A long road

To put the brakes on the growing national deficit, Germany is planning to save more than 10 billion euros ($12 billion) each year starting in 2011. That's what the government has come up with after two days of talks in Berlin. But the question is whether these goals can be implemented.

Some described it as the "hour of truth" for the coalition and the enormous tension that had build up now seems to have given way to relief and the sense that the government has done it's job well - even better than expected.

But in fact it's only now that the real work begins. Almost everything agreed upon on Sunday and Monday at the Chancellery are merely declarations of intent, which still will have to be turned into legislation.

Two billion from nuclear plants?

Here's an example: The proposed tax on nuclear energy which is to bring in two billion euros each year. This is linked to the coalition's plans to extend the operating lifespans of nuclear plants. The problem however is that the extension hasn't even been passed into law yet. With a majority in the lower house of parliament Merkel can easily push it though - but in the upper house the government doesn't have a clear majority. A fifth of the planned total savings depends upon this measure being passed by both houses.

Starting in 2012, two million euros are to come from a tax on financial transactions by banks. But this can only happen if there is an agreement on European level on such a tax. That shows that much of the grand savings plan is on a weak footing.

Good news for climate protection

There are however, also good aspects to the budget cuts and tax reforms. Tax breaks will be cut for companies who use a a lot of energy. And while this will be a burden on those companies it will be good for the environment.

A tax on air traffic will force airlines to contribute to climate protection in a way that car owners and train operators already are forced to do.

All in all the new taxes and charges on companies and the cutting of tax privileges make up a fair share of the government's austerity package. This will help to counterbalance the harsh cuts in the social welfare sectors. But nonetheless Berlin will be faced with vocal protests against too many of the cuts affecting the less well off.

The pressure is on the government to implement its plans. From 2011 a constitutional provision severely limits the amount of new debt that the government can take on, so that any part of these budget cuts that it fails to implement will have to be made up for elsewhere.

It's a tough challenge for the government and it's one that will continue to put Berlin to the test over the next few years.

Author: Peter Stuetzle (ai)
Editor: Chuck Penfold