years.

Among the programs currently on the chopping block is government funding to maintain workers on the payroll through shorter work weeks instead of layoffs. Government subsidies for this will end next year. According to the Ifo Institute for Economic Research in Munich, this will eliminate the jobs of 350,000 workers, raising the unemployment rate to 8.3 percent in 2010 from 7.9 percent this year. The Bundesbank predicts unemployment will rise from 3.4 million this year to 3.8 million in 2010.

The demand for industrial products from Germany collapsed at the end of 2008 and early 2009, with orders falling in February to a 10-year low. At the same time exports, a major component of the German economy, fell sharply. While exports have risen by about 12 percent from the low point in April, in October they were still almost 16 percent lower than a year earlier.

In October, employment in manufacturing dropped 4.6 percent. This included a 4.7 percent decline in the car industry, 5.1 percent in machinery, and 6.7 percent in the metal industry.

Against the backdrop of government demands for cutbacks, the Vendi union in Germany is demanding a 5 percent pay raise for about 2 million government workers. Negotiations are due to start in January.
 
 
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