2005 Budget Splits Government, Opposition | Business| Economy and finance news from a German perspective | DW | 24.11.2004
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2005 Budget Splits Government, Opposition

The German parliament has begun a week of deliberations about the center-left government’s 2005 budget, with the opposition conservatives saying they will challenge the budget in Germany’s constitutional court.


Eichel's budget is unconstitutional, says the opposition

The opposition says the draft, which will face a vote on Friday, is unconstitutional and would breach the European Union’s Stability Pact budget deficit rules for the fourth year in a row.

The German government is planning to spend about €254 billion ($334 billion) next year -- €3 billion less than in 2004. The spending plan also foresees fresh public borrowing to the tune of €22 billion, and a record €17 billion euros in revenues from the privatization of government property.

After years of economic decline in Germany, Finance Minister Hans Eichel is banking on the start of an economic upswing. He predicts the economy will grow by 1.7 percent next year, pouring €190 billion of tax money into empty state coffers. Eichel said the proposed budget is the best possible, given the background of a weak economy and attempts by the opposition to block a substantial cut in state subsidies.

"Our efforts regarding expenditures are exhausted. What’s missing is a clear effort on the part of the conservative majority in the second chamber of parliament to help reduce tax breaks and subsidies. In addition, economic growth in the past was not as strong as we expected it to be," Eichel said during the budget debate.

Eichel claimed that the CDU-led majority in the upper house of parliament, the Bundesrat, has blocked €17 billion in government cutbacks. He said that is why he now has to resort to huge privatizations in order to balance the budget.

Privatization plans criticized

The conservative opposition derided the budget as being far too optimistic. Opposition members said Eichel’s growth figures are unrealistic, in light of economists' predictions of only 1.4 percent economic growth next year. The CDU’s finance expert, Friedrich Merz, in particular criticized Eichel's plan to raise new debts while selling off the last valuable bits of government property.

Friedrich Merz Galerie deutsche Politiker

CDU financial expert Friedrich Merz

"We can no longer tolerate your irresponsible attitude towards future generations, and will therefore lodge a complaint about the budget with the constitutional court. We must force you to end the prevailing crisis and bring the country back on the track of economic growth," Merz (photo) said on Wednesday.

Merz's assertion that the 2005 budget is unconstitutional because new borrowing would exceed government investments was dismissed by Anja Haiduk, budget spokeswomen for the Greens, junior partner in the government coalition.

Germany to again breach EU rules

"Next year’s budget will be constitutional, despite difficult economic times marked by a long period of stagnation," Haiduk said. "I’m convinced the German president will sign it into law after it passes through parliament. What concerns me is the EU Stability Pact. We are eager to keep the budget deficit below 3 percent, but everything will depend on how the economy develops next year."

Eichel is reckoning with a 2.9 percent budget deficit next year, after Germany breached the EU's 3 percent limit in 2002, 2003, and looks set to do so again this year. But economic analysts are skeptical, saying Germany can only reach that goal if Brussels were to change its deficit calculations.

Germany -- Europe's biggest paymaster -- has long been demanding that its net payments to Brussels be taken into consideration when making deficit calculations, as should domestic investment in science and research.

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