Faced With An Economy On The Brink Of A Renewed Downturn

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Researchers said it was clear that the world's oceans play a major role in queuing up rapid Faced with an economy on the brink of a renewed downturn, unemployment at a four-year high, there is probably nothing that Germany's chancellor, Gerhard Schroder, would like to do more than to spend his way out of trouble. The more immediate prospect of a strike by 3 million state workers has forced Mr. Schrfider to give Breitling Replica in to their pay demands, thereby making it harder still to rein in the deficit. New figures this week showed that, adjusting for seasonal trends, a further 28,000 Germans joined the unemployment lines last month, taking the total to 4.2 million, or 10.1% of the labor force.

Rising joblessness and a faltering economy helped to take Germany's budget deficit to an estimated 3.75% of GDP last year. Under the government's budget plans, including some unpopular tax rises, the gap is supposed to fall this year to 2.75%—i.e., within the EU's limit. Further economic weakness would mean lax revenues continuing to plunge and ...
... still higher spending on benefits, putting the deficit target even further out of reach, and thus bringing closer the prospect of the EU fining Germany up to euro 10 billion, 0.5% of its GDP. Besides raising taxes, Mr. Schroder has also started to implement a controversial plan to cut unemployment by loosening Germany's notoriously rigid labor laws. But to put the country back on track for growth and to fix the public finances, he needs to complete the labor reforms and to trim the country's over-generous social-security system. In this he faces strong opposition from the left wing of his Social Democrats (SPD).

The party's leaders met behind closed doors last week to try to paper over the cracks and agree on the way forward. The economy minister, Wolfgang Clement, presented proposals to loosen regulations for small and medium-sized businesses and cut their social-security contributions. The left said the proposals "belonged in lie rubbish bin" and proposed raiding the Bundesbank's reserves to finance small-business loans and new energy taxes. Nevertheless, the depth of the crisis seems to be forcing Mr. Schroder to ignore the dissenters and press on with reforms.

The chancellor is also at odds with the SPD's left, and indeed with a large chunk of German public) pinion, over Iraq. The left wants Germany, which has just begun a two-year term on the United Nations Security Council, to vote against any resolution authorizing a war. Mr. Schroder is now trying to Breitling Replica Watches improve his frosty relations with America by leaving open how Germany might vote on any new Security Council resolution m Iraq, and by allowing free movement to German-based American forces in the case of a war.