Budget Debate

Germany is to take a different approach to battling the global economic crisis than Britain.

On Monday, November 24, the British government announced it was cutting VAT (value added tax) in an effort to stimulate consumer demand. On Tuesday, German Finance Minister Peer Steinbrueck told the Bundestag there was no chance of Germany following suit.

"If we do everything the grand coalition has proposed and decided, then it won't work if the state has to make do with less and less money," Steinbrueck told parliamentarians. "It simply won't work."

The budget proposed by the governing Conservative-Social Democratic cabinet does contain some tax breaks, for instance on new car purchases, and it also authorizes 18.5 billion euros ($24 billion) in deficit spending.

Contradicting most of the experts, Steinbrueck also said the German economy could possibly grow in 2009, by 0.2 percent, although he said that a drop of one percent was also possible.

Parliamentarians from both governing parties defended the budget, saying that financial relief and economic stimulus measures already taken needed to be given time to work.

But the opposition isn't happy with the government's moderate approach.

Not getting it?

Juergen Koppelin from the pro-business Free Democrats warned that the figures in the budget, especially concerning revenues, were unreliable and unrealistic.

And the Left Party accused Steinbrueck of putting savings before citizens' needs.

"The government still hasn't recognized the gravity of the situation," Left Party representative Gesinde Loetzsch told the Bundestag.

Meanwhile, Green Party finance expert Christine Scheel said the governing coalition had yet to present an open and honest analysis of the economic situation.

Debates about what is arguably the most contentious budget in the history of the Federal Republic of Germany are set to continue until Friday.

The economic signals emerging on Tuesday provided evidence both for and against the government's "wait and see" approach.

Dark clouds, silver linings

On Tuesday morning, the Organization for Economic Cooperation and Development, OECD, issued a report saying Germany would be especially hard-nit by global recession.

The organization predicted that German GDP would shrink by 0.9 percent in 2009 and that unemployment would rise to over eight percent -- the equivalent of 700,000 lost jobs.

Still the OECD was not very critical of the measures taken by the German government to fight recession.

"We welcome the program, even if it could be somewhat larger," said OECD chief economist Klaus Schmidt-Hebbel at the presentation of the report in Paris.

And a separate report issued by the German Society for Consumer Research suggested that German shoppers are becoming slightly more optimistic.

The report said that both Germans' willingness to spend and the general consumer climate index had risen in November -- although economic expectations overall continued to decline.

"The GFK does not expect the Christmas shopping season to be as bad as generally expected," said the Society's CEO Klaus Wuebbenhorst. "Consumers will splash out a bit for Christmas."

The Society said the optimism was due partly to expectations that falling oil prices would increase people's disposable income.

And a poll carried out by the FORSA Institute said that two-thirds of Germans don't plan to make any cut-backs in their personal expenditures -- despite the economic crisis.