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Business

It's the Economy, Angela

On the same day that Angela Merkel basked in praise for a successful start in office, new jobless figures served as a reminder that ultimately, her administration will be judged by its performance on economic issues.

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Public sector strikes are just one of Merkel's economic problems

Surveys show that Germans see Chancellor Merkel as a strong leader, thanks to her aplomb on the international stage during her first 100 days in office. But now, there's an expectation that she will transfer this success to the domestic front, and especially the economy, which is sorely in need of sustained growth after years of sub-par performance.

Merkel could extend her honeymoon with the German people, the pundits say, but only if she can deliver the cuts in unemployment that her government has promised.

It's a tall order. While current economic data point to a recovery, experts say it's a shaky one at best.

Jobless figures

Arbeitsamt die Bundesagentur für Arbeit gibt die Arbeitslosenzahlen bekannt

February's unemployment statistics pointed to a slight recovery

February's jobless figures, released just as Merkel celebrated her first 100 days as chancellor, weren't all bad news. Although the unadjusted rate of unemployment showed a 12 percent increase to 5.05 million, when adjusted for seasonal swings, the number of unemployed people fell roughly 5,000 to 4.695 million. This decrease was less than the fall of 20,000 expected by economists, however.

On the plus side, business confidence in Germany is at a 14-year high point and consumers are feeling increasingly optimistic as the recovery in the eurozone's biggest economy gathers pace.

Still, experts are wary of being overly optimistic, cautioning that the current "feel-good" sentiment had yet to be reflected in real economic data.

Slow progress?

Many observers have voiced fears that the forced political alliance between the Social Democrats (SPD) and Merkel's Christian Democrats (CDU) will result in stagnation on pressing economic issues.

"When it comes to economics, I'm not disappointed, because I didn't expect too much to begin with," said Paul Clemens Friedhoff, economics expert for the opposition Free Democratic Party (FDP). "The two partners in this coalition are far from singing the same song."

Konsum - Kaufhaus

Consumer spending is going up now, but experts say that will change with the planned VAT hike

The CDU and SPD have managed to agree on a 25-billion euro ($30 billion) investment program to jump-start the economy, but critics say the program will be ineffectual come next year when consumer spending is expected to dip due to the CDU's three-percent increase in value-added tax (VAT).

No shortage of issues

Merkel's coalition will also have to make up its mind on how to regulate the low-wage sector. A debate about the introduction of a minimum wage for all sectors is in full swing now, but a decision is not expected before the second half of this year.

Among other economic issues demanding the government's attention is a corporate tax reform -- on the back burner for the moment because the coalition partners can’t agree on a sustainable model.

There's also the issue of fresh borrowing. In 2006, over 38 billion euros will be added to Germany's pile of debt, with a turnaround on this front only expected in 2007.

A more immediate concern is the current atmosphere of discontent, with tens of thousands of public-sector employees, including garbage collectors, hospital staff and child-care workers on strike all around the country in protest against longer working hours and cuts in bonuses.

"If we are seeing a recovery in Germany it is not a very

strong one," said Adam Posen, an economist at the Institute for International Economics in Washington. "Merkel will ultimately be judged on whether she can push through reforms and deliver on the economy."

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