Schröder: Germany Open To Reducing Subsidies

Schröder: Germany Open To Reducing Subsidies

On July 1 Chancellor Gerhard Schröder issued an appeal to the opposition not to disappoint people's expectations with regard to constructive cooperation between Germany's political parties. Speaking at an economic conference in Berlin he said his government was open to proposals for reducing subsidies. The conference was also attended by EU Finance Commissioner Pedro Solbes.

Agenda 2010 reforms and a draft budget from the finance minister in keeping with constitutional requirements and EU stability pact rules formed the basis for the government's decision last weekend to put the third phase of the tax reform into effect a year earlier than originally planned. Speaking at an economic conference in Berlin on July 1 Chancellor Schröder said it is precisely because these structural reforms are currently being carried out that it was possible to move the tax reform up from 2005 to 2004, adding that the objective of this move is to generate impetus for growth and strengthen positive trends in the German economy.

Budget policy closely coordinated with EU

EU Finance Commissioner Solbes noted that he was confident Germany would comply with the three-percent criterion in 2004. Chancellor Schröder emphasized that questions regarding stability orientation, on the one hand, and growth impetus, on the other, need to be answered anew in each new situation and in close cooperation with the administrators of the European stability and growth pact. He added that Germany stands fully behind the objectives of the stability pact.

Implementation of the pact objectives requires a clear assessment of the economic situation, Schröder indicated. He observed that Germany is currently in its third year of modest and insufficient economic growth, noting that four percent of gross domestic product continues to be invested in the eastern states each year with a view to achieving equal living conditions in the eastern and western parts of the country. He said the German export sector had been able to expand market share over this period of time, documenting the strength of the country's economy. He indicated that 30 percent of total EU gross value added is accounted for by the German economy and that this gives Germany a special responsibility for economic growth in Europe.

Agenda 2010 backbone of structural reform

Schröder said the ambitious reforms being carried out under the Agenda 2010 program need to be seen in this economic context, adding that structural reasons for weak growth of the German economy have been visible for more than twenty years now and have been neglected. He indicated that the objective of the Agenda 2010 program is to make structural improvements that will save 45 billion euros in federal budget expenditure. Schröder noted that this objective can be attained with the planned measures and that the process has been initiated.

The first objective of the program is to reform the health care system, creating more transparency, greater cost-effectiveness, and administrative efficiency: The second core area of Agenda 2010 is a reform of the labor market in Germany. After hard-fought debates in the ranks of the SPD and with the labor unions the government has managed to create a significant low-wage sector since April 1 this year, something rather uncommon in Europe. Schröder noted that after only three months it is still too early to be able to see clear effects on unemployment figures.

Budget with realistic growth expectations

Schröder noted that the draft federal budget for the coming year takes all these reforms into account, adding that it is based on realistic and thus attainable growth expectations for 2004. He reaffirmed compliance with the European stability pact criteria, stating that Agenda 2010 and the draft budget for 2004 are moving in the same direction, i.e. both contain ambitious structural reforms.

Schröder appealed to the opposition not to disappoint people's expectations with regard to constructive cooperation between Germany's political parties. He said he is confident that the opposition will approve the government's proposals on reducing subsidies, adding that the government, in return, will be willing to discuss proposals put forward by the opposition.

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