GERMANY must make savage cuts in the welfare state in order to prevent a collapse in the national economy, the Chancellor, Mr Helmut Kohl, admitted for the first time yesterday.
"We will be forced to introduce massive savings in 1997. We must do everything to limit the rise of the deficit."
Though the Chancellor gave no details, pensions, unemployment benefit and the national health service are likely to be the main targets, but infrastructure projects will also suffer. The government's costly move to Berlin in 1999 could he the most spectacular casualty.
The shortfall between government revenue and expenditure also threatens another important undertaking scheduled for 1999 European Monetary Union. Under the rules of the Maastricht treaty, aspiring members must bring the budget deficit down to 3 per cent of GDP, a goal which eluded Bonn last year.
As the economy bumps along the bottom, the stagnant tax income is not keeping pace with the welfare state's burgeoning expenditure, weighed down by payments to 4.3 million jobless the highest since 1945. While Bonn confidently predicts an upswing in industry in the second half of the year, the opposition argues that it will not be powerful enough to reduce unemployment.
Economists are only now coming to grips with the effects of the unforeseen recession, and their figures make horrendous reading. Yesterday the opposition Social Democrats issued a paper claiming that there would be a DM100 billion (£43 million) shortfall in tax revenue in 1997, and similar gaps in 1998 and 1999.
The government's true intentions will not be revealed, however, until this weekend's provincial elections where the fate of Mr Kohl's coalition partners, the Free Democrats, hangs by a thread. An adverse vote on Sunday could undermine the government.
It remains vulnerable to the charge that it is placing the destiny of Europe above the fate of Germany's unemployed workers. Mr Kohl's rhetoric, drawing on memories of past wars fought on German soil, is beginning to lose its attraction. The Chancellor is, therefore, planning a re launch of his Eurocampaign with the argument that postponement of monetary union would send the deutschmark sky high, bankrupting Germany's export driven industry and putting millions more out of work.
