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Europe

European Press Review: Schröder's Tax-cutting Strategy on Shaky Ground

European newspapers reflect on German Chancellor Schröder’s latest attempt to revive the economy by pushing tax cuts and the defeat of trade unions after the collapse of a month-long strike in eastern Germany.

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German cabinet members met at a rare weekend retreat to discuss structural reforms and tax policy.

Munich-based Münchener Merkur comments on the German government’s radical plans to introduce a multi-billion euro tax relief package. The paper writes that with the unmistakable instinct of a power politician Chancellor Gerhard Schröder is forcing the opposition conservatives into a hopeless situation: within a matter of weeks, he has taken over their complete election program, and in a coup-like move has also brought his astonished Social Democrats into line with Britain’s New Labor.

Another German daily, the Kieler Nachrichten thinks the Berlin coalition has suddenly adopted the better arguments. Tax reductions whose benefit for the population would again immediately be neutralized by radical cuts would not have a positive impact on the economy. But, the paper continues, that’s really what it’s all about at the moment, because financing the tax cuts will mean an even bigger rise in new borrowing.

Britain’s Financial Times thinks Mr Schröder’s strategy is on shaky ground in view of the already precarious nature of Germany’s state finances. The paper points out that the 2004 budget is based on a growth projection of 2 per cent for next year, which at present appears very ambitious. Besides, the London-based daily adds, the additional tax cuts will leave an additional 16 billion-euro hole in the budgets of the federal, regional and governments, half of which will have to be borne by Berlin.

After last weekend’s landmark defeat in strike action in eastern Germany’s engineering sector by one of Germany’s most powerful trade unions, IG-Metall, the Swiss paper Basler Zeitung writes that employers have learnt that compromises - irrespective of the consequences - are unreasonable. It thinks IG-Metall’s massive climbdown marks the end of collective wage agreements for an entire region, (the usual practice hitherto in Germany), adding that employers and unions are being forced into new roles with a different responsibility.

Germany’s Frankfurter Allgemeine Zeitung also thinks the failed strike represents a turning point in uniform wage agreements, saying that the east had shown that resistance pays off – resistance to senseless and economically- disastrous demands for equal pay. It is no coincidence, the daily continues, that the union’s influence has been weakened in the midst of a fierce reform debate in Germany, and maintains that Chancellor Gerhard Schröder had some part in it, since he has so far managed to keep the trade unions at arms length in the debate.

Dresden’s Sächsische Zeitung writes that hard-liners on both sides should now have finally realized how employees and their bosses really make progress: by introducing appropriate rules on a firm by firm basis in a bid to make also Germany’s industry as flexible and fast as it is in neighboring countries. If this method succeeds and catches on nationally, the paper concludes, then this country can also prove that it capable of reform.