Merkel Defends Coalition Budget Plan

Coalition representatives said the plan puts Germany on a good path toward growth but opponents referred to a "lack of will for reform" in the Bundestag debate.

The 2006 budget aims to refurbish, reform and invest, Merkel told the Bundestag Wednesday. But the opposition urged the government to attach the budget to an overall general change in its labor policies.

The budget, put forth by Social Democrat Finance Minister Peer Steinbrück, is a reform that allows for growth, Merkel said.

"We need to reduce our mountains of debt, but we can't do everything at once," the chancellor told the Bundestag.

Wolfgang Gerhardt, parliamentary party chief of the free-market liberal FDP party, called for the new government to "move away from the Social Democrat concept." He added that the current coalition relies too much on the "old Social Democrat war chest of labor policies" that have led to the current figure of five million jobless in Germany.

As per the plan, the German government will again be living beyond its means in 2006: 50 billion euros ($60 billion) in this year's budget of 261 billion euros are not covered by state revenues.

Lots of borrowing

That's why the Steinbrück plan relies heavily on fresh borrowing -- totaling about 38 billion euros this year -- and on selling off state property to meet the expense.

In order to be able to do that he has declared a state of fiscal emergency that allows him to ignore a clause in the constitution stipulating that new government debts must not overshoot investment spending by the state.

The finance minister told parliament on Tuesday that the measure was needed to boost the economy and gain financial room to maneuver for greater consolidation in 2007.

"The 2006 budget is intended to create stronger economic growth and so provide the necessary tailwind to achieve our ambitious goals in 2007," he said. "Next year we are planning to invest considerably more and notably drive our deficit below the EU's 3 percent limit."

Staggering national debt

The fresh borrowing, however, will increase Germany's national debt to a staggering 900 billion euros. This mountain of debt alone requires servicing by the state to the tune of 40 billion euros in the current year. Meanwhile these interest payments coupled with staff expenditures, state contributions to the pensions system and huge spending on social welfare make up two-thirds of the entire budget.

But Steinbrück warned against populist calls from the opposition demanding sweeping cuts to these costs.

Despite the criticism, Christian Socialist Union politician Peter Ramsauer said he was optimistic that the coalition could find a compromise, at least when it came to health care reform.