Plagued with a deficit that could exceed €18 billion, reports over the weekend suggested Germany may abandon its goal of bringing its budget deficit below euro zone limits in 2005 to spark economic growth.
Germany's economic doldrums are a conundrum for the government.
A number of newspapers and TV stations reported over the weekend that German Chancellor Gerhard Schröder is considering spending billions of euros on an education and research package aimed at jumpstarting the lagging economy. But to finance the program, the government would have to abandon its course of fiscal austerity.
Responding to the uproar on Monday, Economics Minister Wolfgang Clement and Finance Minister Hans Eichel said the government would continue to go the course with its fiscal consolidation and reform policies. Eichel said the reports were "fundamentally false," adding Schröder had already announced the government's program last autumn and that it would be funded through previously slated subsidy cuts.
Government spokesman Bela Anda also denied the government was planning to conduct a U-turn on its fiscal policies, but reiterated that there "can't be any lasting growth without consolidation, but also that there can't be any successful consolidation without growth."
Shrinking growth, labor market
On Friday, the government sank its economic growth forecast from 1.7 percent to 1.5 for the year, and said that the number of unemployed would only drop by about 20,000 and the number of working Germans would actually drop by 80,000 from the previous year.
The latest wave of negative statistics helped sparked the discussion that Berlin would be willing to abandon its fiscal discipline in order to get the economy back on track.
"We're going to discuss the financing possibilities," Katrin Göring-Eckardt, the parliamentary group leader for the Green Party told Reuters. With the scope of the expected budget gap, "it won't be possible to make up for it with further cuts and savings to the budget." Göring-Eckardt said that although the government was not planning a fundamental change to its policy, it is in a "very, very difficult situation with its budget policy." The question, she said, was how the government could continue with its consolidation course while at the same time remaining politically viable.
Opposition: Schröder's 'Banana Republic'
The mixed signals coming out of the Chancellery and government ministries in Berlin sent opposition politicians onto the offensive on Monday.
Friedrich Merz, deputy parliamentary group leader for the conservative Christian Democratic Union accused the government of running a "banana republic." Germany currently has the greatest deficit in its history and the highest level of unemployment, Merz said, before going on to accuse Schröder's government of allowing high deficits and "giving away the savings accounts of our children to plunderers."
CDU chief Angela Merkel also called on Schröder to issue a "clear position this week" on the future of the government's budget and economic policy.