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Germany

German government unveils unprecedented austerity plan

German Chancellor Angela Merkel has announced an unprecedented austerity package involving initial spending cuts of 11.2 billion euros beginning in 2011. The government hopes to save 80 billion euros by 2014.

Chancellor Angela Merkel

Merkel announced the austerity plan at a press conference in Berlin

German Chancellor Angela Merkel has announced an unprecedented austerity package involving initial spending cuts of 11.2 billion euros beginning in 2011. The government hopes to save 80 billion euros by 2014.

The German government on Monday unveiled the largest package of austerity measures in the country's history, with deep cuts in social welfare programs and the public sector.

The plan will see savings of 11.2 billion euros ($13.4 billion) in the 2011 budget. The following years would see incrementally increasing savings adding up to 80 billion euros by 2014.

The package announced is much larger than expected, with many analysts having predicted cuts of around 50 billion euros. The government, a coalition of Chancellor Angela Merkel's Christian Democrats and the liberal Free Democrats, is now pushing larger cuts over a shorter period of time.

Total budget cuts are to rise to 17.1 billion euros in 2012, 25.7 billion euros in 2013 and 32.4 billion euros in 2014. The measures include 10,000 public sector job cuts over four years and reductions in tax cuts and various state subsidies.

Announcing the plan, Merkel said Germany's pension rate would not change, nor would the coalition government's planned reforms to health care.

She said however the German armed forces, the Bundeswehr, would undergo significant structural reform, with Defense Minister Karl-Theodor zu Guttenberg earlier having been asked to examine ways the 250,000-strong Bundeswehr could shed some 40,000 personnel.

Germany's budget allocations for 2010

Germany's 2011 will differ greatly from its 2010 budget

Merkel: no choice

Flanked by Free Democrats leader Guido Westerwelle, who is also Germany's vice chancellor, Merkel said there was no other alternative to the savings plan.

"I can say that the last few hours have seen an historic show of strength on the part of our government," she said. "Germany has never agreed to an austerity package to this extent, but these cuts have to be made in order for the country to establish a stable economic future."

Merkel added that the austerity package would mean Germany would be in compliance with budget deficit limits stipulated under the European Stability and Growth Pact by 2013 at the latest.

Cabinet ministers met for 11 hours from Sunday afternoon into Monday morning to discuss the savings plan. Merkel reportedly held meetings with the entire cabinet at noon after meeting individually with the labor, transport and defense ministers.

Opposition united

SPD leader Sigmar Gabriel

Gabriel came out in opposition to the government plan

Criticism of the austerity measures circulated among opposition parties immediately after the plan was announced.

The leader of the opposition Social Democrats, Sigmar Gabriel, called the plans poor and immature, saying the Merkel government had acted in the interests of the "wealthy and the clientele of the Free Democrats."

Adolf Bauer, president of the German Association for Social Affairs, said the austerity plan meant "social cohesion in Germany is really going to be tested."

Greens parliamentary group leader Volker Beck said the government had avoided increasing its revenue by drawing more from the winners of the financial crisis and the wealthy.

The Left Party took a similar line, labeling the savings package socially unfair, saying it did not amount to saving, but rather to cutting.

"It's a matter of a further redistribution from the poor to the rich," said party president Gesine Loetzsch.

Author: Darren Mara, Andrew Bowen (dpa/Reuters)

Editor: Chuck Penfold

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