By Brian Parkin and Tony Czuczka
June 7 (Bloomberg) — Chancellor Angela Merkel‘s Cabinet is meeting to tie up a “decisive” round of budget cuts that will shape government policy for years to come, fueling disagreement with U.S. officials who favor measures to step up growth.
Ministers met for 11 hours until early today to identify potential savings of 10 billion euros ($12 billion) a year, after Merkel said Europe’s debt crisis underscores the need for budget tightening to ensure the euro’s stability. A large part of the cuts were agreed overnight, a government official who spoke on customary condition of anonymity said by phone. Talks resumed at 9 a.m. Berlin time.
“It’s not exaggerated to say that this Cabinet meeting will give important direction for Germany in coming years, years that will be decisive,” Merkel told reporters yesterday before ministers met in the Chancellery. She is scheduled to hold talks with French President Nicolas Sarkozy in Berlin later today.
Merkel’s government is reining in its deficit and urging fellow euro-region states to do likewise to thwart a sovereign- debt crisis. The savings risk further alienating voters angry at Germany’s 148 billion-euro share of a European plan to backstop the euro and clash with a June 5 call by Treasury Secretary Timothy F. Geithner for “stronger domestic demand growth” in European countries like Germany that have trade surpluses.
At stake for Merkel is “the credibility of Germany as one of the countries forcing the others to start fiscal tightening,” Juergen Michels, chief euro-area economist at Citigroup Inc. in London, said in a phone interview on June 4. “It’s a very fine line between fiscal tightening and not choking off the economy.”
Bund Yield Record
German 10-year bunds rose, pushing the yield down to a record low today, as concern the debt crisis may spread boosted demand for the perceived safety of the 16-nation currency’s benchmark securities. The yield fell three basis points to 2.55 percent as of 8:52 a.m. in London. It reached 2.548 percent, according to Bloomberg generic data, the lowest since at least 1989, the year the Berlin Wall fell. The euro fell 0.2 percent to $1.1940 at 10:49 a.m. in Frankfurt.
Tax increases, cuts in welfare and jobless benefits and the loss of about 10,000 civil service posts are among the German measures being considered, Deutsche Presse-Agentur reported, citing unnamed government sources. Utilities face 2.3 billion euros in higher taxes if parliament agrees to extend the running time of German nuclear-power plants, the news agency said.
The Defense Ministry said last week there are “no taboos” when it comes to potential savings. Merkel’s Cabinet seeks to cut almost 30 billion euros to 2013, Bild newspaper said June 5, without saying how it got the information.
Germany’s budget deficit is forecast to rise to 5.5 percent of gross domestic product this year. While that’s less than half the 13.6 percent of GDP in Greece last year and smaller than the U.K.’s 11.1 percent for the fiscal year to March 2010, it’s still almost double the European Union’s 3 percent limit.
Germany’s top AAA rating is at risk unless Merkel’s government agrees on deficit cuts and persuades other euro-area nations to do likewise, Kurt Lauk, who heads a business lobby within Merkel’s Christian Democratic Union party, told reporters on June 2. “We’re at a decisive turning point,” he said.
Spain, which lost its top grade from Fitch Ratings last month, has seen government borrowing costs soar to a euro-era record, even after Prime Minister Jose Luis Rodriguez Zapatero announced the deepest budget cuts in at least three decades.
Roubini on Stimulus
While countries with large debt such as Italy should trim deficits and contain wages, Germany should spend more and raise wages to help fuel demand in the euro area, Nouriel Roubini, the New York University economist who predicted the financial crisis, said in an interview.
“Germany can afford having more stimulus not just this year but next year,” Roubini said June 5 in Trento, Italy.
Finance Minister Wolfgang Schaeuble, in an interview en route to a meeting of Group of 20 counterparts including Geithner in Busan, South Korea, said there’s no disagreement “in principle” over the need to reduce deficits, only over the pace at which action is taken.
While “it’s possible that the U.S. could use accelerating growth over time to help them reduce their deficits, in Europe we can’t count on growth alone to mend our fiscal position,” Schaeuble said June 4. “I don’t share the view that reducing deficits and strengthening growth are mutually exclusive.”
To contact the reporters on this story: Brian Parkin in Berlin at email@example.com; Tony Czuczka in Berlin at firstname.lastname@example.org. source http://www.bloomberg.com/apps/news?pid=20601087&sid=aVGqrlbamDjE
The major difference is that the Americans want to print money and spend
And the Europeans and particular the Germans want to tighten and save and stop waist!
To my mind the most prudent are of course the Europeans but it would suggest that there is a lot more pain heading our way ,with our European partners in contraction mode and the Germans demanding more austerity measures from all the other EU countries I can’t see where the jobs growth will come from
Even when our own incompetent government will be telling that Ireland is now growing again
Without growth in jobs this is just a mirage that soon will fade again.
The Billions that are been poured down the toxic banks toilets will not save or generate jobs
the billions so far have not even stabilized the situation, and with the next phase of the depression now coming down the track at us the government will need to borrow more money to plug even more holes in the toxic Anglo Irish Bank, together with the disaster that is NAMA there is no way we can borrow enough money and remain financial viable as an independent sovereign state !
Somebody please stop this madness
David Mc Williams has a new article ” Kill Anglo to save Ireland” (http://www.davidmcwilliams.ie/2010/06/07/kill-anglo-to-save-ireland) all independent minded people should take the time to read
We cannot afford to just sit back and allow our sovereign nation disappear in an ocean of debt
we owe it to our children and ourselves .