12/01/2008 (11:18 pm)
Merkel Tells Party It Must ‘Swim Against the Tide’
Chancellor Angela Merkel swept aside calls to cut taxes now rather than wait until after next year’s national election, saying that her party “must have the courage to swim against the tide” to tackle the economic slowdown.
A meeting of her coalition on Jan. 5 will review the economic situation and consider whether further steps are needed to mitigate the worst recession in 12 years, Merkel said today in a speech to a convention of her Christian Democratic Union in Stuttgart.
“Germany will keep all its options open to combat the impact of the global crisis effectively,” she said. “I emphasize: all options.” At the same time, “what we won’t do is undertake a structural overhaul of the tax system.” Instead, any measures will be “temporary economy stimuli that have immediate effect.”
The chancellor’s resistance to immediate tax cuts flies in the face of calls from industry, economists and sections of her own party to provide a fiscal stimulus to help the economy, Europe’s biggest, ride out the global downturn. Retail sales unexpectedly fell in October, the Federal Statistics Office said today, suggesting a more severe recession than first predicted.
Election ‘Promises’
“Merkel wants to keep her tax gifts as promises for the election — that’s irresponsible and possibly even a grave mistake,” Thomas Mayer, chief European economist at Deutsche Bank AG in London, said in an interview. “The economy is faltering and she needs to stimulate private consumption, which has been stagnating for years.”
Merkel’s position was strengthened after leading party members yesterday backed her proposal to postpone any tax overhaul until after the national election in September 2009. She received further support today when she was re-elected party chairwoman with 94.8 percent of the ballots cast, an increase on the 93.1 percent backing she won in 2006.
Still, Germany has attracted criticism from economists and international media for the value of its stimulus measures in comparison to other countries. Merkel’s Cabinet last month agreed on a program of measures costing 32 billion euros over two years, equivalent to 1.3 percent of its gross domestic product, the chancellor said today. That compares to Italy’s 80 billion-euro package and a program of 38 billion euros in Spain.
‘Senseless Competition’
Germany won’t get into a “senseless competition” with other countries over how many billions to spend bolstering the economy, Merkel said.
In Britain, Prime Minister Gordon Brown’s government last week reduced the U.K.’s sales tax to 15 percent from 17.5 percent to spur consumer demand. Merkel should follow suit with a temporary cut in value-added tax, a sales tax, to stimulate purchases of goods from cars to computers, according to Deutsche Bank’s Mayer. “The U.K.’s move to cut VAT is the right in decision in the wrong country,” he said payday loans cash.
Bild, Germany’s biggest-selling newspaper, meanwhile urged Merkel in today’s edition to emulate Ludwig Erhard, “the father of Germany’s economic miracle” after World War II, and “save prosperity for all.” Lowering taxes “offers hope” to consumers and business, Bild cited Erhard as having said.
“The earlier the reform of taxes, the better for growth and jobs,” Economy Minister Michael Glos, from the CDU’s Bavarian sister party, the Christian Social Union, said in an editorial published today on the ministry Web site.
Glos joins Merkel’s five independent economic advisers, or “wise men,” who called on the government in their annual report published Nov. 12 to stimulate the economy by increasing disposable income. They urged additional measures of as much as 1 percent of GDP, or about 25 billion euros, on top of the program already agreed on.
‘Year of Bad News’
“Germany will continue to analyze the economic situation,” Merkel told as many as 1,000 delegates registered for the convention. “Since we know that 2009 will be a year of bad news, we will with our stimulus measures build a bridge for investment and employment, a bridge for our citizens and companies, ensuring that recovery takes place in 2010.”
The Social Democrats, Merkel’s coalition partners and rivals at next year’s election, oppose tax cuts, arguing that the government should hold to its commitment to balance the federal budget.
‘Gunpowder Dry’
“We should keep our gunpowder dry for now,” Foreign Minister Frank-Walter Steinmeier, the Social Democrat who will be Merkel’s opponent for the chancellorship, said in an interview today with the newspaper Handelsblatt. “I’m skeptical of taking a watering can and spreading benevolence across the country — that goes for tax cuts for people who seem to be able to save enough already.”
The coalition’s economic-stimulus package and 500 billion- euro bank-rescue program have already forced it to abandon a plan to balance the budget by 2011. The government will not “lose sight” of its budget goal, and will pursue the target in the next legislative period after the election, Merkel said.
Merkel, whose party faces a state election in Germany’s financial heartland of Hesse on Jan. 18, followed by three more state elections in August before the national vote in September, said 2009 will be a “super-election year.”
Even so, faced with the global economic crisis, “electioneering by the main parties is definitely on a low flame right now,” Hans-Juergen Hoffmann, managing director of Berlin-based polling company Psephos GmbH, said in an interview. “The parties have to pull together and voters know this.”