THE German Economics Minister has insisted the timetable and convergence criteria agreed at Maastricht for EMU must be maintained despite gloomy official forecasts for the German economy.
Unveiling the government's annual economic report, Mr Guenter Rexrodt conceded Germany would get off to a slower economic start this year than he had hoped. But he claimed a series of measures to create jobs and stimulate growth would improve German competitiveness and cut unemployment in half by the year 2000. "It is like a vitamin dose that strengthens the body's functions and its energy," he said.
The plan involves a simplification of Germany's complex tax system, reducing some taxes on business and cutting social welfare costs paid by employers.
Social welfare cuts will mainly affect early retirement rights, publicly funded nursing care and Germany's generous system of health resort holidays for employees. The public service workforce will be reduced and the government's privatisation programme will be accelerated.
Mr Rexrodt denied Germany is entering a recession despite a projected growth rate of just 1.5 per cent, with unemployment rising to 10 per cent and the public deficit standing at 3.6 per cent.
Finance Minister Mr Theo Waigel revealed that Bonn consulted the French government about the economic action plan in an effort to coordinate measures in the two countries. He said Germany had an economic responsibility beyond its own borders and decisions made in Bonn had an effect on other economies. "Germany has no small weight if we get our country in order and till the field," he added.
France announced its own plan to cut unemployment yesterday, cutting interest on government run savings accounts to encourage the public to spend more and offering tax cuts for big spenders.
The decision to coordinate economic action between Bonn and Paris reflects the German government's determination to maintain the momentum towards EMU despite the economic difficulties experienced in both countries. There are growing signs that, despite Mr Waigel's earlier pressure to tighten the convergence criteria, some German officials are moving towards a more relaxed attitude.
Germany is reluctant to take the lead in calling for a weakening of the convergence criteria and popular resistance to abandoning the deutschmark in favour of the euro means that German politicians must be able to convince the public that the new currency will be just as stable as the old.
The dilemma EMU presents for Germany centres on the choice between risking recession and higher unemployment by sticking rigidly to the Maastricht conditions and timetable or encouraging currency speculators by abandoning the project. Most economists believe that cancellation or postponement of EMU would result in a sharp rise in the value of the mark.
