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Bonn government agrees to a common budget

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In the Perils-of-Pauline melodrama that has had pundits speculating for weeks about a breakup of Bonn's Social Democratic-Liberal coalition, the final answer (for now) is no.

The senior Social Democrats (SPD) and the junior Free Democrats (FDP) have knocked enough backbenchers' heads together after all to produce a common 1982 budget with an austere 4.2 percent increase.

The 241 billion mark ($98.4 billion) budget finally approved by the Cabinet Sept. 3 will thus represent a likely real drop of over 1 percent from 1981. It will cut social welfare slightly and bring this year's approximately 35 billion mark ($14.3 billion) deficit (4.5 percent of gross national product), the highest deficit in any major industrialized country except Italy) down to a less punishing 26.5 billion marks ($10.8 billion).

This will be accomplished by, among other measures, reducing unemployment payments slightly, reducing payments for second and third children in families by 20 marks a month, and increasing liquor and tobacco taxes.

In the item of main interest to the US, the rise in defense spending is to be kept in line with the overall budget rise. This will mean not only a failure to meet the 3 percent real annual increase pledged by NATO members, but even a drop in West Germany's military budget in real terms.

In presenting his government's budget to the public, Chancellor Helmut Schmidt expressed the hope that the cut in Indebtedness might help lower interest rates and stimulate the sluggish economy. Economists regard this as a vain hope, however, given the soaring US interest rates.

A warning light for the future is present in the "reservations" about the compromise budget put forward by both coalition partners. If unemployment rises sharply -- August figures already show a rate of 5.5 percent, the highest in 29 years, and the latest Deutsche Bank forecast expects the situation to worsen by year's end -- the Social Democrats intend to resurrect their orignal proposal for state investment to create jobs. If the deficit squeeze worsens, on the other hand, the Liberals intend to resurrect their contrary proposal for more extensive cuts in unemployment benefits.

Nobody is wildly happy about the new budget. The Social Democrats wanted to give their trade supporters that job creation program. The Liberals wanted to reduce sickness pay substantially; instead the issue was postponed for next year.

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