Merkel sees tough times ahead as Germany battles crisis (Roundup)

Nov 10, 2009, 12:04 GMT

Berlin - German chancellor Angela Merkel painted a bleak picture of the economy in the year ahead Tuesday, saying the country's problems would likely worsen before they got better.

Merkel, fresh from Monday's celebrations of the 20th anniversary of the fall of the Berlin wall, laid out her new government's plan to the German parliament.

Merkel's Christian Democrats (CDU/CSU) won a new mandate to govern along with the liberal Free Democrats in the September 27 general election.

'Germany is facing a test such as it has never had since reunification,' the chancellor said, adding that unemployment was likely to rise as the full effects of the global economic crisis were felt in the country.

Germany's economy is largely oriented toward exporting goods around the world, but is now suffering its deepest post-war recession as consumers and firms in other countries have cut spending.

Merkel called on her party and the country to face the challenges ahead.

'We can fail, or we can succeed. Both are possible. I, and we, want to succeed,' she said.

'We must overcome the effects of the global economic crisis,' Merkel said, adding that major German banks were still dependent on state aid, and that the financial markets were still weak.

'To provide growth, that is our goal,' she said.

The new centre-right coalition has been heavily criticised in recent weeks for proposing tax cuts - which it says are vital to stimulate the economy - even as Germany faces record debt.

The government plans a 25-billion-euro (37.4 billion dollars) reform of the tax structure in 2011, lowering income taxes, particularly for the middle class.

'Simple, low and just: That is the requirement,' the chancellor said.

German government debt is expected to balloon to 2 trillion euros by 2013, dwarfing the previous record of 40 billion euros of deficit in 1996.

The chancellor however ruled out any massive savings program, and urged the parliament to pass the government's third economic stimulus package, which contains some 22 billion euros of relief measures, before Christmas.

German Finance Minister Wolfgang Schaeuble said in Brussels, where European finance ministers were meeting Tuesday to discuss budget deficits, that Berlin would attempt to reduce new borrowing to under the EU mandated 3 per cent of GDP by 2013.

Leader of the opposition, former foreign minister Frank-Walter Steinmeier, lambasted the government for what he called its 'false start,' saying that the country was pushing debt onto future generations.

   The chancellor went on to hit out at General Motors, the parent of major European carmaker Opel, who last week suddenly decided not to sell the firm after months of sale negotiations.

   'I greatly regret this decision,' Merkel said, adding that Opel workers had been 'deeply disappointed'.

   GM would, therefore, have to pay the lion's share of costs to restructure the ailing carmaker. The German government had promised billions of euros in state aid to Opel's prospective buyer.

Merkel announced that she planned to travel to Copenhagen in December to attend the UN climate summit there.

'A failure of the Copenhagen conference would set international climate policy back by years.

'Now we are expecting a contribution from the US and countries like China and India,' she declared.

The chancellor also called for closer dialogue with Russia, and defended Germany's military involvement in the war in Afghanistan.