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Germany on Austerity Track

But Germany's states and cities are cool to Finance Minister Hans Eichel's grand plans to reduce Germany's debt down to zero by 2004.


Finance Minister Hans Eichel wants more cash in hand.

It’s an ambitious goal.

Fresh from near humiliation at the hands of the European Commission, Germany’s Finance Minister Hans Eichel is unveiling plans to bring the country’s 50 billion euro budget deficit down to zero, or close to it, by 2004.

Germany’s deficit is 2.7 percent of its Gross Domestic Product, dangerously close to the 3 percent limit over which the 15 member states of the European Union have pledged not to cross.

The statistic almost earned Germany, and member state Portugal, a "blue letter" of warning from Brussels, setting off alarm bells in the German government and sparking criticisms by opposition politicians.

Eichel said his office was looking at every possible way of saving money but a spokesman denied a report that he had already drawn up a list including double-digit reductions in unemployment money and home-buying subsidies.

Calling for solidarity in an election year

The minister, a member of the Chancellor Gerhard Schröder’s ruling Social Democrats, has called on German cities and states to cooperate in his "national stability pact." Schröder, who goes for re-election this year, said his party his fully behind his finance minister.

"The requirements are that the states do their part and the economy grows," Schröder said on Monday.

The stakes are high for Schröder and his social democrats who are struggling to come up with solutions for Germany’s economic slump in an election year. The chancellor faces stiff opposition from Christian Democrat Union and Christian Social Union candidate Edmund Stoiber, currently the economic bull Bavaria.

Cool reception, outright rejection

Reception to his finance minister’s plans have as a result, split more or less along party lines among Germany’s state premiers. Eichel faces the most vehement opposition in Bavaria and Hesse, home of Frankfurt, and led by Christian Democrat Roland Koch.

But Eichel also has doubters in his own party. The Social Democrat premiers of Lower Saxony and Rhineland Palatinate have said they will support the pact, but are already struggling financially.

"I have a growing student population, I need teachers," Kurt Beck, then premier of Rhineland Palatinate, said.

The association that represents Germany’s cities has already rejected Eichel’s belt-tightening.

"Inconceivable," said Petra Roth, the Christian Democratic Mayor of Frankfurt and vice chair of the German Association of Cities.

Her city is just one of several major German cities struggling with deficits.

Eichel, for his part, said the debt must not necessarily be reduced to zero. Between 10 and 12 billion euro debt would be acceptable.

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